One mining company’s approach to local procurement
Mark Sitter is the Director of Corporate Affairs and Sustainability at Sherritt International Corporation, a Canadian mining and energy company committed to continuously improving its performance in sustainable development.
In recent years, mining companies have been increasing their focus on local procurement to provide more benefits to communities while reducing supplier costs associated with tariffs, delivery time, transportation, and other premiums. Additionally, stakeholders have come to expect that companies have measures in place to do this effectively, and governments often require it. For miners, local procurement has become essential to securing social license, seizing business opportunities, and managing broader risks.
But getting it right isn’t easy, especially since mining companies are often the first big investor on the ground in an unindustrialized area. That usually means there are few supplier options to begin with, and even fewer that meet requirements related to quality, standards, technical specifications, safety, and security. There may be additional challenges related to politics, cultural differences, corruption, and lack of infrastructure.
As every mining jurisdiction is unique, there’s no one best way to approach local procurement, but there are good practices out there. At Sherritt, we feel we’ve been able to make important progress on local procurement at our Ambatovy operation in Madagascar, but there is always room for improvement.
Ambatovy is a large nickel and cobalt mine and processing facility. We’re the largest private foreign investor in Madagascar, where we do 100% value-added refining. We’ll be operating there for approximately 30 years, so we have a significant responsibility and opportunity to contribute to the island’s development – and local procurement plays a part.
To meet company policies on local purchasing and our commitment to the Government of Madagascar to buy locally, we created the Ambatovy Local Business Initiative (ALBI), which provides support to local businesses and entrepreneurs through training, mentoring, and capacity-building programs. ALBI’s goal is to foster broader economic diversification and contribute to the development of local and regional economies in Madagascar.
Since 2007, we have awarded over $2 billion in contracts to local suppliers, and in 2013 local suppliers met almost 60% of our total supply-chain needs. Our efforts have created over ten thousand jobs and a multiplier effect on local economic development that could not be realized by government payments and social investment projects alone.
One reason for our good performance is structural: ALBI reports into Supply Chain Management (SCM), and not Corporate Social Responsibility (CSR) – in other words, buying locally is directly connected to our procurement business processes. Although there is significant collaboration between ALBI and CSR, being part of SCM gives ALBI the proper business platform to meet supply chain needs and seamlessly apply procurement standards. We are also fortunate to have a dedicated and collaborative management team that has been very communicative and transparent with stakeholders from the start. We’ve gone on several road shows, visiting communities across the country to explain local procurement criteria and processes to potential suppliers and try to manage their expectations. We have put in place a robust grievance mechanism that can address supplier concerns as equitably as possible, and we worked with stakeholders to define “local” in a culturally appropriate way.
At the core of ALBI is its capacity-building program for suppliers. The first step of this program requires that all potential suppliers – including those that are internationally based – register in our online supplier database. Doing so involves filling out a pre-qualification questionnaire for minimum-eligibility requirements. Our database categorizes suppliers, matches them with relevant opportunities, and can link their information with other stakeholder, land use and grievance data.
Once a local supplier is matched with an opportunity, we conduct an audit of their administrative systems and quality processes as well as environment, health, and safety systems. Based on audit results, we provide the potential supplier with recommendations for improvement and, if required, relevant training in a timely manner. ALBI’s Business Training Centre (BTC) offers courses in business administration, anti-corruption, entrepreneurship, business planning and growth management, quality management, environment, health and safety, and other areas. BTC courses are open to all suppliers and potential suppliers, as well as to students and young entrepreneurs – with special consideration for women entrepreneurs. The courses not only prepare them to meet Ambatovy requirements, but also for markets beyond our operation. Over 700 training sessions were held in 2013.
After training is complete, ALBI also provides mentorship support to potential suppliers to help them integrate what they have learned into their business practices. When they can demonstrate they have corrected audit non-conformities, ALBI will readjust their audit score. Once the supplier has achieved a passing score and committed to Ambatovy’s continuous improvement requirements, they are eligible to participate in bidding processes, which take “localness” into account.
We provide suppliers that receive a score of 80% or higher in all audits with a certificate of excellence. We were pleased to find out that many have been able to leverage this certificate to secure contracts with other customers. Another pleasing but not-entirely-expected outcome of our efforts has been suppliers’ eagerness to get audited. In 2013, we conducted over 150 audits for a cumulative total of close to 400. Rather than viewing the audit as a barrier to market entry, suppliers see it as an opportunity to become more competitive.
Although setting up a local procurement program like ALBI is not without its challenges, finding ambitious entrepreneurs hasn’t been one of them…