Procurement in Mining Best Practices

The rapid pace of urbanization, shifting markets, and the unrestrained march of digital transformation have revolutionized supply chains across industries. As companies expand, the critical role of departments such as sourcing and procurement becomes more pronounced. Chief Procurement Officers (CPOs) recognize the growing necessity for implementing procurement best practices and strategies to ensure success. Procurement is now a cornerstone of any effective supply chain or business framework. As we progress into this new decade, it's essential for CPOs to deliver efficient, high-quality, and beneficial performance.

The COVID-19 pandemic's initial impact saw mining companies grappling with a drastic drop in demand for essential commodities, resulting in reduced profitability. However, as global economies recover, there's a sudden spike in demand, necessitating that companies ensure their systems, strategies, procurement departments, and supply chains are primed to meet this renewed demand. Furthermore, the rise of environmentally conscious businesses and consumers has created a dual challenge: high demand for metals and a simultaneous need to reduce emissions and operate more sustainably.

5 Essential Procurement Best Practices for the Mining Industry

Supplier relationships and contracts form the backbone of the procurement process. Developing mutually beneficial contracts that meet company needs is crucial for satisfying demand, maintaining strong business relationships, and efficient production. Contracts should be comprehensive, accounting for potential risks, enabling timely decisions, and adhering to legal, environmental, ethical, and safety standards. Utilizing data-driven, standardized systems can significantly enhance contract development and management.

2 Establish Clear KPIs 

Tracking the performance of departments and employees is vital for business growth. Key performance indicators (KPIs) help monitor suppliers’ performance and facilitate necessary changes, such as contract revisions or termination of partnerships in favor of more reliable alternatives. KPIs also enable companies to track internal metrics like quality, lead time, efficiency, costs, and savings, aiding in the development of a streamlined organizational structure.

• Use Category Management 

The adoption of category management has revolutionized procurement best practices, making operations more efficient and organized. Clear categorization within the procurement department, managed by dedicated category managers, provides precise, data-driven insights that help improve business performance. This approach offers clear insights into supplier performance, identifies category-specific shortcomings, and highlights needs for equipment or training.

• Focus on Supplier Relationships 

Improving performance, offerings, business relationships, and strategies is crucial for sustainable success. In the mining industry, adapting to changing regulations, surging demand, and evolving consumer preferences is imperative. Building and maintaining strong supplier relationships is essential. CPOs and category managers should implement contract and performance-based procurement practices to foster robust partnerships that help achieve strategic goals and provide necessary support.

• Improve Contract Flexibility 

Developing contracts collaboratively with suppliers can create room for flexibility, ensuring both parties meet their needs without incurring excessive costs. Incentivizing timelines, addressing remediation costs, and managing high contingency costs are examples of this. A strong legal team, clarity on goals, and contract transparency are crucial for maintaining successful and adaptable contracts.

Guide to Optimizing Procurement for Mining Companies

• Purchase Request or Requisition: Simplify the purchase request process with easy-to-use controls to ensure compliance with business rules. Features like device accessibility, budget control, multi-level approval workflows, and real-time stock checks can enhance efficiency.
• Request for Quote (RFQ): RFQs manage the bidding process and secure competitive pricing. Useful features include sending RFQs to multiple suppliers, tracking responses, and converting RFQs into purchase orders with the selected supplier and pricing.
• Purchase Order (PO): POs help manage procurement by preventing duplicate spending, controlling budgets, tracking inventory, and evaluating vendor performance. Enhanced functionalities include multi-level signature management, budget control, and real-time linkage of ordered items with open requisitions.
• Receipts: Record stock received from suppliers, documenting details and adding items to inventory while awaiting invoices. Additional features like defining matching tolerances and recording quality checks ensure accuracy and streamline processes.
• Invoice: The final step in the procurement cycle, invoices should be linked to POs and receipt transactions for matching, with support for multiple statuses and multi-currency operations to ensure efficiency and accuracy.

The ConvergentIS Advantage

The ConvergentIS Procurement Gateway solution seamlessly integrates with SAP systems, managing every step from intake to payment without additional integration, making it especially beneficial for the mining industry. This officially certified extension for ECC and S/4 enhances vendor management on the SAP Business Technology Platform (BTP) or Ariba, consolidating procurement functionalities into a single, user-friendly dashboard. Key benefits include up to 50% cost savings, 75% reduction in administrative efforts, and 7x faster procurement workflows. Intake management creates an efficient front door for purchases, ensuring compliance and spend control, which is crucial for managing the complex supply chains in mining. The Buyer Cockpit facilitates PO and vendor management with real-time updates and alerts, essential for maintaining timely and accurate supply deliveries in remote mining locations.

Advanced goods handling supports various inventory scenarios with mobile-friendly applications, vital for managing extensive equipment and materials inventories in the mining sector. Service management ensures compliance and budget control, while accurate invoicing and automation reduce errors and administrative burdens, critical for the large-scale operations typical of mining companies. Comprehensive analytics leverage SAP's next-generation user experience, providing a holistic view of procurement activities across the entire SAP suite, allowing mining companies to optimize their procurement strategies and maintain operational efficiency in a highly dynamic and demanding industry.

Frequently Asked Questions

What is Procurement in Mining? 

Procurement in mining involves acquiring the necessary goods and services for mining operations, including equipment, materials, and services. It covers the entire process from identifying needs and sourcing suppliers to negotiating contracts and managing supplier relationships.

What Are the Top 3 Mining Procurement Challenges?

1. Supplier Management: Ensuring reliable and quality suppliers while maintaining strong relationships.
2. Cost Control: Managing fluctuating commodity prices and operational costs.
3. Regulatory Compliance: Adhering to environmental and safety regulations and adapting to changing legal requirements.
   
   

Get Started With Procurement Best Practices

Adopting procurement best practices is essential for mining companies to enhance value, boost production, and manage costs. Streamlining processes like Purchase Requests, RFQs, POs, Receipts, and Invoices significantly improves efficiency and budget control. Utilizing process mining software and establishing clear procurement requests can lead to better pricing, stronger supplier relationships, and more accurate inventory tracking. These practices enable substantial cost savings and a resilient supply chain that adapts to market demands and industry standards.

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