Globally, the mining industry is massive. As in $2 trillion big. And big mining implies big spending. Overall, the mining industry’s ongoing procurement spending amounts to around $200 billion annually.
As a result, mining procurement is a key factor driving value for mining firms and their stakeholders. But it is difficult for the mining industry to get the procurement process right. Mining procurement is complex because of a variety of factors—from the instability in the global supply chain to pressure to deliver sustainable projects.
For example, if you can’t access essential supplies, how do you scale production as demand for materials like copper and cobalt rises? Mining requires a wide range of equipment, supplies, and services that are often specialized and not widely available. This can limit the number of qualified suppliers and lead to higher costs and longer lead times.
In addition, mining operations are often located in remote areas, requiring a complex network of suppliers and logistics providers to support their operations. This can make it challenging to manage and coordinate the flow of goods and services, leading to delays and increased costs.
Not only is the mining procurement puzzle complicated, but it also holds the power to unlock value and transform owner-contractor-supplier relationships.
Ranking Mining Procurement Pain Points
Clearly, increased mining procurement spending is a driver in the industry. Just like other heavy asset industries—oil and gas and pulp and paper—there is a need to reduce cost, mitigate risk, and ensure compliance across the supply chain.
What is holding the mining industry back when it comes to accomplishing its procurement goals?
In MCi’s study of top executives at 140 mining companies, we found survey respondents used the same methodology to identify procurement department challenges as they used to rank contract management pain points.
They cited procurement pain points around:
- Variation in agreement terms
- Managing vendor disputes/concerns
- Vendor insurance, certifications, etc.
- Negotiation of terms
- Managing purchase orders
- Vendor audits
At a high level, the top three challenges for procurement departments include negotiation of terms, managing vendor disputes or concerns, and managing purchase orders.
Let’s take a closer look at these challenges and how to overcome them:
Challenge No. 1: Negotiation of Terms
McKinsey says as many as 4 out of 5 mining projects come in late and over budget by an average of 43%. When it comes to megaprojects, they say it’s more like 98% of projects are 30% over budget.
As you’ll see, all these challenges for procurement departments correlate to staying on budget. Variations in agreement terms and negotiation of terms can have a huge impact on budgets.
One way to keep from going over budget is to confirm payment according to exact terms and conditions. With digital tools that help mining companies automate their processes, they can gain oversight into spending and record keeping.
With the right technology, mining companies can easily confirm whether contractors are adhering to all terms and conditions. Standardizing and managing contracts, including variations in agreement terms, can be a game-changer for both owners and contractors.
Challenge No. 2: Managing Vendor Disputes or Concerns
Strong relationships with vendors are critical to success. Mining companies can establish long-term partnerships with vendors by demonstrating a commitment to fair and transparent business practices, and by providing ongoing support and feedback.
But working with hundreds of contractor companies is challenging. How do you balance contractor cost, quality, and efficiency to keep workflows running smoothly and balance sheets healthy?
Managing vendors require building relationships, tracking expenditures, and having visibility into the effectiveness of the contractor workforce. Spreadsheets simply can’t capture the complexity of many contractor relationships on a granular level. Each contractor has multiple agreements, and each agreement has many different terms and conditions.
Owner-vendor accountability is achievable with the right contractor spend management solution. This allows mining companies to automate and simplify the work-to-invoice process to ensure accountability and prompt payment for both owner and vendor.
As a result, disputes and concerns are more easily addressed when there is a shared version of the truth.
Challenge No. 3: Managing Purchase Orders
EY studied 192 global mining and metals projects worth more than $1 billion. They found 64% ran over budget or schedule – or both – with the average cost overrun sitting at 39%.
Without digital procurement platforms, managing purchase orders at this scale can be particularly challenging for mining companies. For example, how do you coordinate and manage purchase orders if suppliers are in different regions or countries?
Managing purchase orders—especially in remote areas—can be hard if companies are trying to purchase goods and services from multiple suppliers from different locations.
Digital procurement platforms can improve visibility and control over the procurement process. Mining companies need to use data and analytics to optimize inventory management and supplier relationships.
Even better. Choosing solutions that interface with existing Enterprise Resource Planning (ERP) systems means mining procurement departments can receive and break down purchase orders and work orders in real-time.
Staying Ahead of the Game with Digital Solutions
While the mining industry is constantly evolving, with new technologies and innovations, procurement professionals also need to stay up to date on the latest trends and technologies.
To stay ahead of the game, mining companies are encouraged to take advantage of digital tools to reduce their costs and make contractor management more efficient, and more transparent. In doing so, companies reduce bottlenecks, more accurately control spending, and increase successful project results.
Many of these initiatives need to start at the top. If senior management struggles to integrate data across multiple legacy systems and equipment, how will all employees embrace new tools?
Take the Next Step with TRACK
The software market can be an overwhelming space, but the TRACK® Platform is uniquely positioned to benefit mining companies and their operations. Using real-time data, automated tracking, and integrated contract compliance, TRACK gives unprecedented visibility into your workforce, productivity, and spending through a comprehensive set of capabilities.
Here are some of its benefits:
- Reduce delays in productivity with oversight, including proper skill-mix evaluation
- Prevent overspending with the ability to calculate and manage budgets electronically
- Increase contractor visibility – manpower, maintenance, and scheduling in real time
- Standardize and manage contracts, including variations in agreement terms
- Gain insight for favorable negotiations
- Manage purchase orders integrated with Enterprise Resource Planning (ERP) systems
- Deliver pre-audited hours and costs for auditors
- Run accurate budget reports using real-time information.
