Local Procurement in Anglo AmericanJon SamuelHead of Social Performance, Anglo American 6 March 2012

2

LOCAL PROCUREMENT

ANGLO AMERICAN CONTEXT

DEFINITIONS

Local Procurement: relationship between location of supplier and location of recipient of goods/ services. Divided into 3 levels:

Plus additional criteria depending on country

NationalSupplier registered or based within the same country as the operation

ProvincialSupplier registered or based within the same province / region / state / territory as the operation.

LocalisedSupplier registered or based within the same immediate area as the operation.

X

4

• Procurement budget of $10 billion+ per annum, about 75% in emerging markets.

• Equivalent to about 100 x annual social investment budget

• Anglo American aims to be the industry leader and global benchmark for Supply Chain value creation

• Procurement seen as a key business enabler:– Cost efficiencies– Value-in-use– Strong focus on lifecycle costs and benefits of procurement

decisions, including non-financial variables – Recognition of the broader developmental contribution of

procurement• Strong focus on responsible procurement

SUPPLY CHAIN CONTEXT

5

LOCAL PROCUREMENT

ANGLO AMERICAN’S APPROACH

6

7

8

BUSINESS CASE-LED APPROACH

Reduce risks associated with

closure

Assure our right to mine

Ensure reliable access to critical

supply

Create supply chain

efficiencies

Attract and develop talent

Investment of choicePartner of choice

Employer of choice

Exceed local community

expectations to participate in local

procurement

Strengthen relationships with local communities and government by building company

ambassadors

Excel at meeting government

objectives for local content, supplier dev.

and GDP growth

Reduce logistical costs, such as the

cost of transporting people and equipment

Competitive labour costs in service

contracts

Increase the competitiveness of supplier markets

Pursue long term partnerships with

local suppliers critical to operations

Continuously improve the service

provided by suppliers/

contractors to Anglo

Minimise community

dependency by creating

transferable business skills

which equip entrepreneurs to

access other markets and

diversifying the local economy

Contribute to developing thriving

and healthy communities, and attractive places to

live and work

Be seen as employer of choice, by making

a real, lasting difference to local communities and

acting with integrity

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Dem

and

-sid

e M

eas

ure

s

Policy: Local Procurement Strategy

Resources: Appropriate people and budget

SC Local Procurement Initiatives (eg Ring Fencing)

Set framework, show leadership support

Demonstrate commitment

Operationalise commitments

SC and Social

SC with support from Social

SC with support from Social

Communication and Reporting: Targets and KPIs

Build Anglo American capacity and incentivise

SC with support from Social

Support for Small and Medium-size Business Start-ups (e.g. Emerge / Zimele)

Supplier Development Programmes (building capacity of existing suppliers)

Alternative Livelihoods and Micro-credit ProgrammesSupporting the grass-roots

Creating formal businesses

Build capability, capacity and size of suppliers

Objective Anglo American Lead

Social with ED

Social with support from SC & ED

SC with support from Social & ED

Su

pp

ly-s

ide

Mea

sure

s

Localising Suppliers (e.g. near-mine supplier parks)

Encouraging more suppliers to locate in mining areas

SC with support from Social and ED

INTEGRATED APPROACH TO LOCAL PROCUREMENT

Social = social and community development functions; ED = enterprise development; SC = supply chain (Group and BU)

SUPPLIER DEVELOPMENT PROGRAMMES

Supply and demand side

analysisMatching of

SMEs to Supply Chain

demand

SME assess-ment and

improve-ment plan

SME mentoring and training

Access to finance

Business linkages and

tendering assistance

Monitoring and evaluation

SUPPLIER CLUSTERS

• Objective is to bring existing suppliers, and the jobs they create, into our mining areas

• Co-locate large and small businesses.

• Add in Anglo American’s enterprise development expertise and support the creation of partnerships between large and small firms

AABusiness

Unit

5-10 larger suppliersto AA Business Unit

20-30 SME suppliersto AA Business Unit and it’s

larger suppliersC

omm

itmen

t and

rela

tions

hips

Proxim

ity and synergies

Incubating business environment

ENTREPRENEUR INTERNSHIP PROGRAMME

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Selection Process

Existing Anglo American

Employees

Zimele EntrepreneursGeneral Population (Entrepreneurs Talent)

Entry Criteria

Training/learning programme (Internship)

Supply Chain Partner Companies

Matching entrepreneurs and businesses

Filtration based on criteria

Attraction and Selection

Exit out of Anglo American

MAKING OPPORTUNITIES AVAILABLE TO LOCAL ENTREPRENEURS

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• Simplifying tender and contract documents and processes

• Embed local procurement into procurement processes and daily operational activities

• “Supplier linkage” person• Guidelines for implementing

preferential sourcing methodologies e.g. ring-fencing, unbundling, appropriate payment terms

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LOCAL PROCUREMENT

CONCLUSIONS

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CONCLUSIONS

• Local procurement needs strong buy-in from Supply Chain – they make the purchases

• Supply Chain should be supported by multiple functions, including social performance, enterprise development and communications

• No magic “silver bullet” to boost local procurement– Optimising local procurement requires a range of initiatives– Takes time to get it right– Need a combination of supply-side and demand-side measures

• There should be a strong business case driving local procurement to ensure it is sustainable over the economic cycle