02 November 2022
Group Procurement Officer James Agar spoke at the International Mining and Resources Conference (IMARC) on the topic of 'promoting opportunities, minimising disruptions and building resilience':
I start by acknowledging the Gadigal people of the Eora Nation, the Traditional Custodians of the land on which we meet today, and pay my respects to their Elders past, present and emerging.
I extend that respect to all Aboriginal and Torres Strait Islander peoples here today I’d also like to acknowledge the IMARC committee along with the distinguished speakers and guests.
It’s a privilege to speak here at IMARC, particularly after a couple of pandemic-driven false starts.
I’ve been invited to speak today about promoting opportunities, minimising disruption and building resilience.
And what better time to talk about those important themes than in the aftermath of one of the most challenging times in the history of the sector.
A few short years ago, I was approached - while working in Corporate Affairs at BHP – to lead the global procurement team.
It’s a good development opportunity, they said.
And while at the time we were already into the first few months of Covid 19, we had just come off a prolonged period of what had been a reasonably calm and stable inflationary and supply chain environment.
I took up the opportunity with enthusiasm.
And from that moment on, as we all now know well, disruption and uncertainty spread as fast as the virus.
Supply chains, when they work well, aren’t really on most people’s radar. They just operate in the background.
And so when my mother – who is wonderful, but not what you’d call an avid consumer of business news – called me to ask about supply chain disruption, it had become clear that this was going to be one of those ‘accelerated’ development opportunities.
It has been a tough time for everyone and, nearly 2 years on, the landscape remains challenging.
However, as was evidenced in BHP’s recent results, amid the disruption and uncertainty, we’ve continued our track record of safe and reliable operating performance.
In the context of disruption – it is the continuity that has stood out in BHP’s performance – and this is something we could not have achieved alone.
So I want to start by saying thank you. Thank you to our thousands of supply partners, big and small, who have helped us to keep our operations safe and reliable, day in, day out.
The spirit in which our supply chain came together…wasn’t built on transactions, or contracts….it was built on relationships, partnerships founded in trust.
And that is what I want to build on today.
But before I do...let me remind you of the challenge.
If we take our mind back to April 2020 in the depths of the Covid recession, global demand vanished almost overnight.
Unemployment rates skyrocketed. Commodity prices plummeted in such unimaginable circumstances that the price of oil briefly went negative.
Yet we find ourselves today, just over two years on, in an environment where operating cost inflation has emerged as a central element of the resource industry narrative.
Like the broader economy, the mining industry has been experiencing a combination of “good”, or demand–led inflation, and bad, supply bottleneck inflation.
Unfortunately, the balance between the two has been skewed heavily towards the “bad” since the Russian invasion of Ukraine.
Labour markets are tight globally, with no sign of easing soon. The energy crisis in Europe is profound and will continue to drive volatility in energy markets.
We are however…seeing some improvement in global supply chain performance.
Aggregate supply chain disruption in manufacturing is now significantly lower than in the second half of calendar 2021.
And shipping delays and port congestion have eased considerably over the same timeframe.
So the picture is mixed, labour and energy markets presenting a major challenge, while constraints across broader manufacturing supply chains are easing.
All said, we do expect the lag effect of inflationary pressures to remain a persistent challenge through the 2023 financial year.
Globally, the near-term macro outlook remains very uncertain and fragile. It seems that Europe and the UK are almost certainly going to experience recession, and headwinds elsewhere are strong.
We expect the US economy to slow down; and it’s that economy that tends to drive overall sentiment towards investment in assets.
We think China will be a source of stability for commodity demand over the next 12 months, as stimulus policies progressively take effect.
While stimulus has produced growth in infrastructure and autos, we expect improvement in the housing sector to take a bit longer. The zero-Covid policy remains an overhang that creates additional uncertainty.
Of course none of this near-term volatility changes the essential role of mining in meeting our future challenges.
The global megatrends of the electrification of transport, decarbonisation of power and the pursuit of higher living standards are all inherently commodities intensive.
Our industry must come together to produce more essential materials, more sustainably than ever before.
So there you have the context:
1. To combat inflation;
2. Manage supply chain disruption, labour market tightness, energy market volatility.
3. To support decarbonisation in our supply chain.
4. To maintain discipline and grow through continued investment in future facing commodities.
Each of these is, in its own right, a major challenge.
So how do we achieve success as an industry?
Is there a silver bullet?
I think there might be.
The first realisation is…that just like we learnt through COVID…we cannot do it alone.
We know we can’t be successful without successful partnerships.
So what is a successful partnership?
What are the hallmarks of a truly great partnership?
At BHP, we know we haven’t always been perfect in this regard…big corporate processes, transactional mindsets and sometimes a bit of a closed book.
I’m sure there are others in this room who would see some of themselves in that description.
While collaboration, openness, transparency should be the essential ingredients of partnership – they can at times be seen as sources of competitive disadvantage.
So how do we break through…and embrace a new form of transparency?
A bedrock of clear mutual understanding to anchor our partnerships to. This is what I think can be the silver bullet.
But how do we make this more than just nice sentiment?
How do we make the transparency that underpins our partnerships systematic, totally embedded in our approach?
Like many in the industry, BHP puts a lot of time and effort into improving the ways we work. For us, it’s called BOS, BHP’s Operating System.
BOS has been one of the main enablers of BHP’s safe and reliable operating performance.
BHP’s Operating System starts with Purpose. To define and share a meaningful purpose.
With this approach working well within BHP…we now want to take it outside the gates and open it up through our supply chain.
As we engage new partners and cement existing partners in our supply chain, we now invite them sit down with us to co-define the purpose of our relationship.
- Why are we coming together?
- How are we going to create value together?
- What is important to each party?
- How can we use our commercial relationship to drive better outcomes for the industry, for communities, for the world?
With a purpose defined – the next level of transparency is to routinely and openly measure
the health of the relationship.
- Are we living up to the Purpose we defined?
- Where are the continuous improvement opportunities and how successfully are they being deployed?
- How systematically are we working together to solve problems?
It is this kind of Radical transparency, systematically embedded that can take our industry to new heights.
To promote opportunities. Minimise disruption. To build resilience.
Imagine a world where we take our life of asset plans to our supply partners and we say
- This is how we plan to operate over the long-term.
- This is how we plan to grow.
- This is how we ultimately plan to close and rehabilitate.
- We want to partner with you through this full life cycle.
- We want you to challenge us to innovate, to do things differently.
- We want you to grow and be successful with us.
Pleasingly, we are already a way down this path at BHP.
This spirit of transparency is driving our approach to creating opportunities and successful partnerships in strategic areas such as:
- Traditional Owner and Indigenous Procurement, to
- Decarbonising our supply chain, to
- Making our camps more appealing to a more inclusive and diverse workforce.
Let me share with you a few of the ways we and our partners are benefitting from this approach.
Some of our most important partnerships are with the Traditional Owners on whose land we operate.
Procurement is a critical key to unlocking the value of these partnerships for Traditional Owners and their communities.
To be honest – and in the interests of transparency - we heard from some of these partners last year that we weren’t doing enough to provide genuine opportunities for their businesses on Country.
We had some difficult conversations and realised that we needed to make a change. Not for the sake of it, but because we know that for every $1 spent with an Indigenous business, around $4 of value is delivered to community.
That’s what has motivated us to set bold, ambitious targets for Traditional Owner and Indigenous procurement – in Australia and globally.
We know it has an impact because we see it.
We see this with WA Iron Ore’s partnership with waste business North West Alliance, who now employ more than 70 people in the Pilbara.
It is these kinds of partnerships that have given us confidence to target a more than doubling of our spend with Indigenous vendors at WA Iron Ore to over US$300m per annum by the end of the 2024 financial year.
Similarly in decarbonisation…to reduce our diesel consumption, which makes up around 40% of our operational emissions – we knew we had to work very differently with our OEM partners.
Several years ago, it was clear from the positioning of some of our major suppliers that ‘the diesel engine was here to stay’.
There was also a level of scepticism internally…was there really a viable pathway to electrify a 400 tonne haul truck?
By being transparent around our demand projections and creating the space to respectfully challenge each other…it led to a fundamental shift in our partner’s R&D focus towards the decarbonisation of mining fleet.
Fast forward to today…we are now working to co-create zero emissions fleet with our major partners through our GHG Alliance with Komatsu and our standalone agreement with Caterpillar.
Together, we are working towards trialling battery electric haul trucks on our sites in 2024.
We’ve also partnered with Rio Tinto and Vale in the Charge On Innovation Challenge, which is a global initiative for technology innovators to develop concepts for large-scale haul truck electrification systems.
This is a great example of looking beyond the mining sector for solutions, and we’re really excited by the response from vendors so far.
It’s a similar concept to what we’re doing with Camps to Communities, which is a global competition for innovative ideas to make our accommodation safer, and more inclusive, and encourage our workforce to connect as a community.
It’s these examples that bring home to me what I love about Procurement. As I mentioned at the start, my personal journey at BHP has included time in Corporate Affairs.
It’s largely big-picture in that space. It’s the platform from which we get to announce the grand declarations for the Company – stand in nice rooms like this one and say nice things.
But as these examples demonstrate…it’s in procurement that we have the opportunity to turn those visions into reality.
And this is where we must keep building.
Through opening ourselves up to our supply chain, inviting partners in, co-creating purposeful intent and anchoring ourselves to radical transparency.
It’s a transformational time for us as it is across the industry.
Shifting this previously male dominated industry towards gender balance. Decarbonising an emissions intensive sector. Empowering Traditional Owner businesses to form lasting partnerships.
If I can leave you with one thought today, it is this.
It is clear that none of these opportunities can be realised individually or internally. They are challenges to be solved together.
By being transparent with each other – clear about our goals, open about our challenges – we stand to build mutual value.
We will minimise disruption. And we will build truly resilient supply chains.
At BHP we say our purpose is to bring people and resources together to build a better world.
The people in this room, and the partners we deal with every day, are absolutely fundamental to that purpose.
With radical transparency, we can build that better world together.