Managing Global Procurement and Supply ‘Risk & Cost’ in the resources sector can be challenging. We live in uncertain times and international supply chains are shifting and stressed, while costs are rising. Axis Group Global Procurement & Supply, an Imperial company, has supported mining projects and operations for over 20 years and we share insights and lessons learnt now that global developments have elevated procurement and supply chain as a key value driver for resource companies around the world.
Global conditions elevate risk in supply chains
Globalisation, which redefined global trade and business over the last century, was already starting to lose its sheen prior to Covid-19 with a multitude of converging risks. Brexit and a trade war between the two largest economies in the world, the United States and China, showed a new phase of inward thinking when it came to global trade. Latest and rapidly evolving technological and environmental landscapes were starting to impact industries at a rate that had not been seen since the first industrial revolution. Then, the situation was exacerbated by something unthinkable, the ultimate ‘black swan’ - a global pandemic that crippled the healthcare infrastructure throughout the world and forced most of it to go into full or partial lockdowns for more than 18 months already. This multitude of converging risks, has increased the pressure on global supply chains.
These disruptions have impacted all sectors, including resources. Determining viable global supply clusters; matching spend categories, products and packages to appropriate suppliers; and ensuring a sound and robust procurement and supply process and infrastructure requires an innovative approach to navigate through this era of increased interconnection and turbulence.
Where there are risks, there are opportunities
Over the last ten years, we’ve observed growing potential in new markets for spend categories that are relevant to the resources sector. These include countries such as Poland, Czechia, Mexico and India. However, we do not envisage any of these markets individually challenging China any time soon in a serious manner on typical spend categories.
We do expect costs and risk to slightly increase in China over time, however, the world’s leading supply market will remain highly attractive as a competitive ‘one-stop shop’, and a globally integrated option for the resources sector. Resource companies focused on cost, quality and speed will need to develop improved methods of working with their Chinese suppliers. Parallel to this, new supply markets collectively are making up a new pool of supply and several need to be nurtured - in multiple jurisdictions - to de-risk the global supply chain and take advantage of the next big opportunity.
To solve the challenges of driving global procurement effectively, we propose a new look at the approach companies take to: (1) Global Sourcing Strategic Intent & Execution, (2) Working with China, (3) Investigating New Markets that Matter, (4) Supply Cluster & Category Choices.
1. Global Sourcing Strategic Intent & Execution
It is essential that senior leadership buy into the benefits of global supply and that there is a clear link back to corporate objectives. To achieve this, the following must be priorities when implementing a robust global sourcing strategy and execution framework:
- Strategic Intent
- Leadership and governance support
- Representative team across the organisation
- Partnerships that work
- Exemplary execution
- Analysis and decision-support
- Validation to de-risk
- Implementation and change management
2. Working with China
It is often asked what the ‘winning formula’ is for effective procurement from China. Successful China procurement is the result of a comprehensive set of complex and highly specialized processes. Distilling this down to a ‘magical recipe’ for success is no simple task and there are no shortcuts. To get China right, some of the top priorities should be:
- China supplier relationships management
- Leverage on-the-ground presence
- Joint Environment Social and Governance (‘ESG’) objective setting
- Quality, inspection and expediting
- Solid logistics management
3. Investigating New Markets that Matter
China has risen to be the world’s largest exporter. However, there are several emerging markets that appear in the rankings of top global exporters. Mexico, Vietnam, India, Poland, Czechia and Turkey, to name a few, have steadily increased their share of global exports, and are continuing to challenge the traditional export leaders.
Priorities when exploring new markets should be:
- Leverage strategic intelligence, data and analytics to calibrate risk & cost
- Develop team capabilities and reach
Meanwhile it is very important to note that Germany, the US, Japan and other developed markets are still renowned for high quality, high-cost products, but the emerging developing markets provide alternatives that are also high in quality but are more competitive in cost. Getting the trade-off right is important and certainly not easy.
4. ‘Supply Cluster & Category’ Choices for the Resources Sector
Successful global procurement requires making smart ‘supply cluster & category’ choices:
- Match appropriate categories to local procurement options, incumbent suppliers and emerging global supply markets
- Get the right balance between responsible inclusive local procurement and global procurement
- Do not sacrifice or cut corners when it comes to ESG goals
- Learn to phase activity and stage risk-taking to make bigger strides and impact over time
Getting Global Sourcing Right
Effective global sourcing is by no means an easy task. There are many challenges and obstacles: gaps in team skills and capabilities, information asymmetry, time pressure, complexity, lockdowns, travel restrictions, end-user resistance, change management requirements, standards, etc. Language, culture, distance and views on contracts or managing quality and inspections also come into play.
However, current risks and shifts in global supply chains make it imperative and a priority for resource sector procurement managers and teams to get it right. When done effectively, global procurement and supply present a powerful lever for driving value in the resource sector that can reduce cost, manage quality, expedite schedules, mitigate risk, and ensure important ESG compliance across the supply chain.
Imagine the entire world was your supply marketplace?
Axis Group Global Procurement & Supply has supported mining projects and operations worldwide for over 20 years. Our solutions are truly integrated and span the entire international value chain from source to final supply – including analytics, sourcing, procurement, supplier performance management, quality management, inspection, expediting and logistics.
If your project or operations are challenged by unacceptably high costs, extended lead times or risk, we can provide additional capability. Reach out to Axis Group International in Australia, Asia or Africa at solve@axisgroup-international.com.