Trend 6: Creating an agile supply chain

Mining companies have long understood the imperative of devising a global supply chain to help them manage costs and enhance efficiency. It took COVID-19, however, to put supply chain risk squarely in the spotlight. As companies look toward the future and beyond the pandemic, it is becoming clear that they will increasingly need to take steps to uncover and mitigate supply chain risks by illuminating their extended supply network, creating alternate supply lines, and reevaluating their inventory strategies. Reducing supply chain risk is key to creating more predictable operations and building trust with investors.

Mining companies have long recognized the inherent value located within the supply chain, though not many can definitively claim to have extracted this value through strategic sourcing or supplier rationalization. Opportunities continue to exist across inbound supply and integrated planning, with upward of 6–12% of a mining organization’s operating costs encapsulated within the supply chain.¹ However, the focus on the supply chain has begun to shift from a cost and efficiency perspective to one of risk and whether supply chains as they are configured today could pose a risk to continuous operations.

With sophisticated global supply chain networks, mining companies are closely aware of their reliance on third parties in widely spread jurisdictions; however, COVID-19 truly exposed the vulnerabilities of this interdependence. As a result, mining companies are now being forced to reassess the resilience of their organization and global supply chain models. This is particularly evident within inbound supply, which holds significant risk, quite often outside the visibility and/or control of the mining organization.

Inbound supply chains could be used as a cost reduction lever as the results of optimization programs are directly tied to earnings before interest, taxes, depreciation, and amortization (EBITDA) improvements. This movement toward the lowest total cost of ownership has placed pressure on suppliers and built risk at multiple levels within the extended network. This risk has been exposed with the impacts of COVID-19 on global supply chain networks and has forced mining companies to adapt quickly, sometimes unwinding decisions made over the last two to three years.

While many mining companies have taken steps to mitigate risks in their supply chain, for most, the true nature of the risks still remains unknown. The rate of response and priorities have varied; however, there is still a need for companies to assess and manage the risk by illuminating the extended inbound supply network and actively managing it through a so-called control tower view: a central hub with the required technology, organization, and processes to capture and use transportation data to provide enhanced visibility.² Balancing the inherent risk with continued cost focus will likely be key. Risk mitigation strategies should then follow suit, including establishing alternative supply sources—with an emphasis on building a sustainable local supply base—and reevaluating inventory strategies to have greater control over access to critical spares.

Illuminating the extended supply network

The lack of visibility for some mining organizations to accurately trace their supply chain beyond their tier-one suppliers, heightened the risk of supply shortages and disruptions as COVID-19 spread across the globe.

Part of the challenge is that extended supply chains are unavoidably global. Even mining companies that believed they were predominantly sourcing through local suppliers quickly learned that the many raw materials originate in foreign countries and are distributed through local agents.

Approximately 25% of the supply side disruptions occur at tier two plus, which makes it critical to understand and illuminate risks well in advance, providing enough decision-making space for mitigation actions.³ Greater visibility into the extended inbound supply network allows for the identification of risks that are critical to cost, schedule, performance, security, and resilience. Supply chain illumination will remain critical, as visibility into only tier-one suppliers will likely be insufficient for most companies that are looking to manage supply disruption risks.

“As the supply of materials began to falter, companies found themselves asking difficult questions,” says Rhyno Jacobs, director, Consulting, Deloitte Africa. “Do you need a sovereign source for certain supplies? If so, which supplies? And what is a ‘sovereign source’? How do you get sovereignty when your orders account for only a small component of global demand? Does a fully local supply chain count as security? What happens if that supply chain is confined to an at-risk source? What does good hedging really look like?”

In answering these questions, many companies have realized that they have not built sufficient redundancy into their supply chains; meaning, even when they have multiple suppliers, inventory still comes from one source. It doesn’t help that the suppliers themselves often lack an understanding of how supply interruptions may affect their own operations. Even if a supplier believes it has not been adversely impacted, mining companies likely need independent confirmation.