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Situation
A large, open cut coal mine had seen its procured spend base grow over time - significantly so in the last few years of the mining boom. Our team were on site helping the client to deliver productivity and cost reduction improvements. When the mining boom turned into a mining downturn overnight, we agreed with our client to apply our rapid sourcing approach which is ideally suited to the ‘once in the cycle’ drop in mining demand. This was applied to the bottom half of their procured categories.
Client achieved:
- Tackled the bottom $100m of procured spend on site
- Went to market with an initial request for price reduction, outlining situation, delivered in excess of $1M locked in after two weeks
- Program of follow up structured negotiations with a group of 50 suppliers then conducted over 5 weeks
- Lower spend suppliers assessed for either elimination or re-direction of spend to lower cost providers
- Locked in savings of ($8M) within 10 weeks
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What we did:
As the client was fully utilised delivering productivity improvements this work was lead by a PIP manager and business analyst reporting to the site commercial manager. In conjunction with the site supply group this team:
- Identified spend categories that were suited to rapid rather than strategic sourcing
- Rapidly determined for each category:
- The dynamics of the supplier’s industry (no. of players, barriers to entry and exit, supply demand, conduct etc. )
- Fixed and variable costs and profit margins and for your supplier
- Relative importance of your business to supplier versus the supplier to you
- Relative bargaining power of you versus supplier
- Potential wins for vendors that are valuable to them and cheap for the client or involve reducing system costs
- Rapid sourcing strategy for that category
- Went to market to deliver the sourcing strategy
- Negotiated price reductions/improved terms
- Agreed terms and summarized in MOU and contracts
- As appropriate, established basic KPIs and vendor reviews for those contracts warranting active supplier management
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