Key takeaways
- Enhanced Value and Efficiency:
Implementing procurement best practices helps mining companies streamline processes such as Purchase Requests, RFQs, Purchase Orders, Receipts, and Invoices, leading to improved efficiency and budget control. - Stronger Supplier Relationships:
Focusing on effective contract management and maintaining robust supplier relationships ensures that mining companies can meet rising demand, adapt to market changes, and secure competitive pricing. - Improved Cost Management:
By establishing clear KPIs and utilizing category management, companies can closely monitor performance, manage costs, and achieve substantial cost savings, ensuring a sustainable and profitable operation. - Adaptability and Compliance:
Procurement best practices help mining companies remain flexible and compliant with evolving environmental regulations and consumer preferences, ensuring they can meet market demands while reducing emissions and environmental impact.
Mining procurement:How do Procurement Best Practices help Mining Companies?
Urbanization, evolving markets, and the advent of unencumbered digitization has led to a massive transformation along supply chains in every known industry. As companies grow, the relevance and importance of departments such as sourcing and procurement become increasingly evident, and CPOs witness the rising need for procurement best practices and other strategies or systems to propel success. Procurement has become among the most crucial tenets of any supply chain or business structure, and as companies enter the new decade, there is more need than ever before for CPOs to ensure an efficient, high-quality, and beneficial performance. During the initial outbreak of the COVID-19 pandemic, mining companies struggled due to the significant decline in demand for basic commodities, leading to low demand and consequently, low profitability. However, as economies recover, companies are facing a sudden surge in demand, and must ensure their systems, strategies, procurement departments, and supply chains are prepared to meet consumer demand. Another significant factor impacting the mining industry, is the evolution of environmentally conscious businesses and consumers, leading to high demand for metal, but an equally pressing need to reduce emissions and be more environmentally responsible.
Mining procurement: 5 Key Procurement Best Practices in the Mining Industry?
Effective Contract Management:
The procurement process is heavily dependent on supplier relationships, contracts, and the balanced management of both. Developing contracts that support both parties, and ensuring that the company’s needs are met is imperative to meet demand, maintain strong business relationships, and produce efficiently.
Companies must also ensure that the drafting of contracts accounts for potential risks, enables timely decision-making, and meets all legal, environmental, ethical, and safety needs. Utilizing data-driven and well-established, standardized systems is a significant contributor to effectively conducting business, developing contracts, and ensuring sustainable success for the company.
Establish Clear KPIs:
Closely tracking the performance of all involved departments and employees, is imperative to the growth of any business, and helps stakeholders and CPOs to determine the ideal decisions to be made. Key performance indicators (KPIs) help companies track suppliers’ performance and make necessary changes, such as reviewing and amending the contract, or terminating partnerships in favor of more reliable choices.
Additionally, KPIs also help professionals track internal progress of the company, including quality of offerings, lead time, overall efficiency, costs and savings, and other crucial metrics that indicate the success or shortcomings of a business. Establishing precise and clear KPIs helps companies develop a concise, efficient, and cooperative organizational structure.
Use Category Management:
The rising and effective use of category management has transformed procurement best practices, and made companies’ operations more efficient, sustainable, and organized.
Determining clear categories within the procurement department, and assigning category managers can provide CPOs and stakeholders with more precise, data-driven, and collaborative operations and insights to infer performance from, and improve upon the business.
The category management approach provides managers, and other professionals with clear insights into the performance of particular suppliers, shortcomings within a certain category, need for proper equipment or training, or the need for an additional partner.
Focus on Supplier Relationships:
Continuously improving upon performance, offerings, business relationships, and strategies is the most effective way to gain and maintain sustainable success.
As mining industry players struggle to keep pace with the rapidly changing regulations, sudden surge in demand, and changes in consumer preferences, finding the right supplier and maintaining mutually beneficial relationships has become more important.
CPOs and category managers must implement their contract and performance-based procurement best practices to further create and promote robust partnerships that help both parties achieve their strategic goals, and provide the company with the collaboration and support required to overcome all major industry developments. This practice will include revisiting terms of partnership, maintaining strong communication systems, and providing partners with the space to express their opinions and contribute.
Improve Contract Flexibility:
When companies and suppliers develop contracts in unison, there is often space for contractual flexibility, so that both parties may receive their demands without causing excess expense to either.
For instance, incentivizing certain timelines or projects, placing remediation costs, and encouraging the mitigation of high contingency costs. A strong legal team, clarity regarding the company’s goals and objectives, and transparency of the contract is essential to maintain a successful and flexible contract.
It is equally necessary to determine the nature of agreement, enable clear communication between parties to clarify financial matters, and establish relative transparency with regards to certain costs and terms.
Mining procurement: Guide to Optimize Procurement for Mining Companies
Purchase Request or Requisition
When an employee decides they need goods or services, the purchase request process should be simple and easy to use, with adequate controls to ensure compliance with business rules. Some helpful features include accessibility from any device, budget control to prevent exceeding budget limits, multi-level signature management to match approval workflow, and real-time stock check to avoid requesting items already in stock or on order.
Request for Quote
A request for quote (RFQ) is a request to one or more suppliers for pricing, terms, and product availability. Using RFQs can help manage the bidding process and obtain competitive pricing. Useful features may include sending the RFQ to multiple suppliers, sending reminders to suppliers who have not responded, tracking and comparing responses from multiple suppliers, and easily converting an RFQ into a purchase order with the selected supplier and pricing.
Purchase Order
Purchase orders play a vital role in managing a mining company’s procurement process. They help prevent duplicate spending, control budgets, track encumbrances, manage inventory, evaluate vendor performance, and serve as a legal contract with suppliers. Additional functionality can transform purchase orders into efficiency tools, including multi-level signature management, budget control, ability to split a line into multiple delivery sites, and real-time checks to link ordered items with open requisitions if appropriate.
Receipts
Receipt transactions record stock received from a supplier, documenting when, where, and how much product was received. Receipts add items to inventory for use while awaiting the invoice. Incorporating checks and balances into the receipt process can ensure accuracy and streamline downstream processing. Additional capabilities include defining matching tolerances, splitting received items across multiple locations/warehouses, recording quality check information for each item, and preventing damaged goods from entering available stock.
Invoice
Invoices are the final step in the procurement cycle and can be entered against purchase orders or receipt transactions. Features to promote efficiency and accuracy during the invoicing step include support for multiple statuses, linking invoices to purchase orders and receipt transactions for matching, and multi-currency support for global operations.
Success Story – SpendEdge Advantage
The mining industry is highly susceptible to the current state of the economy, fluctuating values of commodities, metals, and energy, and changing regulations. Additionally, the rise of environmentalism has transformed the approach that mining companies can take to their activities, and given rise to more careful and calculated operations, as well as the need for improved equipment. The sudden decline during the pandemic, and subsequent surge in demand due to recovering economies caused major operational and structural challenges for a growing mining company. Due to the unstable nature of the market, the company chose to partner with SpendEdge and leverage our expertise in identifying, evaluating, and implementing procurement best practices. The company sought to keep pace with demand, overcome the major fluctuations within market dynamics, and prepare for the upcoming era of growth. Our experts closely assessed the systems, strategies, and functions taking place in the procurement process, and identified various challenges, including lax contract management, minimal focus on supplier relationships, and non-existent performance metrics. To help the company, the experts provided the supply chain and procurement team with clear guidance and instruction regarding various procurement best practices, and helped them improve operations significantly. With these actionable insights, the company increased production to meet demand, minimized losses and risks, improved supplier relationships, and kept pace with the evolving market.
Conclusion
Adopting procurement best practices is crucial for mining companies to enhance value, boost production volumes, and manage costs effectively. By streamlining processes such as Purchase Requests/Requisitions, Request for Quotes (RFQs), Purchase Orders (POs), Receipts, and Invoices, companies can significantly improve efficiency and budget control. Utilizing process mining software and establishing clear procurement requests can lead to better pricing and competitive pricing through stronger supplier relationships and more accurate tracking of stock received and inventory. These practices enable procurement organizations to achieve substantial cost savings and maintain a robust supply chain that adapts to market demands and evolving industry standards.
