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’s Lisl Pullinger and Andrew van Zyl, together with Mining Shared Value’s Jeff Geipel, 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 fourth article considers how mines can make their supply chains more accessible to potential new suppliers
Giving new players access to the mining supply chain is a vital strategy in mines’ efforts to share their value while optimising their procurement costs. Doing this effectively, however, means recognising the barriers that a mine’s procurement system presents to potential suppliers – and how to lower these barriers.
A good starting point for the process of encouraging potential participants to enter the supply chain is to make them feel included – rather than subjecting them to a series of complex qualifying criteria. In building their social licence to operate among stakeholders – including local communities and businesses – mines need to be keenly aware of the importance of inclusivity as a strategic tenet.
Improving suppliers’ access to the supply chain therefore depends heavily on the ease-of-use of the procurement entry point – whether a digital portal or a helpdesk – and on the success of mines’ enterprise development efforts. In principle, information in a procurement onboarding system should ideally be presented in a layered manner, increasing in complexity when more detail needs to be communicated. In this way, only the qualified suppliers need to find their way through the full depth of the qualifying information.
Bringing Down Barriers
Perhaps one of the most important barriers to local businesses entering the supply chain is the breadth and depth of a contract. Whereas it might be quicker for a mine to engage a large contractor to handle a wide range of work, there could be value in unbundling a contract into more manageable parts. This, in turn, can allow a local player with less capacity to readily manage a smaller package of work – and also to use this supplying opportunity to improve the local player’s capacity and become more competitive. Alternatively, the mine can place the onus on its large contractors to outsource certain aspects of a contract to local businesses.
The role of engineering, procurement and construction management (EPCM) firms is particularly important here. As key players in the development of new projects and expansions, EPCMs can valuably be brought on board in improving access for local suppliers. With EPCMs buying into the mine’s procurement vision, they can contribute significantly to creating local business opportunities.
Joint ventures are also an avenue through which a larger firm can share benefits with a junior partner in carrying out a mine contract. These ventures often involve a national or multinational company forming a special-purpose vehicle with a local player to tackle a certain project – thereby sharing the responsibilities, risks and rewards. Care needs to be taken with the selection of partners, of course, and this can only work where both parties have established track records in their respective markets.
When it comes to performing the actual work or providing the products required by the mine, it is often financial capacity that hinders the performance of local businesses. In certain cases, a limited upfront payment from the mine may be sufficient to address this. Where more resources are required, a mine can consider guaranteeing outside finance for a trusted supplier or partnering with a finance company for this purpose. Where possible, a mining company could even consider setting up its own finance scheme for qualifying suppliers; for example, enterprise development programmes.
A good example of how this has worked on several local mines is in the field of driver-owned transport services – for either goods or personnel. The mine partners with a trusted service provider, providing a formal term contract that the local business can present to financial institutions as an indicator of future income. By securing a credit line in this way, the supplier can invest in the necessary vehicles for repayment over the term of the contract or longer.
Combined with some initial ‘hand-holding’ support from the mine, this model has proved to be successful in many cases and represents the kind of low-hanging fruit for mines looking to improve access to their supply chain.
It is currently fashionable to talk about partnerships between the donor community and the private sector, and this presents a range of possibilities. There are certainly many mining companies which are prepared to commit social development expenditure to such collaborative efforts. In our experience, however, there seems to be reticence among some large donors to engage proactively with the private sector – including mining. Several smaller nongovernmental organisations are committed to small, medium-sized and microenterprise development, and these partners could be invaluable in supporting the mine’s enterprise and supplier development departments.
The significance of these potential partnerships should not be limited to money matters. The sharing of information and experience is equally vital. It is not uncommon for donors to fund activities such as supplier development in a mining community without fully scoping the landscape first – to discover what else is already being achieved and to consider coordinating activity or filling gaps.
Joining forces with mines can contribute to a systems approach that delivers greater local benefit.
In summary, procurement remains one of mines’ most powerful levers for social and economic development, but it needs careful management to enhance its transformative effect. This places extra demands on the skill sets required in a mine’s procurement department – which may then need added support from head office or even from consultants. These demands grow as mines work to balance the necessary procurement discretion with the avoidance of corruption.
Whichever way this is resolved, mine procurement must open doors for new local entrants, if mines are to fully share their value with host communities.