Rio Tinto chief executive Sam Walsh told procurement professionals they were “incredibly important” to their businesses and had a big role to play in innovation, at the CIPS Annual Dinner 2015 last night.
Walsh said $4.8 billion of costs had been taken out of the global mining company and procurement made up around $2 billion of that.
“You are probably representing 60-70 per cent of your company’s costs,” he told the audience. “Procurement is an incredibly important part of the business. You need to get that right.”
During a glittering evening at the London Hilton in Park Lane Walsh was interviewed by BBC Breakfast business editor Steph McGovern, who asked him how buyers could make themselves stand out.
“It’s all about delivering value,” he said. "I’m talking about serious value, making game-changing decisions. Sticking your neck out, understanding your business, understanding what’s going to make a difference.”
Walsh said purchasers were the key to innovation in a company. “Innovation is something that’s incredibly important in our business," he said. "Who helps us with that? It’s suppliers of one colour or another. You are the opening for that.
“Who would have thought three years ago that we would be using big data in the way we make purchasing decisions? Without suppliers we would not be running automated trucks. We rushed out and bought 150 of them to stop our competitors getting them.”
Walsh, who started his career as a trainee buyer for General Motors in Australia, said collaborating with suppliers was more important than focusing on price. “Working closely with a supplier you can pull more cost out of the business than if you have an annual tender,” he said. “By working with suppliers, that will enable you to get a leap on all of your competitors, because they are the people who know the products. You are buying their expertise.
“It’s about value and being focused on value. Purchasing price is important but value is far more.”
Walsh also said corporate social responsibility was a big part of Rio Tinto’s work and the company had spent $280 million on community projects. Last year it spent half a billion dollars with indigenous businesses in Australia.