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| Strategic sourcing mining division
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Context / Scope of project
A major business of a large global diversified mining company was struggling to control its input costs. Despite the GFC, reduced commodity prices and our client’s suppliers seeing reduced input costs, procured spend seemed ‘stuck’ at pre-GFC levels. PIP was asked to help reduce procured spend and build internal capability to prevent these costs returning.
Client achieved:
Maintenance, Repairs and Operations (MRO)
- Through consolidation and re-tendering, savings of over R8 million per annum (15% of addressed spend)
Labour Based Services (LBS)
- Through consolidation and re-tendering, savings of over R15 million per annum (over 9% of addressed spend)
Earth Moving Equipment (EME)
- Negotiated with the incumbent MARC supplier across the full range of service offerings, resulting in a 25% saving in EME maintenance costs, and eventual savings in excess or R20 million per year
Mining Contractors
- Consolidated rehabilitation and mining contracts to provide for reduced client risk, reduced contractor risk, and lower contract rates
- Introduced value-sharing incentives for further performance improvement that were focused on reducing total system costs
- First year savings of 9% and overall savings over R44 million per year
Draglines
- Through increased competition by introduction of new suppliers and better long term forecasting, saved over R27 million per year (14% of addressed spend).
Overall:
- Total savings of over R114 million per year (approx. 20% of addressable spend) against a diagnostic target of R104 m
- A greatly improved working relationship (better mutual understanding and collaboration) between procurement and operations was created.
- A ‘fit for purpose’ Strategic Sourcing team was installed at the client, capable of sustaining achieved savings and tackling ‘Wave 2’ categories.
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What we did:
- Conducted a diagnostic to establish what cost savings might be possible through Strategic Sourcing, which spend categories should be focused on, what Wiring changes would be required to support and sustain the changes and the necessary resources and timing to deliver the result.
- From around 20 procurement cost categories initially assessed, 5 priority (‘Wave 1’) categories were selected through consideration of value and ease.
- For each of the Wave 1 categories, a Strategic Sourcing process was followed involving:
- Vendor market analysis (number of vendors, location, size, client market share, frequency of business etc)
- Internal spend analysis (total value of ownership (TVO) analysis through Driver Trees, specifications audit, spend analysis by SKU etc.)
- Development of improvement hypotheses (opportunities for simplification, consolidation, renegotiation, retendering, collaboration etc.)
- Testing of hypotheses through structured analysis
- Agreement on explicit category strategies
- Strategy execution and support
This was supported by:
- Over 50 of hours of Strategic Sourcing training to client team members
- Establishing the necessary Wiring: metrics, tracking, and review processes for each category, and
- Organisational redesign
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