4 Levers For Driving Value In Mining Projects And Operations.
Driving value in global mining projects and operations when supply chains are stressed is a challenge. We live in uncertain times; international supply chains are presenting many risks and costs are rising. Axis Group International, an Imperial company, has supported mining projects and operations with global procurement and supply chain solutions for over 20 years. Hence, we share insights and lessons learnt now that procurement and supply chain have been elevated as a key value driver for resources companies around the world.
Global supply chain risk is top of mind for resources companies
The global market was severely disrupted 2 years ago when the ultimate black swan event occurred, the COVID-19 pandemic. The impact of full or partial lockdowns, the abrupt drop in international travel and exchanges, and severe disruptions in most international supply chains will take years to recover. Apart from the closure of businesses or lockdowns preventing the flow of goods, other supply chain crises have also occurred throughout this pandemic, such as the blocking of the Suez Canal, a global chip shortage, and skyrocketing container prices, to name only a few. The war in Ukraine is the latest development that further complicates supply chain management. This multitude of converging risks have increased the pressure on businesses and their global supply chains.
Moreover, these disruptions have impacted all regions and industries, including the global resources sector – both in inbound and outbound supply chains. On the inbound side determining viable global supply clusters; matching spend categories, products, and packages to appropriate suppliers; and ensuring a sound and robust procurement and supply process and infrastructure require an innovative approach to navigating through this era of increased interconnection and turbulence.
Opportunities exist despite risky terrain
China became the world’s largest exporter in 2009, surpassing the US and Germany who had been the top 2 competitors for that position for decades. However, despite China’s dominance as a global exporter over the last decade, we have also observed growing potential in new markets for spend categories that are relevant to the resources sector. These include countries such as Poland, Czechia, Mexico, and India. While we do not envisage any of these markets individually challenging China any time soon in a serious manner in typical mining industry spend categories, they should continue to be watched for their long-term potential to be role players as part of the overall competitive supplier base landscape. Similarly, the urgent need to focus adequately on domestic and local suppliers – across all mining jurisdictions – also needs to be balanced with the need to tap the right global supply markets.
We do expect costs to slightly increase in China over time; however, the world’s leading supply market will remain highly attractive as a competitive ‘one-stop shop’, and a globally integrated option for the resources sector. Resources companies focused on cost, quality, and speed will need to develop improved methods of working with their Chinese suppliers. Parallel to this, new supply markets collectively are making up a new pool of supply and several need to be nurtured – in multiple regions – to de-risk the global supply chain and take full advantage of the next big supply opportunity.
To solve the challenges of driving global procurement effectively, we propose a new look at the approach companies take and how they utilise 4 strategic levers: (1) Global procurement strategic intent & execution, (2) Working with China, (3) Investigating new alternative markets that matter, and (4) Supply cluster & category choices.
It is essential that senior leadership buy into the benefits of global supply and that there is a clear link back to corporate objectives. To achieve this, the following must be prioritized when implementing a robust global sourcing strategy and execution framework:
2. Appreciate China’s role in global supply chains
It is often asked what the ‘winning formula’ is for effective procurement from China. Successful China procurement is the result of a comprehensive set of complex and highly specialized processes. Distilling this down to a ‘magical recipe’ for success is no simple task and there are no shortcuts. To get China right, some of the top priorities should be:
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3. Effectively leverage new alternative global supply markets that matter
China’s role as the largest global supplier should be appreciated; however, there are several emerging markets that have grown in the rankings amongst the top global exporters. Mexico, Vietnam, India, Poland, Czechia, and Turkey, to name a few, have steadily increased their share of global exports, and are continuing to challenge the traditional export leaders.
Priorities when exploring new markets should be:
Meanwhile, it is very important to note that Germany, the US, Japan, and other developed markets are still renowned for high quality, high-cost products, but the emerging developing markets provide alternatives that are also high in quality but are more competitive in cost. Getting the trade-off right is important and certainly not easy. Again, it is also very important to always incorporate appropriate local or domestic supply across projects and operations.
4. ‘Supply cluster & category choices’ matter more than ever before
Successful global procurement requires making smart ‘supply cluster & category’ choices:
Effective global sourcing is by no means an easy task. There are many challenges and obstacles: gaps in team skills and capabilities, information asymmetry, time pressure, complexity, lockdowns, travel restrictions, end-user resistance, change management requirements, technical standards, etc. Language, culture, distance, views on contracts, and managing quality and inspections also come into play.
However, current risks and shifts in global supply chains make it imperative and a priority for resources sector procurement managers and teams to get it right. When done effectively, global procurement and supply present a powerful lever for driving value in the resources sector – in projects but also in ongoing operations – that can reduce cost, manage quality, expedite schedules, mitigate risk, and ensure important ESG compliance across the supply chain.
Imagine the entire world as your supply marketplace
Axis Group Global Procurement & Supply?has supported mining projects and operations worldwide for over 20 years. Our solutions are truly integrated and span the entire international value chain from source to final supply – including analytics, sourcing, procurement, supplier performance management, quality management, inspection, expediting, and logistics.
If your project or operations are challenged by unacceptably high costs, extended lead times, or supply risk, we can potentially support. Reach out to Axis Group International in Australia, Asia, or Africa at?[email protected].