Contractor management at Sasol
Mining
Content
Objectives of the presentation
Background on Sasol Mining procurement
Contractor management learning
Objectives
The presentation would try to:
Give background to Sasol Mining procurement
Share the learning made in Sasol Mining on contractor
management from a Procurement perspective
The presentation would not:
Cover all safety related issues, COP’s etc
Provide a comprehensive list of terms to consider
Procurement at Sasol Mining
Sasol Mining do in the region of R 2,2 billion procurement per
annum
Main categories of spend are:
Production equipment
Operating material
Mining services
Consumables
Sasol Mining currently has about 1300 accredited suppliers
Sasol Mining has term agreements covering 80% of spend
Contractor management from a procurement perspective
Approach
The first step in successful contract management is a
comprehensive strategy on managing the procurement process:
Need
Industry analysis
Sourcing strategy
Supplier accreditation
Procurement channel
Contracting
Contract management
Sasol Mining compiled models for these processes with detailed
considerations on what is important to consider
Contractor management from a procurement perspective
Approach
Sasol Mining identified a number of Procurement drivers
Complexity reduction
Risk management
Sourcing optimisation
Total cost of ownership reduction
Process efficiency
Value optimisation
Supplier collaboration
Correct Procurement channel
Automation
Not all these drivers are important from a contractor management
perspective
The discussion would focus on the drivers with the biggest impact
on contractor management
Contractor management from a procurement perspective
Complexity reduction
Statistics
Sasol Mining places 233 000 purchase order lines in a year from the 1300
suppliers.
There are 83 000 catalogued items on the Sasol Mining material master
A service master currently in progress would compile about 7 000
catalogued services excluding repairable items
Complexity reduction is at the heart of efficient contractor
management from a procurement perspective
Knowing what is needed from the supplier
Classifying services
Cataloguing services
Standardising specifications
Limiting the number of suppliers accredited
Less agreements
Ensuring supplier collaboration
Contractor management from a procurement perspective
Complexity reduction
Why Complexity reduction?
Improved compliance on all aspects – compliance decreases when
supplier numbers increase
Turnover of suppliers decreases – leading to increased compliance and
less pressure on internal resources to ensure new suppliers comply
Decrease in cost
Decrease in maverick spend – Better governance
Better contract management - less pressure on all stakeholders in
business
Contractor management from a procurement perspective
Complexity reduction - How?
Sasol Mining together with other companies in Sasol group set
up a project team to classify and catalogue services
Assigned resources
Knowledgeable people
Standardised methodology
Project management approach
Change management
Term agreements
Sasol Mining started compiling comprehensive scopes of work
Assigned knowledgeable resources
Involved all stakeholders
Clarified deliverables
Standardised across business units
Involved suppliers / contractors in process
Contractor management from a procurement perspective
Complexity reduction - How?
Clear accountability for contractor management
Centres of excellence for certain routine services – facilities
maintenance
Dedicated, accredited suppliers / contractors with term agreements
Contract ownership by end users of service
Contractor management from a procurement perspective
Risk management
Three main risks identified in Sasol Mining:
Supply risks – supplier unable to fulfill contractual obligations
Governance risks – irregularities, process and procedures
Business risks – cost, non-performance, safety
Mitigation steps to reduce risk at Sasol Mining
No award of long term agreements to new entrants
Split award of business
Probation period for high risk spend areas
Right to set-off
No cession of debtors
Penalty and termination clauses
Resources for new supplier development
Alignment between contractual terms and business requirements
Contractor management from a procurement perspective
Risk management: How to:
Sasol established the Highveld Business Development Centre to
assist as an independent third party with supplier development
involving:
Local municipality
Local businesses
Corporates
Business councils
Banks
Sasol Mining introduced an approval entity for high value
agreements
Sasol Mining implemented a process for supplier accreditation
whereby all aspects relating to the capacity of the supplier are
evaluated
Contractor management from a procurement perspective
Risk management: How to:
Sasol Mining standardised its contract terms and conditions at
the hand of risks identified
Sasol Mining implemented a strict governance process by means
of route guides and limited approval authority.
Contractor management from a procurement perspective
Sourcing optimisation
Having the correct suppliers or contractors to start with is a result
of a comprehensive sourcing strategy
Measuring performance of Sasol Mining and suppliers is
important to ensure the right suppliers
Sourcing optimisation: How to
Sasol Mining compiled a sourcing strategy for total spend by
category
Sasol Mining introduced rigorous health checks measured on a
daily basis as a production report
Contractor management from a procurement perspective
Golden rules – learning at Sasol Mining
First develop supplier then contract
Be careful of conflicting interests
Ensure well structured agreements with remedies
Non exclusiveness as far as possible
Effective document management from end users and
procurement
Consequence management always in line with agreement
Clear performance criteria and penalties
Contractor management from a procurement perspective
Golden rules – learning at Sasol Mining
Standardise indemnity and insurance
No award of long term agreements to new entrants
Split award business
Probation period for high risk spend areas
Right to set-off
No cession of debtors
Penalty and termination clauses