In Australia’s two-speed economy, the resources sector is the tearaway performer. After establishing itself as the ERP vendor of choice for the big end of town, SAP has shifted its focus to the new kids on the block to capture more of this dynamic market. Anne Widjaja and Freya Purnell investigate.
As the clear market leader in the resources industry, SAP counts among its customers Rio Tinto, BHP Billiton, Fortescue Metals, MMG, Newcrest, Woodside, Caltex, Iluka, Inpex, OneSteel, and BlueScope Steel. Not content to rest on its laurels, back in 2010, SAP announced it would increase its focus on the resources sector, with the aim of expanding its position in the mining, metals, oil and gas industries. With this push, it targeted the growth sectors of coal seam gas, liquid natural gas and emerging Tier 2 miners.
In line with this direction, in August last year, SAP also announced it had entered into a partnership with Extend Technologies and Courtland Business Solutions to provide a new subscription-based delivery option for the Business All-in-One Mining offering.
The model was designed to allow small and mid-sized miners to implement and run the solution without needing to hire dedicated IT staff to manage it, and achieve a rapid return on investment with an efficient implementation timeframe. While mining giants such as BHP Billiton and Rio Tinto have opted for a single global instance of SAP rolled out across all their business units, elsewhere in the sector there is a move towards getting up and running fast and securing quick wins, according to SAP industry principal – mining and resources, Peter Hodgins. “The industry has moved away from the multi-year, multimillion dollar implementations where the companies start off with a blank piece of paper and go through long blueprint processes and then to implementation. More and more of what customers are looking for are some core configurations that they can put in, where almost 80 per cent of what you do is typical of everybody else, and you look for the 20 per cent where you want to differentiate yourself,” Hodgins says.
Although SAP has maintained its commitment to the large multinational resource companies, Hodgins says its focus on the smaller end of the market is paying off.
“We’re supporting those junior miners as they get up and running and gain their financial independence. ,” he says. CSC ERP solutions director, Iain Macleod, also believes that this will be the growth area for the sector, particularly as the number of junior miners increases, with SAP able to provide new players with a more stable platform for growth. He expects SAP will also see growth from encouraging larger companies to move beyond traditional ERP into new types of solutions. Project activity is dictated by the geographical centres for mining and resource projects – with iron ore projects concentrated in Western Australia and coal in New South Wales and Queensland. In terms of project size, those underway at Rio Tinto are the biggest – particularly as the company looks to roll out the SAP system through their Alcan business and some other acquisitions, according to Hodgins.
Earlier in the year, Rio Tinto migrated its key IT systems, including SAP and a number of associated systems such as EMC Documentum and talent management solution Nakisa, back to Australia in a major regional centralisation push. The company is also part-way through its global SAP roll-out, with more than 29,000 of its more than 50,000 users now migrated to the system, according to Accenture, which is supporting Rio Tinto’s program.
According to Accenture’s Australia Capital Projects lead James Arnott, the mining and energy industries are experiencing unprecedented levels of capital investment, “a welcome sign of market health in these sectors”.
Forrester predicts Queensland and Western Australia will benefit from the IT services market for the mining and resources sector more than doubling to nearly US$650 billion by 2015.
To benefit from this growth, Forrester says, vendors and partners need to demonstrate domain expertise and provide industry-specific solutions, rethink engagement models to match the long development and production timeframes of mining, oil and gas projects, hone their focus on mobility and advanced analytics and forecasting solutions, and feed skilled resources into regions where demand is highest.
From SAP’s perspective, Hodgins is predicting growth of around 15 per cent from this market sector over the coming year. But with China driving much of the demand for Australia’s resources, is there concern that the current global economic volatility and European debt crisis could infect China and result in a slowdown?
Hodgins doesn’t believe so, arguing that not only will demand from China remain stable, but India will also begin to play a stronger role as a consumer of resources.
“My view is that China and India have worked very differently. In China, they’re about building the infrastructure, and that consumes a lot of natural resources. India didn’t so much attack the infrastructure issue as look at educating their population. What they are doing now is starting to look at improving their infrastructure, so India will become a much bigger consumer of natural resources in the next two years than they are currently,” Hodgins says.
And from the perspective of resources companies, ensuring they have the capability to meet demand is an important priority. “From the customer’s point of view, the big focus at the moment is on growth and getting more product out to market. The focus shifted a bit off containing costs, which has always been a big issue for miners, but at the moment it’s all about growth and expanding the capability to deliver product,” he says.
Although the resources sector appears to have a bright future, Hodgins still recognises some of the challenges that the sector is experiencing.
“One of the biggest issues with mining at the moment is not just the availability of resources, but going through the logistics processes to get the product to customers and increasing their capacity, and rail and port facilities,” Hodgins says. In the short term, another challenge for the resources sector is the availability of credit. With the Euro debt crisis continuing, money is becoming harder to find.
“The European banks in particular aren’t lending as they were and so a lot of that $90 billion worth of projects that are about to happen or have already started in Australia are finding that obtaining the money to back those projects is more of a challenge, as opposed to finding the demand,” Hodgins says. Looking ahead, the carbon tax is just one aspect of changing regulation that will also require the mining and resources sector to manage their information and data better, such as stricter reporting on occupational health and safety regulations. “Governments are looking at regulations around what mining companies can and can’t do… that’s not just around carbon emissions but also other emissions, whether its ground, water or air, ” says Hodgins.
“The Federal Government denies they’re becoming much more onerous, [but] the typical spreadsheet solutions that customers have had in the past will not be adequate anymore.”
This article was first published in Inside SAP December 2011.