Newmont Mining digs up master plan for global procurement overhaul
By William Aktinson -- Purchasing, 2/15/2007 2:00:00 AM
These days, it's a tight supply market in the mining business. Mines are being strained to capacity because of burgeoning demands for raw materials around the world, especially from China and India. The mining supply industry tends to be narrow, with few suppliers specializing in the products and services required to keep mines running. While some procurement executives might find beads of sweat forming on their brows as they face these challenges, Lance Throneberry, director of supply chain management for Newmont Mining Corp. in Denver looked at the situation as an opportunity to create a completely new procurement structure, one focused on efficiency and effectiveness.
Newmont is one of the world's largest gold mining companies, operating about a dozen mines in North America, South America, Asia, Australia, and Africa.
Newmont spends about $4 billion a year for products and services ($1.43 billion on bulk commodities, $1.35 billion on contract services, $815 million on mining equipment, $323 million on process equipment, and $136 million on transportation and logistics).
“When operating worldwide, you need to be get the maximum value-add out of your supply chain,” points out Throneberry. The way to do this, he believes, is segmentation. This involves gaining a comprehensive understanding of the mine's data and supply base in order to be able to put focus on working most closely with the suppliers of high-value, high-risk goods and services.
Throneberry actually first became interested in rebuilding the supply chain management structure in 2000. (In 1995 he joined the company's internal audit department.) In 2000, Newmont already had a pretty significant global e-business initiative in place, utilizing a mining industry electronic marketplace called Quadrem, a global transactional platform that operates on six continents. “Around this time, we began to coordinate our suppliers throughout the supply chain via a common network,” he recalls. “We then realized that there were other value-added applications we could implement to help us manage our business and improve our relationships with our suppliers.”
To move ahead with this initiative, Newmont started by developing a supply chain master plan. The initial goal was to begin to understand its supply chain so, again, it could focus its attention on the suppliers of high-value, high-risk categories.
 "When operating worldwide, you need to be get the maximum value-add out of your supply chain.” —Lance Throneberry |
Key to the success of this was adopting a category management approach. “Category management is fundamental to managing categories of business services and materials that have consistent behaviors in a similar fashion at all levels: global, regional, and local,” explains Throneberry. The company developed consistent strategies for each category, such as OTR (off-the-road) tires, process equipment, and mobile equipment. It then began to manage each supply base consistently, irrespective of the individual suppliers in each supply base.
According to Throneberry, there are two fundamental processes embedded in category management. One is strategic sourcing. “In it's most simplified form, strategic sourcing is due diligence around what you need and what the supply community can provide, then making the best match between what we need and what they can provide,” he states.
The second is supplier relationship management. Newmont categorized suppliers into four quadrants. The bottom left quadrant (called Non-Critical) focuses on low-value, low-risk suppliers and supplies, mostly standard commodity items. The strategy for this quadrant emphasizes automation, consolidation, and rationalization. About 70% of Newmont's suppliers are in this category.
The top left quadrant (called Leverage) focuses on high-value, low-risk suppliers and supplies. These are suppliers and supplies that are in a competitive market, but substitution is possible. The strategy to manage this quadrant, which covers 21% of Newmont's suppliers, emphasizes hard bargaining.
The bottom right quadrant (called Bottleneck) focuses on low-value, high-risk suppliers and supplies. These tend to be unique spec items that are difficult to substitute. The strategy is to ensure supply via guaranteed supply agreements. Seven percent of the company's suppliers are in this category.
The top right quadrant (called Strategic) focuses on high value, high-risk suppliers and suppliers. These include supplies where continuous availability is essential, and substitution is difficult or impossible. This strategy emphasizes building and maintaining partnership relationships. About 2% of its suppliers are in this category.
While only 2% of the company's suppliers are in the Strategic quadrant, a significant amount of time and emphasis is spent here. “We implemented standard, disciplined, and systematic processes to manage this part of the supply base,” notes Throneberry.
There are actually three components to managing this quadrant. The first component is a standard interaction plan. This addresses questions such as: How often do we meet with these suppliers? What do we meet about? How do we share information? When do we trade information? What is the content of the information we trade?
The second component is a supplier scorecard program. Newmont utilizes three scorecards. One focuses on how Newmont performs as a buyer. The second is how the supplier performs relative to the goods or services it provides. The third is a technical or product scorecard that looks at how the product itself actually performs.
The third component is a continuous improvement initiative. This involves working together to create value for both parties. Key to success here has been to identify four tiers within the supplier relationship management framework, then implement the appropriate strategy in each for continuous improvement. The top tier is Alliance suppliers. The second is Strategic suppliers. The third is Preferred suppliers. The bottom tier is composed of Approved suppliers. “We have fewer suppliers at the top of the pyramid, in the Alliance category, but this is where we focus more of our time,” he adds.
“As we go down the pyramid, our philosophy is to use tools to manage the remainder of the suppliers, where the relationships are more transactional in nature,” he states. Two of the tools are provided by Oniqua Enterprise Analytics. One is an internal scorecarding tool that allows Newmont to aggregate its system data consistent with the segmentation and to provide scorecards within the segments. The other is an inventory optimization tool that aggregates data by impact code and tells Newmont what it needs to store more of and less of, and what is the optimized level for each item.
Looking back over the effort, Throneberry traces its evolution. “We began with electronic reverse auctions, and then moved forward into transactional efficiency activities,” he states. Technology has been an integral part of the improvement efforts. He identifies two of the many.
One application is Quadrem's XML-based P2P Suite, which relates to procure-to-pay documents. “We digitized the commercial interaction, all the way from the beginning with a request for quotation, through payment, and everything in between,” he states.
Another is a tool to aggregate supply chain data. Here, Newmont implemented technology from Ketera, which focuses on spend analytics. “We use this as a data aggregation tool, which allows us to look at aggregate data across the world,” he states.
As noted earlier, a significant supply chain challenge in the mining industry is ensuring constant supplies of critical materials from a limited number of suppliers for an ever-increasing business demand. Newmont's supply chain model has been a virtually unqualified success in this area. “As a result of our efforts, we have not had any critical stockouts,” reports Throneberry.
Four quadrants of suppliers
| Title: LeverageFocus: High-value, low-risk suppliers and supplies | Title: StrategicFocus: High-value, high-risk suppliers and supplies |
| Title: Non-criticalFocus: Low-value, low-risk suppliers and supplies | Title: BottleneckFocus: Low-value, high-risk suppliers and supplies |
Strategic Supply Chain Management- TOC
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