Krastsvetmet: record high gold production, digital transformation and new markets

The company ‘Krastsvetmet’, leader of the Russian precious metal production industry, processed 234 mtons of gold in 2018, which is a historical maximum not only for the company, but also for the whole country. We try to sort out success factors of this enterprise, discussing them with the General Director, Mr. Mikhail Dyagilev.

 - Let's start with your records in production of precious metals. What allowed you to succeed in achieving such outcomes?

- We surpassed our own last year record only with regards to the gold production. As for other metals, their production indicators are good, but not record high. Our performance depends on the success of raw material suppliers, both mineral and secondary. For example, it depends on performance of our esteemed subsoil users in fulfilling their work plans. Last year gold production from gold-bearing rock in our country increased by 4 percent, and its delivery to Krastsvetmet increased by 5 percent. A more dramatic situation has emerged in the secondary raw material market: our performance was opposite to the market trend. The supply side of the market fell by 8 percent, and we received 13 percent more raw materials. Therefore, we continue to satisfy requirements of our traditional suppliers and engage the new ones.

- So have you squeezed anyone out of the market? After all, when it comes to growth, the question naturally arises: do you grow with the market or do you push someone out of this market? Is this a mutual process?

- Continuing the discussions about the gold it should be noted that our growth rates in terms of mineral raw materials, were only slightly higher than the market average. And in terms of secondary raw materials we have managed to win the competition in the falling market. However, we do not aim for “squeezing someone out”. We are not focused on the work of competitors, but rather on addressing problems of our customers. Our goal is to always offer the best service, and create added value for partners; and the choice with whom to collaborate, remains in their hands.

- You mentioned that the situation in the secondary market is more dramatic. What is the critical difference between primary and secondary markets?

- Despite the fact that these markets have a lot in common – i.e., the dominance of the tolling business-model using gold-bearing raw materials - certain specific features of our tax legislation and law enforcement are such that gold refining companies are deprived of the economic opportunity to acquire raw materials from the market as full-fledged participants, and are only limited to providing processing services.

At the same time, there are huge differences in customer relationships. Mineral raw material suppliers consist of subsoil users. Their activity is based on long-term plans, investment programs, and is characterized by reasonable prudence and predictability. Accordingly, the history of our relationship is recorded by years or even decades.

Owners of secondary raw material are different. The most significant market players are jewelry networks, which, in addition to selling new products, receive used and broken jewelry from their customers. At the same time, there are numerous companies involved in raw material supply chains involving pawnshops and buy-back sites, moreover, activities of the latter are not licensed. Business models of such companies are configured for situational efficiency.

The share of the secondary supply does not exceed 12 percent of the total gold production in our country. Currently we work with 300 suppliers of mineral raw materials and with 450 suppliers of secondary raw materials. Krastsvetmet estimates its market share for gold-bearing raw materials at 75 percent.

- Does anybody need records at all?

- Not necessary. It is more important for a company to be in demand and useful to its customers. We are working on providing added value to our partners not only in terms of the metal output, but also in terms of creating a comfortable interaction environment for them. This is primarily due to the free exchange of information at all stages of work: from the receipt of raw materials to the shipment of finished products. We created a system of personal client accounts, transferred a large amount of document workflow into electronic format using electronic digital signatures. All these measures permitted to reduce the workflow time from several days to several minutes. In the precious metal sector speed is extremely important in every aspect, due to the fact that working assets are expensive. Moreover, if we save the customer time, he obtains not only comfortable environment, but also tangible economic benefits.

- Previously we have discussed the issue of how important it is in a company like Krastsvetmet with large premises of physically outdated workshops to modify production logistics. What was done to ensure time savings?

- Indeed, in terms of in-house logistics, our enterprise is rather old. Our workshops were built in the middle of the last century. We strive to make the most of what we have, and to spend a minimum of time on physical stock movements. For example, at the stage of acceptance and sampling of incoming raw materials, we reduce the time spent for sampling and analysis of materials from year to year. Production sites are located quite far from the analytical center, so we use pneumatic mail, through which the sample is delivered for analysis in just a few minutes. Significant organizational changes have been implemented in the analytical center itself, and methodologies are being developed that make it possible to apply express methods of analysis. All this reduces "no-added value time" to a customer.

In my opinion, the main factor in maintaining the competitiveness of Krastsvetmet today is the order fulfillment period. We are accelerating, and our customers appreciate it.

- In your opinion, what is the effect of introduction of digital technologies?

- Today, the capabilities of a person with a calculator and Excel are completely exhausted. Making decisions in lay terms, that is, not evidence based, is no longer possible.

The impact of digitalization is growing and is significantly reflected in outcomes. Our projects on reducing production time of precious metals are based on information technology? As well as on one can call effects digital transformation. The borderline between information and digital technologies is rather vague, and we are not trying to draw it. Some projects can already be considered as related to digital technologies of the fourth industrial revolution. It is obvious that the basis for digitalization is the stack of information systems, which are usually attributed to the era of automation. However, data collection remains a challenge for all companies undergoing transformation.

As an example of digital technology, we can cite our systems for modeling production processes, planning applications with embedded optimizers. Machine vision has firmly taken its place in quality control systems of finished products and staff access control systems.

- You set up plans, make forecasts of production and order volumes. It turns out that the company's revenue and profits have grown by as much as 50 percent - are these planned figures? Or is there any element of luck?

- The element of good or bad luck is always present in any business. However, we made a profit as we planned, and as the Board of Directors has expected. In terms of revenue, the growth rate exceeded the planned level, but for us this indicator is not the most important one: the structure of our transactions varies dynamically between the purchase of precious metal raw materials and their tolling. Revenue depends on the amount of precious metals purchased for money. In 2018, the number of transactions involving the turnover of precious metals increased, and the company's turnover grew respectively. But this is a weak indicator of the efficiency of our business.

- You mentioned that you rely on the development of the technical products sector. As demonstrated in your annual report, this course of action proved to be correct; the segment grew by 30 percent. This is a good indicator in itself, but I still would like to clarify the following: is it a planned growth indicator or is it just an impact of a low baseline?

- We cannot say that we had a low baseline. For example, we set a record in the production of catalytic systems for nitrogen industry enterprises in 2017. Nevertheless, my colleagues from the technical product division were able to increase their performance again, and not only in the catalytic systems. A new record has been established for our second most important product that is glass melting machines for the fiberglass production. The growth was affected by the expansion of sales geography and improvement of the service level. Is not enough for us just to sell any goods; I would even say - it is impossible. Our task is to provide the customer with a maximum number of technical solutions and services that will enable him to produce his own product with the highest efficiency. This is a comprehensive system of relationships that has been developing over the years.

- If we talk about the jewelry division, do I understand correctly that the growth in this segment is not the least connected with extremely good implementation of the production optimization measures?

- Optimization or, more precisely, specialization, which we undertook several years ago, focused us on a specific type of product, where the use of manual labor is minimized in the production process. However last year's growth in output of gold products by 1.5 times is due to other reasons.

Most recently we have been undertaking steps in order to change of sales structure. We have engaged much more direct buyers, whose number has increased almost fivefold. Earlier we focused on key customers, but today we rather work with an unlimited number of customers. The main issue here is that we have created the infrastructure capable of meeting their requirements. We are able to process orders of a very large number of customers, from the largest ones, which are well-known retail chains, to the smallest ones, which purchase their first kilograms. Besides, we provide appropriate customer support through information systems and a personal buyer’s account. I think that all these factors taken together delivers a positive result for us, despite the fact that jewelry is not becoming more popular according to statistics.

- The “Leaders of Russia” contest was recently completed. It was held only for the second year, and it was the second year when Krastsvetmet employees reached the final and became winners. What is the purpose? What do you do with these people later?

- Yes, we do have three winners and one finalist. We are proud of them, and we are glad to have such people. We have not persuaded anyone to participate; it was always our employees’ own initiative. Neither have we interfered, however, by creating conditions for them to have extra time to prepare for and travel to the contest.

What do we do with them then later? We set ambitious tasks. We find more complex projects for them. Of course, they have never evaded difficult tasks, but today more people expect unique results from them. I think that this situation is great. Colleagues returning from this event bring new experience, since participation in the contest is in itself an educational process. We stay close and try to be useful to our participating colleagues, and we are always ready to accept new expertise and obtain new contacts.

One of the colleagues stated bluntly that he has been purposefully seeking and establishing relationships with other participants, because there were so many interesting people there. And our company is always glad to engage interesting and bright people. Therefore, it is quite possible that we will receive some influx of other contest participants.

- What competences are currently required for the company? How are these requirements changing? What professionals are needed for the modern metallurgical production; and specifically for Krastsvetmet?

- In my opinion, there have been no cardinal changes from the point of view of work profiles and professions. We need metallurgists, chemists, power engineers, mechanics, accountants and lawyers. IT professionals in various areas have long been in short supply - from system administrators to SAP experts. Moreover, new professions are also emerging that are now arriving in all sectors, such as data analysts, business analysts, project managers.

In Krasnoyarsk, the situation in the area of higher education is rather favorable: we have many universities that produce professionals of various specialties. Those mentioned above are now studying and graduating in Krasnoyarsk. We collaborate with universities, and one of our major projects is the specialized department of the Siberian Federal University, which last year gave us the first group of graduates in the area of metallurgy.

In addition, the in-house corporate university has been established in our company. Last year it reached a very decent scale of work: it processed about 3 thousand applications for training. We are still engaged in professional training, engaging external teachers. But more remarkable is the creation of educational programs aimed at personal development. This need is closed by internal trainers of the company, which currently include about 40 of our employees, including top management.

The university has become a good integration point. Students not only learn skills, but also reach a very high cultural level.

- So are you ready to carry out systematic, large-scale and long-term work, and to invest in your employees, in order develop their skills, train and retrain them?

- Yes. As one wise person said, addressing top managers: “If you are not concerned about people, then what are you doing anyway?” And we do proceed from this principle.

- Someone might express the following objection: we train them once and again, and then they pack their things and go to other companies, and even compete with us. Do you consider such a threat as a serious factor?

- There is a well-known answer to such objection: “What will happen if we do not train them and they will remain with us?” We are realists, and we understand that “brain drain” of a certain number of people is inevitable. That's life. This is normal. People have the right to make their own decisions. And this is definitely not a reason to create a team with substandard training. More and more we hear requests for personal development. By developing employees, we increase their interest in the company where they work. Such approach reinforces our “HR-brand”, as more and more people from the outside want to be employed in a company that does not just pay salary. Candidates during interviews often say that the main motivational component for them is development and personal growth. We completely share these views, and we would like people to grow in our company. And, perhaps, this is the only way to maintain long-term competitiveness.

- Do you have a personnel shortage?

- At any moment we are filling several dozens of vacancies. HR Department is processing about 2000 personal resumes per month. Of these, about 200 people receive an invitation to the first interview. Therefore, we have people to choose from. I would not say that we are in short supply. I feel that there is an influx of people in the company. It may be noted that the “recruiting filter” is large and the conversion rate is not so great. Indeed, year after year, our expectations of candidates’ competences are growing.