2015 Outlook: Trends, challenges and opportunities in mining procurement and supply
This report was originally published on Mining IQ.
As the Australian mining industry continues to emerge out of a downturn, procurement and supply remains a critical part of mining business’ ability to succeed and remain profitable. 2014 saw a focus on reducing costs through procurement and supply processes, a trend which is set to continue in 2015.
However in the coming 12 months, introducing effective tracking of savings will play an even bigger role in procurement, as cost optimisation and ‘doing more with less’ becomes critical for businesses to survive in a volatile market.
So what areas are mining companies focusing on to tighten cost control, efficiency and productivity through procurement? Ahead of Mining Procurement and Supply 2015, Mining IQ surveyed over 50 procurement professionals in the Australian mining industry to uncover the major challenges, trends and opportunities for productivity gains in mining procurement now and in the future. This report outlines three major trends in mining procurement and purchasing for 2015 including:
The report also reveals some of the biggest challenges facing the industry when it comes to mining procurement in the next 6 to 12 months, including driving down costs further and maximising value for money from supplier relationships.
- A greater focus on cost saving strategies in all processes
- Improving performance management of suppliers
- Introducing effective measurement and tracking of savings
Decreasing costs reigns as top priority for Australian mining
It might not come as a surprise that achieving cost savings through procurement and supply activities remains a major priority for mining companies in 2015. However, interestingly over 68 per cent of respondents [Figure 1] revealed they are satisfied with the cost savings achieved by procurement processes in 2014.
So where does that leave the other 32 per cent of respondents? According to analysis, pressure to cut costs has only increased over the past two years, setting the bar even higher for mining companies to find new ways to further reduce costs through procurement processes. As a result, while many companies achieved savings in 2014, over a quarter of respondents were dissatisfied with the results due to the rising targets they are expected to reach and difficulties associated with decrease costs even further.
Other reasons for dissatisfaction included issues with standardising processes across mine sites, choosing the right automation software to invest in and negotiating value for money with suppliers.
Automation and standardisation
Automation and standardisation of procurement processes to improve efficiencies was ranked by respondents as the number one priority for mining procurement activities in 2015 [Figure 2].
Automating and standardising procurement processes was deemed as the biggest cost saver, due to its ability to overhaul traditional way of managing supplier contracts and processes (i.e. delving into realms of paper’) and a more efficient way to improve governance, visibility and control over contracts in real time. Nearly half of all respondents said automation and standardisation of procurement is vital to business improvement in 2015 [Figure 3].
Yet despite this, only 35.85 per cent have actually rolled-out automation in their supplier and purchasing processes, with an additional 34 per cent of respondents revealing automation of procurement processes is not even on the horizon for their business moving forward in the near future [Figure 4].
One of the biggest inhibitors to mine sites adopting automation in procurement was the problem of dealing with a number of different sites which all have their own ways of operating. Another challenge included a reluctance to standardise processes across the business and the belief procurement should be applied on a case-by-case or project basis to achieve the best results.
However, moving forward into the future there is no doubt automation of supplier and contract management will play a key role in cost savings strategies for businesses. For example, Iluka Resources are one company who has been quick to jump on the automation train and have realised massive results in improving operational efficiency and supplier management. "Once a contract has been awarded and is being managed in Open Windows CONTRACTS, integration to Iluka's finance system gives contract managers a view of related financial transactions directly within their contract management system. "Supplier information is also kept in-sync using the integration to ensure accurate data is always available and maintained. "With improved controls and vital integrations into company systems our company now experiences much better 'on-time' management of contracts," a representative from Iluka said in a recent Mining Australia article.
Interesting in reading more about the other survey findings? You can download the full report including insights into measuring and tracking savings, performance management of suppliers and the biggest procurement challenges facing the Australian mining industry online now.
This report was pulled together in preparation for the industry's only Mining Procurement and Supply conference, taking place on 15 - 17 June 2015 in Perth, WA. Featuring speakers from Barrick Gold, Newmont, Gold Fields, Oz Minerals, Dumas Mining (Canada), La Mancha Resources, Rio Tinto and more, this is a great event for METS companies seeking direct access to Procurement Managers from mining companies. Anyone interested in sponsoring or exhibiting at this event should email firstname.lastname@example.org