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CHANGE IN MINDSET: LOCAL PROCUREMENT
NOT A NECESSARY COST BUT A DRIVER OF STRATEGIC
BUSINESS VALUE
January 2016
IRON ORE BRAZIL
AGENDA
• Anglo American Group Approach to Local Procurement
• PROMOVA
–Operating model
– Current strategy
–Promova´s main results
IRON ORE BRAZIL
3
Social investment
Employee volunteering
Enterprise development
Employee volunteering
1. Leveraging our
core business
2. Focus on productivity of
public and private
sectors
3. Prioritising delivery
via partnerships
Outcome:
Greater Impact
Outcome:
Higher Effectiveness
Outcome:
Higher Efficiency
Supply
Chain +
GSA
Human
Resources
+ GSA
Projects /
Logistics /
BD
Local
Procurement
Local
Employment
External
Capacity
Development
Enterprise
Development
Synergies
from Mine
Infrastructure
Social
Investment
Sharing Skills
/ Employee
Volunteering
FunctionsProgrammes
GSA
GSA +
others (eg
S&SD)
NGOs:
Corporate partners:
Development finance
institutions and foundations:
Leveraging our core
business is an efficient
way to deliver
benefits…
…and leads to a more
effective and sustainable
developmental
contribution.
Our view on our most
effective SED contribution
ANGLO AMERICAN SOCIO-ECONOMIC DEVELOPMENT STRATEGY
Group Approach to Local Procurement
PROMOVA was designed and
implemented in 2012 following
the ten steps in the Anglo
American Group toolkit for
Local Procurement
WHAT IS THE PROMOVA PROGRAMME?
5
Develop small and medium size local suppliers, in a
responsible and sustainable way, building a competitive
supply chain and promoting the economic and social
development to the communities where we operate
General Goal
Socio-economic
development
Stakeholder
Engagement
Local
procurement
increase
Operational
efficiency
Focus
• Increase operational efficiency and improve supply chain
performance
• Lower costs over the life-cycle of purchasing - long term
• Contribute to our social license to operate
• Reduce transport and logistical costs
OPERATING MODEL
PROMOVA builds on four key areas supporting two strategic pillars:
Operating Model
FOMENTO ATRAÇÃO
Política de Desenvolvimento de Fornecedores
MANAGEMENT
Local Suppliers
Development Program
PROMOTION
FinancingProfessional
qualification
Communication /
Stakeholder
management
ATTRACTION
Develop local
companies from
several sectors
already established in
the area of influence
Attract businesses
and segments of
industry and
commerce to the area
of influence
Business
Development
GOVERNANCE AND MANAGEMENT MODEL
Local Procurement
Development Program
Business
Development
Opportunities from
the operation
demand
Assistance to urgent
demands
Introducing local
suppliers into large
suppliers
Financing
Anticipation of
receivable values
Credit to grow
Communication /
Stakeholder
management
Program
dissemination
actions (internal and
external media)
Programme
relationship channel
Spontaneous
media
Professional
qualification
Classroom
qualification
E-learning
Technological
training and
innovation
Segments with the
possibility of
expansion
Business round table
Support to the
entrepreneur
Internship
program
Each key area has specific actions to be delivered by a highly competent team that is
locally base and understands the local context
OPERATING MODEL - detailed
COVERAGE AREA
1ª Phase: Mine
• Conceição do Mato Dentro
• Alvorada de Minas
• Dom Joaquim
• Serro
2ª Phase: Port
• São João da Barra
• Campos dos Goytacazes
9
Key findings
• The ED and LP programmes
implemented across Anglo American
vary significant in relation to cost
efficiency. This reflects local specific
characteristics (e.g. strong regulatory
intervention) but also programme
design.
• Promova in Brazil blends the best of
our global approach to LP and
delivery partners (Technoserve) to be
the most cost-effective LP
programme in the group.
• Promova is currently below the cost
curve as it delivers savings and not
cost to the operation.Note:
The vertical axis takes the overall cost of the ED/LP programme and divides it by
the total number of jobs supported
The horizontal axis shows how many jobs have been supported during 2014 for
each of the programmes.
Jobs Support Cost Curve
Chile ED
Peru EDPROMOVA
Peer Africa
Peer Peru
Brazil ED
SA ED 2
SA ED 1
SA ED 3$6000
CHANGE IN MIND-SET: CAN A COST BE TURN INTO A SAVING?
10
CHANGE IN MIND-SET: FOCUS ON VALUE
We asked: “what if PROMOVA could deliver net savings to our mine and be a key driver of
growth beyond Anglo American?”
The business
case should
start here
Time
Sa
vin
gs
Cost of setting up the LP
programme
Total net savings
Year 2 Year 3 Year 4
• logistics and supply cost
reduction
• Reduction in stock levels
(WiC)
• Process optimization
• Local labor hiring
ACCESS TO CAPITAL – PARTNERSHIPS WITH LOCAL BANKS
• Consolidated process since 2012
• Anticipated amount US$ 92MM
• Rebate1 implemented in September 2015
• Financial income:
• Current: US$ 19K (Sep – Dec/15)
• Expected: US$80k, 2016
AchievementsCurrent Product
• Eligibility to 100% of the Anglo American suppliers
• For each transaction Anglo American gets a rebate from the bank
• 100% of the revenue obtained is recycled into Promova
• Visibility of the invoice status by suppliers at the Portal
• Low operating effort
Process optimization
Risk
mitigation
Cost Reduction
1discount, bonus, deduction, returning a value (R$) Characterized as financial income
The initiative provides short-term working capital to suppliers via invoice discounting that has
been design to fit local SME characteristics and leverage Anglo American’s risk profile
Rapid Local Economic Development
ACCESS TO MARKETS - PARTNERSHIPS WITH SUPPLIERS
Local diagnosis Report - 6 companies
4 producers approved
15% losses
1st stage – 13th mar – Komatsu
2st stage – 17th e 18th apr – DCML
3rd stage – 16th e 17th dec – DCML
13
CHANGE IN MIND-SET: CURRENT STRATEGY
OPERATIONAL EFFICIENCY
Compliance with Operation Cost Reduction Strategic Partnerships
• Reduced service time (ex .: SLA,
OTIF)
• Reducing mobilization time
• Mitigation stock out (redundancy)
• Increase quality services and
delivery
• logistics and supply cost
reduction
• Reduction in stock levels (WiC)
• Process optimization
• Local labor hiring
• Strengthening and integrating
the production chain (2nd tier)
• Investment incentive
• Industry sectors approach
• SMEs insertion in the chain
Program’s actions in key focus areas for operational efficiency
• Local development
• Attracting companies to the
region of influence
• Increase in quality
• Training and professional
qualification
• Increased technology and
process improvement
• Increased competitiveness
• Expansion and creation of new
partnerships (ex .: KOMATSU,
MICHELIN and SAPORE)
• Business rounds
• Strengthening and encouraging
entrepreneurship
Where
to act?
How ?
SUCCESS CASE
Context
What was
done
Results
Laundry
• Limited structure and few customers
• 2 employees• Revenues: R$ 75K (2011)
• Compliance with legislation• Technical and managerial
knowledge• Long-term growth plan
• Technical Approval• Diversification of the customer
portfolio• Contract with AA for 24 months• 8 employees• Revenues: R$ 550 K (2014)
Accommodation
• Insufficient local supply (rooms gap)
• Low quality
• Demand shared with local entrepreneurs
• Letter of intent for the construction of new rooms signed (guaranteed demand)
• Apartment standard and services defined
• 7 local lodges enlarged• New hotel chain attraction• Increase of 135 rooms
Mechanical
workshops
• Absence of technical knowledge• Outdated equipment and tools• High gap of local workshops with
diesel engine expertise
• In company training with Komatsu (Diesel Engine introductory, turbines and nozzles)
• Consultancies• On the job trainings at DCML
• 2 qualified workshops• 40% of increase in service volume• Local workshops capable to meet
demands of the Minas-Rio contractors
PROMOVA´s RESULTS - SNAPSHOT
Local Procurement – Consolidated IOB Local Procurement – Influenced by PROMOVA
US$ MMDec/15
35
9921
US$ 62 MM
16%GDP impact
(4 municipalities)
140Local Suppliers
(CMD – DJQ – ALV – SER – SJB CGY)
496
39
179157
121
US$ 250 MM
5,4%
Local procurement
Finalized purchase orders
3,508
Anticipation of receivable values
1,632transactions
102suppliers
US$ MMNov/15
Purchase Orders
with local suppliers
87Contracts signed
15 selected categories
Generation of 868 direct and indirect jobs
local GDP Impact by 4,6%
2,5MM/year in tax collection Potential
Supplier ParkEntrepreneurship
• 235 entrepreneurs benefited
• 800 job created
• US$ 300K mobilized funding
800Sustained jobs
13%Local GDP reached
and benefited
107
35
42
140Local Supppliers
34
250
78
63
74
20152012 2013 2014 TOTAL
US$ MMDec/15
18
31
10
62
9x
TOTAL
3
20152012 20142013
US$ 92MManticipated
16
Market Support System
~280 positions and potentially save
up to 30% of the cost via a
partnership with SENAI.
Local
Procurement
Enterprise
Development
Workforce
Development
SYSTEMATIC APPROACH – KEY RESULTS
Each dollar invested in PROMOVA,
allows up to US25 to be supplied by
local SMEs…
800 jobs supported in rural and
urban businesses
Each programme has been designed to allow the other to work more effectively. This reduces
costs, allows better partnerships to be built and increases the socio-economic impact
CHALLENGES
1. Enable local entrepreneurs to become successful AA suppliers
2. Generate long lasting and sustainable benefits for both
Community and Operations
3. Control the local supplier dependency level over the mining value
chain
THANK YOU
18
19
Categories x Top Suppliers
Local Procurement – Influenced by Promova
8 8 8
27
54
Q1
4
0
9
Q2
1
9
Q4
32
1
YTD
8
Q3
1
Mine Port
2015 – US$ MM
US$ 17MM
AGENCY 30%
UNIVALE 26%
FAGUNDES 22%
KOMATSU 5%
SANTA INES 2%
SERRA VELHA 2%
ALTO DO BAU 1%
GAC SERVICOS 1%
CMDNET 1%
QUILOMBO 1%
91%
51Local on going
contracts
72Local suppliers
contracted
28%
24%21%
7%
5%
15%
CAR RENTALPASSENGER TRANSPORTFAGUNDESACCOMODATIONKOMATSU
93%
7%
Contract
Spot
Purchasing volume in contract
42
70
38
8576
53 5748
56 58
1510
58
DecSepJun NovOctJul Aug YTDApr MayMarFebJan
2015 YTD
Local OTIF - %14 Suppliers
Typology of hiring process
98% Normal2015 YTD
ImpactGDP Mine
20,48%
2015 KPI´s