SA Mines and Energy Journal : April-May 2011
APRIL/MAY 2011 SA MINES & ENERGY JOURNAL 13 BUSINESS Resource companies are risk averse and, not surprisingly, so are their financial backers. It follows that to be part of their supply chain, an SME also needs to minimise the business and technical risks they bring to the project. Being technically skilled is often not enough. Large projects can be very complicated. Each project will have as many facets as it has suppliers and, more often than not, these suppliers will be SMEs. Of course, each SME brings its own risks to the process and it is the job of procurement staff within the resource company to minimise and mitigate these risks. That the procurement team does this, and generally well, is no surprise. What may be surprising, however, is the real procurement cost to the company. When the bottom line is itemised, the true costs are identified and the company's desire to deal with SMEs in the future may diminish. Consider this example: Australia's Newcrest Mining Limited is at the leading edge of procurement in the resources sector. They have a centralised procurement model where all mine sites' needs and contracts are managed. For large projects, Newcrest uses an Engineering, Procurement and Construction Management contractor (EPCM). Despite this, Newcrest still physically processes over 200,000 invoices per annum. With such resource intensive demands, the key focus of Newcrest's procurement team is on processing improvement through automation and supplier management wherever possible. Big companies regularly review the number of suppliers they have and will not hesitate to cull those thought to introduce risk -- often regardless of their technical capability. In a nutshell, suppliers will be favourably looked upon if they can demonstrate a sustainable business model. They need to demonstrate they can be in the supply chain for the long haul and grow and adapt as the needs of the resource company change. Requirements resources companies are looking for, but don't necessarily publicise, include a health and safety plan; 3-5 yr business development plan; employee relations plan; minimal key customer reliance / broad customer base; clear and relevant KPIs; an understanding of upstream and downstream value chains; improvement plans to drive value enhancement over time and IT expertise to cope with increasing levels of e-commerce. These items are also elements of most good businesses and it should be a focus of SME managers to build as many of these capabilities as possible into their business. They should form the basis of a capability statement when seeking to supply to companies like Newcrest. Enterprise Connect Business Reviews are a starting point to begin or continue the journey to become "tender ready" . They are free and can lead to grants to assist in building the required elements. http://www.enterpriseconnect. gov.au/who/resources Tender ready Mark Osborne from Enterprise Connect discusses what small to medium enterprises (SME's) need to focus on in targeting resource companies.