Risk Assessment of Consumables Supplies

Management in Mines
S Vujić1, S Boševski2, I Miljanović3, M Hudej4, A Petrovski5, A Milutinović6 and
M J Pejović7

ABSTRACT
The paper deals with the problem of managing the supplies of consumables (energy resources,
lubricants, explosives, explosive supplies, tires, spare parts, etc) in mines. After the introductory
remarks and comments, a general stochastic model of supply, relating in general to the dynamic
programming method is presented. A selection of stochastic supply model for experiments and
research by the authors of this paper is not a coincidence, based on of their long experience, showing
that this type of model is the most suitable to provide support for decision-making and management
of supplies of consumables in mines.
In order for the problem of consumables supply management to be reviewed, in whole and
objectively from the aspect of risk, experimental tests of the stochastic model in real conditions
were performed at the limestone open pit mine ‘Zelenikovec’ near Skopje, the capital of Macedonia.
The scope of the experimental research enabled reliable analysis. The results obtained confirm the
efficiency and reliability of the stochastic model and two separate manipulative-operational positions
regarding its application, which may have an important influence on the optimisation of supplies.

INTRODUCTION
Consumables supply in mines influence the production and business results due to purchase cost,
storage costs, frozen capital funds or losses in production due to lack of necessary resources, etc. The
most common supply requirements for a mine are: energy resources, explosives and blasting supplies,
lubricants, tires, protective supplies, spare parts for machinery, flotation reagents, etc. Consumption
differs from mine to mine, it depending on the technology utilised and the level of production. Due
to seasonal changes, demand for a certain mineral resource (typical for construction materials and
coal) or the influence of meteorological changes (opencast mining), mining production varies during
the year, causing variations in consumables requirements (Vujić, 1993).
The function of consumables supply at mines is to enable undisturbed production. This means
that supplies of consumables in mining operations should be aimed at satisfying production
requirements. The larger the quantity of supplies, the smaller the chances for production disturbance
or interruption. However, keeping the consumables increases business costs, and a question of
rational supplies management arises. Answers to this question should satisfy two opposed demands.
The demand for the existence of a stock of consumables for production purposes, and the demand
originating from financial logic, which opposes storage of supplies, considering them as a cost ballast
(Boševski, 2010).

1. Full Professor, Department of Applied Computing and System Engineering, Faculty of Mining and Geology, University of Belgrade, 7 Djusina Street, Belgrade 11000, Serbia.
Email: vujic@rgf.bg.ac.rs
2. PhD, Rudproekt, 1000 Skopje, 9 Boulevard of Alexander the Macedonian, TDC ‘Estakada’, PF 121, Republic of Macedonia. Email: bosevski@rudproekt.com
3. Assistant Professor, Department of Applied Computing and System Engineering, Faculty of Mining and Geology, University of Belgrade, 7 Djusina Street, Belgrade 11000, Serbia.
Email: imiljan@rgf.bg.ac.rs
4. Graduate Mining Engineer, Coal Mine Velenje, 78 Partisans Street, Velenje 3320, Slovenia. Email: hudej@rlv.si
5. Research Associate, Department of Applied Computing and System Engineering, Faculty of Mining and Geology, University of Belgrade, 7 Djusina Street, Belgrade 11000, Serbia.
Email: sasa@rgf.bg.ac.rs
6. Assistant Professor, Department of Mining Survey, Faculty of Mining and Geology, University of Belgrade, Belgrade 11000, 7 Djusina Street, Belgrade 11000, Serbia.
Email: amilutinovic@rgf.bg.ac.rs
7. Research Associate, Department of Applied Computing and System Engineering, Faculty of Mining and Geology, University of Belgrade, 7 Djusina Street, Belgrade 11000, Serbia.
Email: milena@rgf.bg.ac.rs

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The analysis of the problem must not neglect the conditions of consumables storage, since this can
be a major factor influencing keeping the supplies. Hence, it must be known whether the quantities
of consumables ordered can be delivered promptly, or is it perhaps necessary to wait for delivery
(Stanojević, 1970). It can also occur that the materials ordered are not delivered before the existing
supplies are spent, which leads to production interruption and losses. In these circumstances, an
analysis must be made of the costs of urgent supply of depleted consumables, comparing them to the
losses originated by interruption of production. However experience shows that urgent supply costs
are, in principle, lower than associated production losses. It is therefore necessary to test the case of
existing supplies, and also the case of non-existing or insufficient supplies (Stanojević, 1995).
It can be concluded that consumables supply management in mines should lead to the optimal
dynamic harmonisation of relations between the opposing aspirations: stocking up (safety/risk) and
the costs. For the purpose of determining the optimal solution in an obviously multiphase decision-
making process, dynamic programming is suitable with the following goal: What quantities of
consumables should be kept in stock, so that safe production at mines is ensured, with minimal
costs? (Vujić 1993, 1997)

SUPPLY MANAGEMENT
Mathematical models of supply management structurally contain a goal function or criterion
function and a set of limitations. The most common criterion of a goal function is minimal costs,
while a set of limitations takes into account the real relations in the supply system, the demands, the
capabilities for supply storage, strategies for supply management and other limitations. Depending
on the mining system topology, models of supply management can be more or less complex, and it is
common practice to resort to the simplification provided by modelling (Stanojević, 2004). Simplified
mathematical models for optimal supply management depicting real processes with sufficient
punctuality, may be reduced to solving the following tasks:
• fixing the time for ordering new supplies, assuming that the consumption for the period in
question has been previously determined; and
• determining the overall consumption and the timing for delivery of new supplies.
An integral task for management consists of determining the optimal solution for both of these
partial tasks, where the optimal solution is that with minimal costs.
The optimisation process namely dynamic programming is not based on a strictly determined
method (or its algorithm), like other operations research methods, but it is more subordinated to the
application of Belmann’s principle of optimality, adjusted for the nature of the problem in question
(Stanojević, 2004). This feature of dynamic programming points out the need for creation of the
appropriate form of recurrent function for each group of similar problems that should ‘take over’ the
role of the algorithm for the optimisation process.
The basic shortcoming of the dynamic programming application for supply management at mines
is a consequence of the number and content of the limiting factors. It is desirable that the system of
limiting factors from the dynamic programming model contains fewer functions with simpler forms
which can help in determining the variable interval where an optimal solution is found (Boševski,
2010; Vujić et al, 2010).
A pragmatic idea for a dynamic programming application in supply management is the so-called
Supply Theory, with models classified according to the following criteria:
• demand character (deterministic, stochastic or unknown);
• satisfying the demand (binding or non-binding);
• delivery time (momentarily, at a certain time or stochastic);
• supply costs (different ways of treatment);
• planning period (fixed and variable, one or more time subperiods as parts of the final planning
period, with a planning horizon that can even be unlimited); and
• models for one or more types of supplies, etc.
According to our experience, the general stochastic model of the Supply Theory is the most suitable
for practical applications in supporting the decision-making and management of consumable

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supplies at mines. Due to the scope of the stochastic model presentation, and the limited space for
the paper, we will not present the mathematical concept of the model. We refer those interested to
the very rich source literature in operations research with dynamic programming and the Supply
Theory.

AN EXAMPLE OF SUPPLY MANAGEMENT

For the purpose of practical review of consumables supply management in mines, we used the
‘Zelenikovec’ open pit mine near Skopje, Republic of Macedonia, where experimental tests of supply
management by dynamic programming principles were performed. The selection of this small
production open pit mine was not coincidental for a number of reasons: contemporary and efficient
organisation of operations, successful long-lasting business trend, the availability of numerous and
reliable data on supply trends and consumption of material for a longer period of time (Boševski,
2010; Vujić et al, 2010).
Data for the years between 2000 and 2009 on diesel fuel consumption, motor and hydraulic oil,
explosive and nonel (the explosive used for blasting) were used in experimental tests, since these
factors account for more than 80 per cent of material costs at the open pit mine overall. Consumption
and supply of material resources at the open pit mine are a function of production, therefore the
trends in limestone production for the observed time period of ten years were analysed in the first
place (Figure 1).

FIG 1 - Limestone production trend at the ‘Zelenikovec’ open pit mine.

It is typical for this open pit mine that weather conditions influence production, and this should
be taken into account in classification of data. Therefore, data were grouped quarterly, in relation to
the seasons: winter, spring, summer and autumn. Without obeying the strict calendar determination
of the seasons, winter time for the purpose of this analysis contains months of January to March,
spring from April to June, summer from July to September and autumn from October to December.
By means of a statistical analysis, 2000 collected data for the ten years observed were processed.
Figure 2 presents the consumption of diesel fuel from 2000 to 2009 by quarters and in total. The
consumption of motor and hydraulic oil, explosive and nonel was not presented due to limited space
available.
A regression analysis was performed with the aim of determining the rules for the consumption
of diesel fuel, motor and hydraulic oil, explosive and nonel quarterly. The following rules were
determined:

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FIG 2 - Diesel fuel consumption at the ‘Zelenikovec’ open pit mine in total and by quarter.

Consumable: Regression function: Correlation coefficient:

Diesel fuel (litres) cp = 3839.58 + 4538.82.qu – 912.17.qu2 Cc = 0.96

Motor oil (litres) cp = 166.90 + 255.48.qu – 50.80.qu2 Cc = 0.99

Hydraulic oil (litres) cp = 65.15 + 76.99.qu – 15.45.qu2 Cc = 0.96

Explosive (kilogram) cp = 1270.91 + 2957.57.qu - 645398.qu2 Cc = 0.98

Nonel-explosive
mean (pieces) cp = 7.45 + 75.77.qu – 12.65.qu2 Cc = 0.99

where: cp - consumption; qu - quarter (1, 2, 3, 4)

High values of correlation coefficients and mutual equivalency of the regression functions confirms
the reliability and validity of data regarding the consumption of the resources in question, and at the
same time show tight correlation of limestone production and consumption of material resources
at the open pit mine. The results of the statistical and regression analysis served as the input for
calculations of optimal supply of consumables quarterly. The general stochastic model of the Supply
Theory is used in the analysis.
Due to inflation trends, variable financial circumstances, and the impossibility of correlating the
storage costs and the urgent supplies for the ten year period, absolute currency values were not taken
into account. Instead, the relative currency values were taken as the storage costs (C1) and the costs
of urgent purchase of a unit of the material (C2). In this manner, a risk on erroneous estimation
or fluid monetary values for C1 and C2 is avoided, and the real ratio between these two categories
was determined. This was considered very important, since it bears an immediate influence on the
definition of optimal supply.
With the aim of testing the influence of the number of intervals for the analysed time period on the
optimal solution, the calculation of optimal diesel fuel supplies for the 1st quarter was repeated for
4, 5, 6, 7 and 10 intervals. Calculation results, Table 1, confirm an uncertainty exists in that optimal

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TABLE 1
Optimal supplies of diesel fuel.

3 3
6 p^ xh /x @ ^u + 1/2h 6 p ^ x h /x @
u x p(x) p(x)/x ∑p(x) F(x)
/ /
x = u+1 x = u+1

I QUARTER, 4 intervals
4600.00 4600.00 0.20 0.00004 0.00011 0.528 0.200 0.728
6293.75 6293.75 0.50 0.00008 0.00004 0.223 0.700 0.923
7987.50 7987.50 0.20 0.00003 0.00001 0.083 0.900 0.983
9681.25 9681.25 0.10 0.00001 0.00000 0.000 1.000 1.000
For C1/C2 = 1/3 to C1/C2 = 1/7, optimal supplies of diesel fuel: 6293.75 (litres), expected costs 3358.223 (currency unit)
I QUARTER, 5 intervals
4600.00 4600.00 0.20 0.00004 0.00012 0.529 0.200 0.729
5955.00 5955.00 0.30 0.00005 0.00006 0.385 0.500 0.885
7310.00 7310.00 0.40 0.00005 0.00001 0.073 0.900 0.973
8665.00 8665.00 0.00 0.00000 0.00001 0.086 0.900 0.986
10020.00 10020.00 0.10 0.00001 0.00000 0.000 1.000 1.000
For C1/C2 = 1/3 to C1/C2 = 3/8, optimal supplies diesel fuel: 5955.00 (litres), expect costs 3169.508 (cu)
I QUARTER, 6 intervals
4600.00 4600.00 0.20 0.00004 0.00011 0.522 0.200 0.722
5729.17 5729.17 0.20 0.00003 0.00008 0.450 0.400 0.850
6858.33 6858.33 0.30 0.00004 0.00003 0.239 0.700 0.939
7987.50 7987.50 0.20 0.00003 0.00001 0.078 0.900 0.978
9116.67 9116.67 0.00 0.00000 0.00001 0.089 0.900 0.989
10245.83 10245.83 0.10 0.00001 0.00000 0.000 1.000 1.000
For C1/C2 = 1/3 to C1/C2 = 3/6, optimal supplies of diesel fuel: 5729.17 (litres), expected costs 3121.622 (cu)
I QUARTER, 7 intervals
4600.00 4600.00 0.20 0.00004 0.00011 0.513 0.200 0.713
5567.86 5567.86 0.10 0.00002 0.00009 0.521 0.300 0.821
6535.71 6535.71 0.20 0.00003 0.00006 0.411 0.500 0.911
7503.57 7503.57 0.40 0.00005 0.00001 0.072 0.900 0.972
8471.43 8471.43 0.00 0.00000 0.00001 0.081 0.900 0.981
9439.29 9439.29 0.00 0.00000 0.00001 0.091 0.900 0.991
10407.14 10407.14 0.10 0.00001 0.00000 0.000 1.000 1.000
For C1/C2 = 1/3 to C1/C2 = 2/5, optimal supplies of diesel fuel 5567.86 (litres), expected costs 3061.691 (cu)
I QUARTER, 10 intervals
4600.00 4600.00 0.10 0.00002 0.00013 0.587 0.100 0.687
5277.50 5277.50 0.10 0.00002 0.00011 0.574 0.200 0.774
5955.00 5955.00 0.10 0.00002 0.00009 0.547 0.300 0.847
6632.50 6632.50 0.20 0.00003 0.00006 0.410 0.500 0.910
7310.00 7310.00 0.20 0.00003 0.00003 0.251 0.700 0.951
7987.50 7987.50 0.20 0.00003 0.00001 0.075 0.900 0.975
8665.00 8665.00 0.00 0.00000 0.00001 0.081 0.900 0.981
9342.50 9342.50 0.00 0.00000 0.00001 0.087 0.900 0.987
10020.00 10020.00 0.00 0.00000 0.00001 0.094 0.900 0.994
10697.50 10697.50 0.10 0.00001 0.00000 0.000 1.000 1.000
For C1/C2 = 1/3 to C1/C2 = 2/3, optimal supplies of diesel fuel 5277.50 (litres), expected costs 3027.194 (nj)

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TABLE 1 CONT...
Optimal supplies of diesel fuel.

3 3
6 p^ xh /x @ ^u + 1/2h 6 p ^ x h /x @
u x p(x) p(x)/x ∑p(x) F(x)
/ /
x = u+1 x = u+1
II QUARTER, 10 intervals
7650.00 7650.00 0.10 0.00001 0.00010 0.731 0.100 0.831
8092.10 8092.10 0.30 0.00004 0.00006 0.474 0.400 0.874
8534.20 8534.20 0.00 0.00000 0.00006 0.500 0.400 0.900
8976.30 8976.30 0.00 0.00000 0.00006 0.525 0.400 0.925
9418.40 9418.40 0.20 0.00002 0.00004 0.351 0.600 0.951
9860.50 9860.50 0.00 0.00000 0.00004 0.368 0.600 0.968
10302.60 10302.60 0.20 0.00002 0.00002 0.184 0.800 0.984
10744.70 10744.70 0.00 0.00000 0.00002 0.192 0.800 0.992
11186.80 11186.80 0.20 0.00002 0.00000 0.000 1.000 1.000
11628.90 11628.90 0.00 0.00000 0.00000 0.000 1.000 1.000
For C1/C2 = 1/5 to C1/C2 = 5/7, optimal supplies of diesel fuel 8092.10 (litres), expected costs 4315.30 (currency unit)
III QUARTER, 10 intervals
1964.00 1964.00 0.10 0.00005 0.00010 0.198 0.100 0.298
2969.00 2969.00 0.00 0.00000 0.00010 0.299 0.100 0.399
3974.00 3974.00 0.00 0.00000 0.00010 0.400 0.100 0.500
4979.00 4979.00 0.00 0.00000 0.00010 0.501 0.100 0.601
5984.00 5984.00 0.00 0.00000 0.00010 0.602 0.100 0.702
6989.00 6989.00 0.10 0.00001 0.00009 0.603 0.200 0.803
7994.00 7994.00 0.20 0.00003 0.00006 0.490 0.400 0.890
8999.00 8999.00 0.20 0.00002 0.00004 0.352 0.600 0.952
10004.00 10004.00 0.30 0.00003 0.00001 0.091 0.900 0.991
11009.00 11009.00 0.10 0.00001 0.00000 0.000 1.000 1.000
For C1/C2 = 1/2 to C1/C2 = 2/2, optimal supplies of diesel fuel 5984.00 (litres), expected costs 3333.31 (cu)
IV QUARTER, 10 intervals
7435.00 7435.00 0.11 0.00001 0.00090 0.683 0.111 0.794
7892.90 7892.90 0.00 0.00000 0.00090 0.725 0.111 0.837
8350.80 8350.80 0.22 0.00003 0.00070 0.545 0.333 0.879
8808.70 8808.70 0.00 0.00000 0.00070 0.575 0.333 0.909
9266.60 9266.60 0.11 0.00001 0.00050 0.494 0.444 0.938
9724.50 9724.50 0.11 0.00001 0.00040 0.407 0.555 0.963
10182.40 10182.40 0.22 0.00002 0.00020 0.204 0.778 0.982
10640.30 10640.30 0.11 0.00001 0.00010 0.102 0.889 0.991
11098.20 11098.20 0.00 0.00000 0.00010 0.107 0.889 0.996
11556.10 11556.10 0.11 0.00001 0.00000 0.000 1.000 1.000
For C1/C2 = 1/4 to C1/C2 = 4/5, optimal supplies of diesel fuel 7892.90 (litres), expected costs 4104.45 (cu)

supplies of diesel fuel for the 1st quarter decreases as the number of intervals rise, ranging from
6293.75 litres for four intervals to 5277.50 litres for ten intervals, or the difference of 19.3 per cent.
The small number of intervals brings the mathematical modelling mechanism into a state of
‘insensitivity’. These situations where concentrations of data lie in one or two classes, could lead
even to nonsense solutions.

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Figure 3 presents the ratio of the number of intervals, or the range (band) of an interval and the
value of optimal solutions, or the expected costs of supply storage and urgent purchases. It can be
noted that, as the number of intervals increases and the width of the interval band decreases, the
calculated values for supplies decreases.
A graphical representation of the effect of the number of intervals to the deviations in optimal
supply according to calculations completed using a general stochastic supply model is presented
in Figure 4. According to the findings, the number of intervals that determines the width of the
analysed time band in a satisfactory manner ranges from eight to ten.

FIG 3 - Effect of number of intervals to optimal supplies and expected costs.

FIG 4 - Effect of number of intervals on the deviations in optimal supplies.

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Table 2 presents optimal supply with expected costs for the motor and hydraulic oil, explosive and
nonel quarterly. For clarity, expected costs are not presented in a local currency, but in a monetary
equivalent called a currency unit (cu), which has no influence on the procedure for obtaining a
solution and on the outcome of the problem solution.
The results of the experimental tests completely confirm the general stochastic model of the Supply
Theory and certify its applicability in solving tasks of this type. Potential risks in the application
of stochastic methods are related above all to the method used, and occur as a consequence of
inadequate training, in the method application, poor philosophy, or an uncritical evaluation of the
data available (Boševski, 2010, Vujić et al, 2010).

TABLE 2
Optimal supplies of motor and hydraulic oil, explosive and nonel.

Quarter For C1/C2 To C1/C2 Optimal supplies Expected costs (currency unit)
Motor oil (litres)
I 1/3 2/3 263.90 151.412
II 1/5 4/6 404.20 217.509
III 1/4 3/4 395.80 213.473
IV 1/4 3/6 315.80 186.841
Hydraulic oil (litres)
I 1/3 2/3 89.50 51.356
II 1/5 5/7 137.50 74.040
III 1/4 4/5 133.80 69.652
IV 1/3 2/3 95.60 59.083
Explosive (kg)
I 1/6 5/7 2994.00 1584.447
II 1/2 2/2 3080.00 1720.269
III 1/2 2/2 2607.50 1478.170
IV 1/2 1/2 1810.00 1124.154
Nonel (pieces)
I 1/4 3/6 53 35.419
II 1/6 6/8 94 54.431
III 1/8 7/12 113 65.145
IV 1/2 1/2 72 44.698

CONCLUSIONS
Supply Theory methods are a part of a group of applications of well-known optimisation method. This
does not appear to influence the practical application of Supply Theory methods to mining. Research
results show that adaptive management of consumables supply, based on dynamic programming and
the Supply Theory, can result in a significant decrease of business costs and the risks of interruptions
to production due to insufficient supplies. The actual benefits and effects will differ between mines,
depending on their technological, organisational and other particularities.

REFERENCES
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(in Serbian).
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(in Serbian).

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