 Although gold is glittering on world markets and the rand is surging, the weak dollar has wiped some of the shine from the South African gold mining industry. Caught between a rock and a hard place—with sluggish rand earnings on one side and soaring costs on the other—South African gold mining companies must tap into new veins of opportunity to bridge the gap.
The easy way out would be to trim staff. For Gold Fields Ltd., one of the world's major gold producers, that is not the first option. Corporate responsibility aside, Gold Fields needs every one of the 40,000 people it employs at its three South African mining hubs—Kloof and Driefontein in the West Wits region and Beatrix in the Free State. "Because of the nature of the reef we mine, our operations are labour-intensive with relatively little potential for mechanisation," says Mike Mitchley, vice president of commercial services. With 40,000 people to pay, clothe, feed and house, it is hardly surprising that Gold Fields' staff costs are significant, accounting for 52 percent of its operating costs. While high staff costs were a given, Mitchley and his team were convinced that substantial cost-savings lay elsewhere, specifically in the supply chain. "On the back of a very good project, where Shared Services had saved 30 percent in stockholding at West Wits, we were confident that there were more opportunities to explore," Mitchley says. Shared Services is a consolidated unit combining procurement, finance, payroll, inventory and engineering workshops, and was created in mid–2003 to serve all three of Gold Fields' South African mines. Towards the end of 2003, targeting savings in procurement, Shared Services approached three consulting firms for proposals, resulting in Accenture winning the contract. "We were very confident in their ability to deliver," Mitchley says. "The fact that they had won the Supply Chain Provider of the Year award didn't do any damage either." Accenture shared this confidence—so much so that the company entered into a value-sharing arrangement with Gold Fields, reducing the normal fee in exchange for a share in the savings achieved. Starting Small, Gathering Momentum
Accenture's starting point was to conduct a procurement audit to analyse Gold Fields' goods and services expenditure, identify savings opportunities and prepare Shared Services for high-performance delivery. During the three-month study, the project team fine-combed Gold Fields' procurement spending, processes, systems and skills, and at the same time ran a pilot sourcing project on conveyor belts, a crucial commodity in gold mining. "In the pilot project, we used an electronic auction and achieved a 40 percent saving on conveyor belts," Mitchley says. "That got everybody's attention and really filled us with confidence." Emboldened, Gold Fields and Accenture moved into phase two of what has been named Project Beyond. In the second phase, the aim was to work through approximately R1 billion of total procurement spend, with a targeted saving of 10 percent. By June 2005, Project Beyond had lived up to its high-performance potential, achieving R101 million in contracted savings against the R94 million target. "Where we were aiming for 10 percent, the actual saving was 12.3 percent," Mitchley says. "It was brilliant. We were thrilled at how significantly the project would contribute to Gold Fields' bottom line." Breaking Procurement Paradigms
These savings followed some fundamental changes in procurement strategy. One was to move away from spot-buying into longer term contracts with commodity suppliers, using the knowledge gained from Gold Fields' newly acquired insight into local and international market trends and pricing. "Traditionally, we were price-takers, buying whatever was available," says Marinda Willis, materials manager at Gold Fields' Shared Services. "Today, with the industry analysis we have, we are able to prepare and strategise strong negotiating positions. With this kind of insight, you can really start negotiating win-win arrangements with suppliers." Mitchley agrees. "We have moved away from the short-term approach towards longer term partnerships with suppliers. In essence, we've started saying to vendors: 'We want a long-term, mutually beneficial relationship with you. Let's work together to see how we can improve each other's bottom lines.'" Gold Fields also crossed South Africa's borders in search of suppliers. "We identified opportunities to look at the import of certain commodities such as conveyor belts, which wasn't an option before because we didn't have enough of a global view," Mitchley says. An important addendum to this, however, is that local suppliers have not been sidelined in the Gold Fields supply chain. "In looking globally, at no stage did we compromise local or black economic empowerment (BEE) suppliers," Mitchley says. The figures bear this out. In 2003, only eight percent of Gold Fields' procurement spend was with BEE vendors. This has since risen to 32 percent. "What this says is that our [South African] suppliers are very competitive," Mitchley says, "and that you can drive value into the business and at the same time support BEE commitments." Culture of Collaboration
Another element of Gold Fields' new procurement strategy is to encourage internal collaboration by drawing its technical and operational people into negotiations with suppliers. "In the past, decisions were taken that they had no opportunity to influence," says Willis. "The operational people had to use the product, right or wrong. Now they form part of the negotiations." Going hand-in-hand with these changes was intensive capacity-building and skills-transfer from Accenture, so that Shared Services could run with the ball and drive ongoing savings. Both Mitchley and Willis say that savings will continue to flow from Project Beyond. In the third phase, now under way, they are targeting yet another R70 to R100 million in savings. Although the rands and cents of Project Beyond are compelling, Mitchley says its impact has been broader and deeper than the immediate bottom line. "We are seeing the beginning of culture change. Our guys are very different people from what they were a year ago—they are becoming entrepreneurial. "Before Project Beyond, we were a typical mining business," he says. "People were chasing their tails to get things done, all the while believing they were under-resourced when the real problem was that they weren't doing the right things." "Accenture broke the paradigm by helping us take procurement from an order-placing service to a source of strategic advantage and a differentiator for Gold Fields. Among mining companies, gold and otherwise, I would say we probably have one of the better supply chains." To Top |