Enhancing the procurement function to capitalize on evolving market trends
The effects of climate change and the associated rising stakeholder expectations, coupled with global supply chain volatility, are forcing mining organizations around the world to reshape their operations to address market demands, mitigate risks, and capitalize on emerging opportunities. This sentiment was echoed in our annual report, where mining and metals companies ranked environmental and social issues, decarbonization, and license to operate as their top three risks and drivers for change. As a result, there are several evolving trends disrupting the sector that organizations must analyze and address to remain competitive.
> Miners are experiencing ongoing volatility in supply, demand, cost inflation, and geo-political factors that are increasing the push towards the regionalization of supply chains. Companies must explore opportunities to improve supply chain resiliency, mitigate risks, and develop contingency plans when faced with disruption.
> License to operate is at stake due to increasingly complex and rigorous requirements regarding water management, decarbonization, community satisfaction, and clean energy transitions. Miners must positively contribute to the environment and find ways to innovate to secure capital from investors and secure their license to operate.
> The sector can benefit from global economic market recovery and the growth forecast that exists within the industry. Commodity prices are increasingly driven by growing demand due to government stimulus, impacts of the vaccine roll out, supply chain volatility leading to low inventory and forecast shortages, as well as growth in the battery sector.
> Increasing pressure from stakeholders, investors, and governments to drive better environmental, social, and governance (ESG) performance is pushing mining companies to consider how they can increase supply chain transparency to include areas that are external to the core business (Scope 2 and 3 emissions reporting).
In this ever-changing business climate, mining organizations are constantly seeking opportunities to drive profitability, long-term value, and protect their license to operate. By leveraging the procurement function, organizations can reduce supply chain volatility, capitalize on market recovery and growth forecasts, drive transformational change, increase value chain transparency, and address ESG and decarbonization considerations. To do so, mining organizations must consider the following core imperatives:
1 Optimize spend through category management to ensure effective sourcing strategies and management are in place for critical supply chains. Significant opportunity exists to integrate or enhance category management through the review, planning, and strategic management of spend, sourcing events, contracts, and suppliers. Mature organizations can further enhance existing category management functions by integrating it across the value chain and increasing focus on ESG practices and technology use.
2 Streamline the procure-to-pay (P2P) process to drive compliance, transparency, and get the right product to the right place at the right time. Embedding efficiency into the P2P process is vital to the organization’s operational excellence, as the process spans across a variety of business units such as procurement and accounts payable. Having an effective P2P process can ensure miners have increased transparency throughout their operations.
3 Develop strategic partnerships with suppliers to drive mutually beneficial value and innovation. Developing or improving the supplier relationship management (SRM) function can help mining organizations mitigate supply and demand risk that may arise due to unexpected disruptions. SRM is built on a foundational framework that includes a supplier segmentation strategy and plans for managing and developing core business partners.
4 Increase ESG compliance to secure license to operate and ensure access to capital. By integrating ESG practices throughout the procurement function, organizations can ensure long-term, sustainable economic growth and social progress during and beyond the life of their mines.
An additional emerging imperative that spans the procurement function is technology integration. The importance of technology in procurement has been highlighted by the unpredictable business climate, and the need to digitize business functions to allow for remote work. Both ESG and technology can help organizations differentiate while working towards sustainable procurement goals and achieving end-to-end visibility across their supply chain.
BIJU GEORGE is an Associate Partner, Consulting, at EY Canada. For more information, please visit www.ey.com/en_ca/mining-metals.