Alice Winter, working on a summer internship at Qmont Mining, was trying to determine

how the supply systems for remote locations could be improved.

Qmont Mining

Qmont Mining, a major metals producer with headquarters in Vancouver, British

Columbia, had extensive holdings all over the Canadian North. Supply Management

had been completely decentralized until recently. A consulting study had recommended

a move to more centralized supply management, including purchasing and logistics.

The purchasing and store manager at Qmont's largest mine in British Columbia, Harry

Davidson, had been asked to pursue this idea and make recommendations on potential

improvements. Harry had hired Alice Winter, a college student in logistics, to work as a

summer intern to assist him. Harry had said to Alice

"a good project for you work on is

the way we handle supply for remote locations. I suspect that we could do substantially

better, but I really do not have any hard data."

Remote Locations

Alice found out that Qmont had 17 remote locations, ranging from three small mines

that had a buyer/store-keeper on site to two start-ups, nine exploration sites and three

development projects with a distance of 5,000 kilometres (km) between the farthest

ones and 300 kilometres between the closet ones. Qmont made a distinction between

exploration sites where the potential for ore was totally unproven to development sites

where the possibility of mineralization had to be determined.

Qmont used its own drilling crews at these two types of sites, although most mining

companies preferred to uses contract drillers. Qmonth managers believed for security,

availability, and cost reasons, they needed full control and in-house crews.

Typically, at both exploration and development sites an engineer or geologist would be

in charge. All supplies for these sites would be flown in by bush plane on floats or by

helicopter.

Accounting Information

Alice Winter decided to visit the accounting department at Vancouver headquarters first

to see what she could learn about supply in remote locations. She found that accounting

paid all invoices from suppliers who claimed to have supplied a remote location even

when no confirmation of orders, deliveries, or receipts was available. This occurred in

about one-third of the invoices.

The accountant explained "

Getting suppliers to provide odd requirements in a hurry and

to the bush pilots to fly them in is a constant hassle. The last thing we want to lose is

lose the goodwill of these suppliers because we do not have our records straight and

delay payments."

Development and Exploration Site Data

Alice did get the chance to review the previous year's actual supplier invoices for three

different sites (one development and two exploration) over a four month summer period.

Communication between actual sites and suppliers occurred in two ways. Since site

leaders were in regular contact via satellite with head office personnel in exploration or

engineering, they frequently asked contacts to place specific orders for them. IN

addition, it was common for remote site personnel to contact suppliers directly and

place orders. Moreover, when a drill needed a quick replacement part, apparently it was

not unusual to place orders with several suppliers at the same time in hope that at least

one would deliver quickly. Drill and crew downtime was seen as very expensive.

The site accounting records showed that the total supply spend for these three sites

totaled about $1,850,000.00 OF this total, approximately:

$220,000.00 for drilling equipment including drill bits and rods

$120,000.00 for MRO Suppliers

$420,000.00 for air transport

o

Seven different suppliers

o

Air transport of personnel in and out of sites cost about $170,000.00

$180,000.00 for fuel

$80,000.00 for food

Alice uncovered 22 instances of multiple deliveries of the same item within days to the

same site from different suppliers and 12 instances of multiple delivers of the same item

form the same supplier within a few days. There were 14 instances where the airfreight

bill was at least 10 times higher than the value of the item transported.

Next Steps

After several weeks of gathering this information, Alice wondered what her next steps

should be. One option would be to gather similar information for all remote sites to get a

more complete picture and to extend the time period. Another would be to get more

specific about details of each order and each supplier.

She knew that she would be meeting with Harry Davidson in a few days to discuss her

progress and findings to date. She also expected Harry to ask her what she believed

she should do next.

1.

What evaluation criteria would you use (e.g. price, delivery, etc.) and why?

2.

What weighting would you use and why?