Rio Tinto Strikes Gold

Charlotte Sutton
Charlotte Sutton,
Congratulations to mining giant, and PROACTIS customer, Rio Tinto! "Profits of $14bn in 2010 is an astonishing figure in contrast to the timid returns from the rest of the commercial world" catching the attention of the world's press and featured in this month's Procurement Leaders cover story.
The mining industry has seen its fair share of ups and downs - taking the lead in recession and now recovery. The latest turnaround follows the result of strong demand for commodities in Asia and the Far East, which has sustained activity in extracting base materials, minerals and fuel. In 2011, capital spending is estimated to rebound to three times of that for 2009 (>$60b), according to MICA company reports. Indeed rival BHP Bilton has announced plans it will spend upwards of $800bn over the next few years on 'organic growth projects', according to Supply Management.

Pressure of a Sharp Rise in Demand & Restricted Supply
As the sector increases its production levels and adds to mine expansion plans, the ongoing creation and management of an effective supply chain is paramount to success - not least in a market that is becoming increasingly capacity-constrained. The renewed confidence is filling the order books of the  manufacturers that support the industry. A sharp rise in demand will result in the need to effectively capitalize on supply across territories and create a supply chain that can cope with increasing number of projects, as well as manage a period of intense activity for Procurement teams. The pressure will be on to "do more for less" in the shortest possible timescales in order to sustain a competitive position.

Spend control and eProcurement will play a fundamental role here to support organizations growth plans. In particular, tools for sourcing, compliance management and supplier engagement:
  • Sourcing removes the constraints of offline/ unorganized methods that lead to missed opportunities in negotiated contracts with vendors, localized decision-making and non-repeatable processes that provide limited supplier coordination. It allows for competitive bidding; facilitating optimal pricing and vendor selection on a wide range of spend categories which results in very large savings when compared to traditional processes. This combines best-in-class processes with automation to complete the sourcing cycle, inclusive of project management, RFx automation, vendor identification, bidding/ negotiations, and advanced optimization tools.
  • Compliance management is the process of ensuring all organization-wide purchases are in line with corporate policies, established budgets and negotiated vendor agreements in order to avoid costly off-contract purchases. It also provides key performance indicators (KPIs) measuring adherence to stated policies and includes analytical capabilities where deviations occur.
  • Supplier Engagement is designed to handle sourcing, procurement, transaction processing, order management, and invoice and payment status functions, to create a single view of an organization's spending practices and manage engagement with a diverse range of suppliers - from initial registration, qualification and on-boarding; through sourcing events, periodic reviews and information updates; to daily purchase and payment activity. This is essential to build and leverage a strong supplier base, plus focus resources on high risk and/or high value suppliers, as well as high volume/ low value suppliers that consume a lot of manpower to manage. In addition, it enables better information exchange between Finance and Procurement to support forward planning and negotiation strategies and provide an early warning system where risk of supplier failure is likely.
PROACTIS has seen a marked increase in the number of oil, gas and mining sector organizations evaluating spend control & eProcurement technology to support their growth plans. These solutions range from sourcing best-value deals and vendor relationships to ensuring compliance and automating purchase-to-pay processes. Customers include ROC Oil, Northern Petroleum, AWE Ltd, RTZ Simandou and Addax Petroleum plus a number of vendors that support the industry.