Question 6 of 11: Pareto's Law in Mine Cost Management

Question 1.6: Pareto's Law in Mine Cost Management (6 marks, compulsory)

Question text not reproduced: the examination questions are © Engineers and Geoscientists BC. Open the official past paper (linked at the top of this page) to read the question, then follow the worked solution below.

1.6.1 – Applying Pareto's Law to cut drilling, truck and shovel costs. With full access to the accounting ledgers, break each cost centre's TOTAL operating cost down into its individual line-item accounts (fuel, tyres/undercarriage, bits/teeth/GET, major-component rebuilds, labour, consumables, lubricants, unscheduled-downtime cost, etc.), rank those accounts by dollar magnitude within each cost centre, and plot the cumulative-percentage-of-cost curve against the ranked accounts – a literal Pareto chart. Pareto's Law predicts that roughly 20% of the line items (the "vital few" – typically fuel, GET/wear parts, and major-component overhaul for drills and shovels; fuel, tyres and major-component rebuild for trucks) will account for roughly 80% of each centre's total cost. Concentrate improvement effort – renegotiated fuel/tyre supply contracts, a reliability-centred maintenance program targeting the specific components that fail most expensively, operator-training aimed at the practices (over-revving, harsh braking, poor drill-pattern execution) that most inflate those vital-few accounts – on that short list, rather than spreading limited engineering time evenly across dozens of minor accounts that collectively move the total by only a few percent.

1.6.2 – Conclusions for shovel loading costs. Applying the same ranking specifically to shovel loading cost typically shows that dipper teeth/GET wear, cable (or hydraulic hose/cylinder) replacement, major-component (swing, hoist, crowd, or pump/engine) rebuilds, and fuel together dominate the total – while dozens of smaller consumable and labour accounts individually move the total by well under 1% each. The engineering conclusion is that a shovel-loading cost-reduction program should be built around (a) a GET/wear-part management program (correct tooth selection, wear-pattern monitoring, timely replacement before secondary damage), (b) a condition-based maintenance program on the few major mechanical components, and (c) blast-fragmentation and dig-technique improvements that reduce cycle-time-driven fuel and component fatigue – NOT around micromanaging minor supply accounts, since Pareto's own curve shows those cannot move the total materially however tightly they are controlled.

1.6.3 – Computerized warehousing/parts-accounting system features. (i) A part-number master database cross-referenced to the ASSEMBLY/bill-of-materials (BOM) it belongs to, so a part can be searched EITHER by its own number/description OR by drilling down from the parent machine/assembly; (ii) OEM-to-alternate-supplier cross-reference numbers, so an equivalent part is found even when searched under a different manufacturer's catalogue number; (iii) a physical bin-location field (aisle/rack/shelf) returned with every search result, ideally paired with barcode or RFID tagging for scan-to-locate and scan-to-pick; (iv) real-time on-hand quantity, reserved/allocated quantity, and reorder-point/lead-time data, so stock-outs on critical items are flagged before they happen; (v) ABC/criticality classification (a direct application of Pareto's Law from 1.6.1–1.6.2 – the high-usage, high-cost, long-lead-time "A" items get tighter stocking control and more frequent cycle counts than low-value "C" items); and (vi) integration with the maintenance/CMMS work-order system, so a technician can locate and reserve a part directly from the work order that calls for it, closing the loop between the maintenance program targeted in 1.6.2 and the parts that support it.