Mines are increasingly required to implement programmes showing good practice in local procurement. International standards – as well as local policy and regulation – provide requirements and guidelines, but what really works in the field?

In this series, SRK Consulting’s Lisl Pullinger and Andrew van Zyl, together with Jeff Geipel from Mining Shared Value, explore five local procurement topics, highlighting good practice principles, providing case studies from mines and recommending practical initiatives mines can take to improve how they apply local procurement programmes. This first article focuses on building capacity among suppliers

As today’s procurement policies on mines aim to share more value with local providers, they require all collaborating stakeholders to create an enabling ecosystem if capacity is to be effectively built among existing and prospective suppliers.

Making a good procurement policy work is not easy, but success is more likely when all role-players are firmly embedded within a system that combines both the ‘top-down’ regulations and policy, and practical ‘bottom-up’ initiatives.

Local procurement only works when everyone is playing a role. Unless there is active and constructive involvement by mine management, government agencies, local government, financiers, business organisations and other relevant parties, achieving success is unlikely.

Indeed, there is a range of types of expertise that applying good practice in procurement is likely to require. This could often include a role for bridge-builders and facilitators – experts with niche skills that help to address the gaps between what a mine wants to do and how best to do it.

Supported by this ecosystem, mines can consider a number of potential initiatives to put their policies into action. A key starting point is a detailed assessment of the goods and services that a mine procures, and which of these procurement needs could be met by local suppliers.

A possibility is to ‘ring-fence’ opportunities for local suppliers, but it is important that the selection of these products and services is based on sustainable supply, competitive pricing and the required quality. This will ensure that the mine avoids getting involved in ‘pet projects’ that are ad hoc and unsustainable. Temporary willingness to pay slightly more for a local supplier should also be used as a short-term form of support, matched with plans for the supplier to meaningfully improve their competitiveness.

This assessment of potential local procurement initiatives needs to be matched with an accurate understanding of the local supplier landscape, so that mines know who is in the area and exactly what they are capable of delivering. It is not enough to ask potential suppliers to just fill in forms about their experience and abilities. The procurement system needs capacity to investigate each business in some detail, including site visits, to vet the applications carefully.

These preparations provide the basis for mines to consider unbundling some of their traditionally large orders, to see if there is scope to offer local suppliers smaller, more manageable portions. If possibilities exist, then resources can be applied to a supplier development programme that will ensure capacity is built to meet the mine’s delivery expectations.

Supplier development is not about artificial support for local businesses. Procurement activity cannot be run as a charity. The mine must have a competitive reason for engaging with any supplier. The respective responsibilities and resources required for building supplier capacity, then, must be carefully allocated.

For instance, the premium incurred in supporting new suppliers should not be borne solely by the procurement side of the equation. The procurement department’s direct mandate is fairly narrow: to source efficiently and cost-effectively in pursuit of value for money for the mine.

Another source of funding for the required training and capacity-building initiatives could be the mine budgets linked to the social and labour plan or skills development. Other stakeholders, such as local municipalities, enterprise support agencies and large contractors, also need to contribute to the adequate resourcing of the mine’s efforts – whether in terms of human resources, opportunities, expertise or finance.

Worth remembering is that not all local businesses are suitable for consideration as suppliers. Many small enterprises survive largely because their operations are less formal. Forcing such businesses into the formal structures required by mine procurement could well be a ‘kiss of death’.

The key, then, to successfully build capacity among local suppliers – and thereby enhance the resilience of the local economy – is a well-planned and collaborative approach. There are no quick fixes, much as this is often a tempting option. Mines need to look ahead three to five years for a vision of what their procurement landscape could look like and what it should achieve, matching it with legitimate local supply capacity. This will also help avoid common pitfalls like becoming locked into political patronage through the unwise selection of politically connected local suppliers.