Mining Charter Ramps up Procurement Transformation

While much of the uproar surrounding the 2017 Mining Charter has been focused on changes that increase compliance thresholds for ownership, management and control of the holders of mining and prospecting rights as well as the ‘once empowered, always empowered’ principle, attention should also be paid to the significant impact the charter will have on mining sector service providers.

This is according to Chimae Goncalves, director of Supply Chain Partner, who says: “Despite mining rights holders only reporting compliance of 63% with the procurement requirements under the 2010 Charter in 2016, the latest amendments under the 2017 Charter increase the procurement compliance target by 10% — from 70% to 80% — with mining companies obliged to increase their procurement from black-owned companies from the date that the 2017 Charter takes effect.

“At the same time, industry measurement of procurement, including data on vendors, is not always accurate and detailed enough to fulfil reporting requirements. Industry wide procurement transformation is needed to facilitate this process.”

Mining rights holders must now ensure that at least 80% of their total spend on services is sourced from South African companies, of which a minimum of 65% of total spend must be sourced from black owned companies with a minimum of 50% + 1 vote being held by black persons, 10% from black owned companies with a minimum of 50% + 1 vote of its share capital being owned and controlled by black women, and 5% from black-owned companies with a minimum of 50% + 1 vote of its share capital being held by youth.

While measures and reporting pose a problem that can be solved with well-implemented technical solutions and focused supplier onboarding, Goncalves says there are other systemic problems which require strategic supplier development.

“Firstly, it’s unclear whether there are sufficient service providers in the market who would satisfy the detailed procurement requirements. Secondly, the level of detail on suppliers is not always available in the system to indicate ownership percentages of black women and youths. This makes supplier tracking and enterprise development even more important.”

Goncalves says the 2017 Charter does contain transitional arrangements, which give mining companies three years to align procurement spend with requirements.

“Whether the charter is ultimately implemented in its present form or not, the pressure is certainly on for compliance — and this requires a proper strategic review of procurement systems and practice with procurement taking a seat in the executive front row as part of the cost saving and critical compliance functions of the business.”

Beyond the push for compliance, Goncalves says value-generating procurement solutions are underrated among big businesses in the industry. “Procurement departments often lack resources, technology and leadership, yet they have to deliver such a vital function that is core to everything.

“When it comes to mining, getting ore out of the ground gets all the budget. Production is the focus. However, saving costs is also a key way to make money.

“There is a need to look at back office efficiencies and systems and to streamline processes across the whole system of suppliers, buyers and users to harness the value in procurement.”

Goncalves believes South Africa is behind in the procurement space. “Cloud procurement is still foreign to most South African companies. Collaborating with suppliers is unheard of; they aren’t treated like valuable partners. This needs to change for companies in the sector to comply.”
Supply Chain Partner focuses on introducing efficiency within the supply chain side of local companies, with special expertise in implementing the SAP Ariba Suite, including the strategy development, change management and supplier onboarding that goes with the adoption of a new tool.
“SAP Ariba is driving rapid innovations to simplify procurement, fulfilment, and financial supply chain management processes,” says Goncalves.
“Mines can have up to 3 000 suppliers to manage with complex risks in the commodities that these suppliers provide — consider explosives versus stationery. The start is having the right information — and maintaining it.”

According to Goncalves, giving buyers and suppliers cloud-based tools to manage everything from source to settlement — all in one place — makes a huge difference to the frequently manual processes and multiple excel sheets prevalent in procurement departments that make tracking, reporting and governance challenging.

For example, Contract Management provides one repository for the latest versions of contracts with electronic signatures. “It automates governance of the contract, ensuring the required sign-offs according to the required delegation of authority structure. Parties are also able to negotiate online, providing clear audit trail visibility.

Effective systems also feed into enterprise development scoring, enabling CSI and essential supplier development initiatives. Visibility and the ability to track the process helps facilitate effective enterprise development spend.”

Supplier onboarding, a service which Supply Chain Partner recently implemented at Impala Platinum, is critical, and mines often don’t have the capacity to ramp up internal resources for this.

“Compliance will still be a journey once the system tools are implemented. It can take up to ten helpdesk engagements with a supplier to get compliance. We recommend allocating part of the budget to onboard the critical suppliers, including setting up a supplier helpdesk.”

From a supplier’s perspective, answering questions in different formats from multiple companies can be challenging. Goncalves would like to see profiles synced with other SAP Ariba companies across the industry, so that suppliers only fill in forms once and maintain accurate information.
“A number of companies in the sector have implemented SAP Ariba — including Impala Platinum, Goldfields, Sibanye Gold and Sasol. There is room to share costs in an effort to more easily move the sector to compliance.

“It takes a lot longer to transform procurement than just implementing a system. Having the right strategy, tools and resources beyond technical implementation is absolutely key from the start,” Goncalves says.

“What makes Supply Chain Partner different is that we’re more than system integrators; we’re procurement professionals who understand the pain! With the requirements of the Mining Charter becoming more intense, it’s key to raise the profile of the platform and get senior executives to understand the value and opportunities inherent in efficient procurement throughout the organisation.”