Re-engineering Procurement Re-engineering Procurement to create true synergies

Scott SingerGlobal Head of Procurement

Agenda

Introduction

Rio Tinto overview & procurement context

Re-engineering Procurement

Lessons learned

What’s next?

Slide 2

Slide 3

Rio Tinto – who we are

• Leading international mining group combining:

Rio Tinto Limited (ASX: RIO) and– Rio Tinto Limited (ASX: RIO) and– Rio Tinto plc, a company listed on

the London Stock Exchange.

M j d t• Major products:– Aluminium, – Copper (and molybdenum)– DiamondsDiamonds– Energy (coal and uranium)– Gold– Industrial minerals (borax, titanium

dioxide salt talc)dioxide, salt, talc)– Iron ore

• US$44 billion in sales revenue (2009)

Slide 4

• 100,000+ employees and contractors

Rio Tinto operations worldwideKeyMines and mining projects

Smelters refineries power

Aluminium Copper DiamondsSmelters, refineries, power

facilities and processing plants remote from mine

DiamondsEnergyIron ore Minerals

Europe

Africa

EuropeNorth

America Asia

Africa

SouthAmerica

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Australasia

Shared services structure

Rio Tinto Global Business ServicesRio Tinto Global Business Services

IS&T(Headcount: 1050)

Procurement(Headcount: 1100)

Shared Services(Headcount: 630)(Headcount: 1050) (Headcount: 1100) (Headcount: 630)

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Rio Tinto Procurement (RTP)

• US$12 billion spend

38 d t i• 38 spend categories

• 50,000+ suppliers

• 2.5 million purchase orders

• Staff in more than 20 countries

• 8 hubs

– Asia Pacific: Brisbane Perth– Asia Pacific: Brisbane, Perth, Shanghai, Singapore

– EMEA: Johannesburg, Voreppe

North America: Montreal Salt– North America: Montreal, Salt Lake City

• Business Process Outsourcing (BPO)“Source, Buy, Deliver”

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– India: Pune

– Mexico: Monterrey

Resources boom: 2004 - 2008

• Record prices:

– Aluminium

– CopperCopper

– Crude oil

– Gold

– Lead

– Silver

– Uranium

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Intense corporate activity: 2007 - 2009

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Re-engineering g gprocurement

Copyright © 2009 Rio Tinto

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Copper being poured at the Kennecott smelter, Salt Lake City

Copyright © 2009 Rio Tinto

Organisational clarity

• Consistent global messageConsistent global message – Core set of principles & values – Clearly articulated vision– Meaningful and actionableMeaningful and actionable

• Credibility

• Model that can adapt to suit – BU client needs– Geographic & cultural differences

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Alcan integration – bringing two cultures togetherg

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Using LEAN to connect cultures

Value Stream Mapping event, March 2008 Results: Common sourcing approach

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Using LEAN to simplify the process

2.1 Start

2.2 Complete

Requirements Package

2.3 Conduct

Bid

2.4 Approve

Recommendto Award

2.5 Contract Execution

2.6Contract

Implementation

1.1 End User Request 1.2 Does Request Adhere to

Commitments Policy?1.3 Provide Justification for

Deviation 1.4 Submit Bu Ad-Hoc Workflow

Request Form1.5 Submit Ad-Hoc Workflow

Request

5.1 Attend Handover Meeting with Project Owner

5.2 Review Contract Related Documents5.3 Is Further Work Required from

Project Owner?5.4 Perform Additional Work Required

by Contacts Team5.5 Is this Capital?5 6 Check BU Capital Approval

4.1 Simple Project?4.2 Is BU Review of Responses

Required? (Complex Projects)

4.3 Review Responses and Provide Input (Complex Projects)

4.4 Resolve all T&Cs (Complex Projects)

2.1 Review Additional BU Information2..2 Validate Scope of Work, Evaluation

Criteria and Pre-qualification Criteria

2.3 Finalise Scope of Work, Pre-qualification Criteria and Evaluation Criteria

2.4 Complete Contract Risk Register with BU

3.1 Attend Handover Meeting with Project Owner

3.2 Check Requirements Package3.3 Is more information from Project

Owner Required?3.4 Set Up Suppliers on Procuri3.5 Build Event and Publish on Procuri3.6 Record Milestone and Reason for any

Delays

2.6.1 Is Vendor in ERP? 2.6.2 Follow up on New Vendor Request

Form 2.6.3 Prepare and Approve New Vendor

Request 2.6.4 Notify Data Management Team2.6.5 Provide Price File & Forward

Purchase Agreements Details2 6 6 Are Inventory Re-Order PointsRequest

1.6 Communicate with End User1.7 Complete Scope of Work 1.8 Determine Evaluation

Criteria1.9 Manage SDP and Check for

BU Authorisations1.10 Activate Project & Record

Milestone (SDT)1.11 Identify Multi-BU & Major

Category Projects1 12 Activate Project & Record

5.6 Check BU Capital Approval5.7 Prepare Contract Execution

Documents5.8 Record Milestone & Reasons for any

Delay 5.9 Approve Contract Completion

Checklist5.10 Send to Project Owner for Review5.11 Review Contract and Sign Checklist5.12 Conduct Final Reviews5.13 Record Milestone and Reasons for

Projects)4.5 Provide Advice on T&Cs4.6 Update Register of Supplier

Concerns4.7 Prepare Recommendation

to Award (Complex Projects)

4.8 Record Milestone & Reason for any Delays (Complex Projects)

4.9 Confirm Status of Supplier Pre Qualification

with BU 2.5 Sign Off on Contract Risk Register2.6 Provide Input on Procuri Strategy

(Auctions)2.7 Provide Contractual Advice2.8 Complete Sourcing Strategy with

RTP Functional Teams2.9 Identify Potential Suppliers2.10 Confirm Suppliers2.11 Verify BU Safety Pre-Qualification

Requirements2 12 Are All Suppliers Pre Qualified?

Delays3.7 Monitor Responses and Manage

Queries3.8 Confirm Acceptance of T&Cs3.9 Resolve T&Cs before Auction 3.10 Provide Advice on Contract T&Cs3.11 Technical Queries3.12 Consult with BU End User; Inform

Project Owner3.13 Respond to Bid Team on Technical

Queries3 14 Close Bid

2.6.6 Are Inventory Re Order Points Required?

2.6.7 Is a Bills of Material /Application Parts Listing Required?

2.6.8 Set up Bills of Material /Application Parts Listing

2.6.9 Set up Contract Details in System2.6.10 Determine Level of Contract

Management Required2.6.11 Is an Implementation Plan Required? 2.6.12 Prepare Implementation Plan2 6 13 Pro ide Inp t on Contract

After % ReductionBefore

1.12 Activate Project & Record Milestone

any Delays5.14 Send Contract Documents to BU –

(Single BU Contract)5.15 Conduct BU Approvals & Signatures

– (Single BU Contract)5.16 Record Milestone and Reasons for

any Delays5.17 Send Contract to Supplier 5.18 Supplier Signs Contract 5.19 Check Contract for any Changes5.20 Notify Project Owner and BU of

Pre-Qualification4.10 Determine if Vendor

Requires Set Up on ERP 4.11 Is Supplier Pre-Qualified?4.12 Complete Supplier Pre-

Qualification4.13 Approve Recommendation

to Award4.14 Document Results and File

on Portal4.15 Request Meeting with

2.12 Are All Suppliers Pre-Qualified?2.13 Does BU Agree to Initiate Pre-

Qualification?2.14 Initiate Pre-Qualification2.15 Proceed Based on Pre-Qualification

Policy2.16 Determine Contract Template2.17 Changes to T&Cs?2.18 Obtain Sign Off on Changes to

T&Cs2.19 Prepare RFx (Contract with T&Cs

3.14 Close Bid3.15 Record Milestone and Reason for Any

Delays3.16 Load Supplier Responses to Portal3.17 Prepare Register of Supplier

Concerns 3.18 Simple Project?3.19 Summarise Bid Results & Load on

Portal (Complex Projects)3.20 Record Milestone & Reason for any

Delays (Complex Projects)

2.6.13 Provide Input on Contract Management Responsibilities

2.6.14 Determine Contract Management Responsibilities

2.6.15 Schedule Meeting on Contract Management Responsibilities

2.6.16 Attend Meeting on Contract Management Responsibilities

2.6.17 Lead Meeting on Contract Management Responsibilities

2.6.18 Prepare and File Minutes on the 5

14

23

73%

89%

81%

18

130

110

steps

control points

pages

y jContract Execution

5.21 File Paper and Electronic Documents

5.22 Create Contract in the Contract Administration System

5.23 Notify Unsuccessful Tenders 5.24 Record Milestone and Reasons for

any Delays 5.25 Complete all Portal Documentation5.26 Request Sponsor Sign Off on the

Project

Contracts Team4.16 Record Milestone and

Reasons for any Delays

and Schedules)2.20 Review RFx Package with BU2.21 Load Documents on Portal &

Update Project Details2.22 Request Handover Meeting with Bid

Team2.23 Record Milestone and Reasons for

any Delays

3.21 Evaluate Based on Evaluation Criteria (Simple Projects)

3.22 Prepare Recommendation to Award (Simple Projects)

3.23 Load Recommendation to Award on Portal (Simple Projects)

3.24 Record Milestone and Reason for any Delays (Simple Projects)

Portal2.6.19 Load Contract Management Details

and Flags in the System 2.6.20 Is Implementation Complete?2.6.21 Complete Implementation

Requirements2.6.22 Complete Implementation Checklist2.6.23 Record Milestone and Reasons for

any Delays 2.6.24 Approve Implementation and

Complete Project

6 65%17milestones

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Project5.27 Sponsor Sign Off on Project5.28 Prepare GAA/GAL (USC)

Complete Project

Category management goes beyond sourcing

Strategies Outcomes

• Sustainable supply toSustainable supply to

support growth Consumption

Forecasting

• Economic advantage

through consolidated

OEM supply

Emerging Marketssourcing

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Emerging markets sourcing

First 120 ore cars l di

2,640 ore cars delivered in total

2004 20082007

Initial China visitPrototype ore car

delivered

loadingin Qingdao port

20092004 20082007

Key drivers: 2008 #1: Capacity #2: Lead time #3: Price2009 #1: Price #2: Capacity #3: Lead time

2009

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RTP’s BPO journey

End-to-end Cat Management

?

End-to-end Cat. Management - High

End-to-end Cat. Management - Low

Category Management Insights

Agile Business Intelligence Reporting

Category Management Research - Simple

Purchasing – Triage / Selected Manual POs

Back Office – Master Data (Materials , Price Files, Vendors)

Bid Team Operations

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- R&A reports from our systems

Managing our non-employee workforce

• Managing ~50,000 FTEs across our sites

• Applying Software as a Service (SaaS), cloud computing and outsourced services to reshape a perennial mining industry challenge

Time-sheetingContractor Performance Vendor

Contractor Skill Definition Contractor

Contractor Induction & Pre-qual People

outsourced services to reshape a perennial mining industry challenge

Workforce Milestone/ time/

resource capture

Contractor off-boarding

Performance Management

Vendor Sourcing SOW

Development

Contractor Buying

Induction & On-boarding

Pre-qual People Tracking

Pre qualification of Capturing performance

Workforce Planning

Pre-qualification of Vendors to RT HSE and commercial standards

Establishing Master Service Agreements or

other contractual

Closing-out contractor engagements

Capturing performance information and feeding

in to pre-qual/buying process

arrangementsDefining the skill

required or scope of work

Selecting & engaging contractor based on

Visibility of contractors throughout RT sites

Linking delivery of work to invoicing

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Time and Materials Contractors

suitability of skill and rates submitted

Ensuring contractors meet appropriate qualification and

skill requirementsScope of Work Contractors

Purchase-to-pay (P2P)

Buy Deliver

• Automation strategies to date:

– Common P2P processes and SAP platformStrategic

Purchase-to-pay

– Outsourcing transactional processes

– eProcurement

To drive further automation we will leverage:

gsourcing and category management

• To drive further automation we will leverage:

– Cloud computing

– Greater involvement and engagement of our suppliers eg. master data management

Slide 19

– Further integration with our suppliers in areas such as supply chain and logistics

Functional alignment

• Defining RTP’s role in the broader Global Business Services structure

– Alignment at the MD level, shared responsibility

– Common mindset between RTP, IS&T and Shared Services

Consistent vision on BPO– Consistent vision on BPO

– Regular dialogue on innovation opportunities through using Software as a Service and cloud computing

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Lessons learned

Copyright © 2009 Rio Tinto

Slide 21

Northparkes copper and gold mine, Australia

Copyright © 2009 Rio Tinto

Don’t underestimate culture (country, company )company…)

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Drive organisational clarity through symbols

• Health, safety and environment

• Our people & culture

• Our customers

• Operational excellence• Operational excellence

• Our suppliers

• Value delivery

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“Plan on a page”

LEAN events create a ‘safe zone’ for change management management

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Maintain discipline and rigor with systems alignment & improvementsystems alignment & improvement

• Maintain investment in technology systems

• Analytics will drive the next phase of value

• Data alone is not useful – convert into intelligence• Data alone is not useful – convert into intelligence

Ali i B i D t W h S d St t i S i

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Aligning Business Systems - ABS

Data Warehouse - Spend Analytics

Strategic Sourcing System

What’s next?

Copyright © 2009 Rio Tinto

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Kestrel coal mine, Australia

Copyright © 2009 Rio Tinto

Opportunities and challenges

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Lots more to do…

Slide 28

Ice road to Diavik mine, Canada

Copyright © 2007 Rio Tinto

Questions?Questions?

Scott SingerGlobal Head of Procurement