may 2019 - south32

ENTERPRISE AND SUPPLIER DEVELOPMENT TRANSFORMATION JOURNEY

MAY 2019

South32 Enterprise and Supplier Development Transformation Journey | May 2019 1

CONTENTS

INTRODUCTION 2

WHAT HAVE WE ACCOMPLISHED? 5

HOW DID WE ACCOMPLISH THIS? 9

CONCLUSION: WHERE TO FROM HERE 11

In line with our Vision, we chose to focus on improving our Enterprise and Supplier Development Framework during the 2018 financial year. This report seeks to outline this framework and it’s success to date.

As a result of this framework, numerous benefits have been achieved for various South32 stakeholders, especially SMMEs within our host communities across Northern Cape and KwaZulu-Natal.

The development of the improved Enterprise and Supplier Development Framework and associated tools was a focal point in bringing the our vision and the associated desired impact to life.

We are proud of the progress that has been made over the past year as a company, however, we believe in the power and strength of collaborating with industry partners.


2 South32 Enterprise and Supplier Development Transformation Journey | May 2019

INTRODUCTION

THE VISION

We aspire, through our vision, to make a difference by: developing natural resources, improving people’s lives now and for generations to come, and we have a mandate to make a sustainable difference in people lives, by building from the ground up.

We aim to work with communities, partners and suppliers to make this vision a reality.

Enterprise and Supplier Development is increasingly becoming a core focus for transformation, due to its significant impact on broader socio-economic development, and its ability to enable sharing of value within a company’s operational ecosystem. In the latter half of 2017, we embarked upon an Enterprise and Supplier Development transformation journey, which would enable us to become a significantly empowered company. We define this as:

THE CHALLENGE

Before we dive into the improved Enterprise and Supplier Development Framework it is important to highlight the challenges faced by our business in this regard. 2017 witnessed challenges with regards to identifying and implementing Enterprise and Supplier Development initiatives, especially in line with the improved performance across the business, and associated Net Profit After Tax (NPAT), on which compliance spend requirements are set. The compliance targets are 1% of NPAT spend on Enterprise Development (ED) and 2% of NPAT spend on Supplier Development (SD).

For each of the above, there exists a 40% compliance sub-minimum spend requirement, failing which a drop in Broad-Based Black Economic Empowerment recognition level occurs. The challenges mentioned above resulted in a failure at all operations, outside of South32 Enterprise Development, to meet the 40% compliance sub-minimum spend requirements for both Enterprise Development and Supplier Development.

The previous framework had challenges associated to ad-hoc Enterprise Development/Supplier Development beneficiary selection, limited Enterprise and Supplier Development support mandates, cross-operational inefficiencies in management and delivery, and low levels of monitoring and reporting of impact.

This necessitated the need to increase maturity of the framework and close gaps in the previous processes, resourcing strategy and governance. The approach taken on this was to enable value beyond compliance through two, mutually reinforcing, streams of work running in parallel with one another.

Delivering on Enterprise and Supplier Development projects

and initiatives

Improving diversity and gender representation

Delivering a more inclusive supplier landscape

Responding to Mining Charter and MPRDA amendments


THE OPPORTUNITY

One of the first steps of an improved process was to undertake a procurement spend analysis. This highlighted gaps in achieving Mining Charter, and specifically Department of Trade and Industry, preferential procurement targets. The gaps predominantly related to black and black woman owned suppliers for each of the operations, as well as failings, as mentioned previously, to reach KPI targets for Enterprise and Supplier Development.

Working with our category managers and core operations colleagues, preferential procurement plans for our FY18 were assessed, and Enterprise Development and Supplier Development opportunities were identified to address some of the previous years’ gaps. The scorecard impact of these intended initiatives were then quantified to affirm their potential to close compliance gaps.

WHY ENTERPRISE AND SUPPLIER DEVELOPMENT?

To redress South Africa’s historical socio-economic inequalities, legislation has been passed that governs our social licence to operate - the Broad-Based Black Economic Empowerment Act and the Mining Charter. The focus of this initiative was on Enterprise and Supplier Development, which is linked to our preferential procurement of goods and services from local transformed businesses, and requires of us to assist and accelerate the growth and sustainability of small and medium sized black-owned businesses.

ELEMENTS TRANSFORMATION IMPERATIVE ELEMENTS ADDRESSED

dti Mining Charter II

OWNERSHIP Effective ownership of entities by black people MANAGEMENT CONTROL/EMPLOYMENT EQUITY

Effective control of entities by black people and transformation and diversity in the workforce

HUMAN RESOURCE/SKILLS DEVELOPMENT

Extent to which employers develop the competencies of black employees and black people internally and externally

FOCUS AREA

PREFERENTIAL PROCUREMENT

Extent to which entities procure goods and services from transformed suppliers with strong Broad-Based Black Economic Empowerment recognition levels

ENTERPRISE DEVELOPMENT Extent to which companies assist and accelerate the

growth and sustainability of black-owned enterprises

SUPPLIER DEVELOPMENT SOCIO-ECONOMIC/MINE COMMUNITY DEVELOPMENT

Initiatives that contribute towards socio-economic development or sector specific initiatives that promote access to the economy for black people

BENEFICIATIONTransformation, value addition or downstream beneficiation of a resource, to a higher value product for local or export use

HOUSING AND LIVING CONDITIONS

Addressing the human dignity and well-being of mine workers through enabling decent living conditions


DESIGNING A NEW FRAMEWORK

A current state assessment of our existing Enterprise and Supplier Development processes, governance and resourcing identified several gaps when measured against cross industry best practice.

Leveraging a best practice analysis (in consultation with industry subject matter experts), alongside our unique needs, improvement areas were identified and a new Enterprise and Supplier Development Framework designed.

Guided by an established Enterprise and Supplier Development working group, steering committees and the various transformation committees, the project team designed each element of an Enterprise and Supplier Development Framework (structure, people, process and governance), assessing options based on best practice and fit-for-purpose requirements.

A key purpose of the new framework was to create Value Beyond Compliance. “Value” could have multiple definitions and meanings, however, in this case we are referring to enhancing or improving the value that is added to South32’s host communities across the Northern Cape and Kwa-Zulu Natal.

Socio-Economic ImpactBroadening the impact of business on society

Shared ValueSolving social issues with a business (profit) model

SynergiesBetween economic performance and social progress

VALUE BEYOND COMPLIANCE

InnovationApplying innovation principles and practices Evidence Based Solutions

Understanding compliance gaps, and using cross-industry knowledge and best practice to enable people, processes and systems to deliver value beyond compliance

Strategic ApproachAligning strategic choices on compliance to corporate strategy and operational performance

DigitalLeveraging digital tools and technologies to drive greater socio-economic impact, innovation and value

Enable Localisation

Increase Industrialisation

Accelerate Transformation and Diversity


WHAT HAVE WE ACCOMPLISHED?

THE BENEFITS

The anticipated benefits of the new Enterprise and Supplier Development Framework reaches beyond compliance. These benefits include, but are not limited to:

Central Accountability: The new Enterprise and Supplier Development Framework allows for central accountability to ensure execution of the Enterprise and Supplier Development strategy.

Maturity: As a result of the improved Enterprise and Supplier Development Framework, we experienced increased maturity of existing Enterprise and Supplier Development processes, resourcing practices, governance, and structures.

Sustainable Development: The improved framework also resulted in strategic identification and subsequent development of black owned enterprises with a regional footprint and socio-economic impact.

Transforming Supplier Base: One of the main benefits of the new Enterprise and Supplier Development Framework is the incorporation of successful enterprises into our supply chain.

Compliance: Future ongoing compliance with Department of Trade and Industry compliance targets (both sub-minimum and internal KPI’s) while simultaneously supporting preferential procurement targets for both Department of Trade and Industry and Mining Charter is one of the main functions of the Enterprise and Supplier Development Frameworks.

Cost Recovery: Along with the abovementioned benefits, the recovery of several costs associated with operation of the Enterprise and Supplier Development Unit from the 3% NPAT is also evident under the new framework.

IMPROVED COMPLIANCE AND SPEND

The journey to creating an improved framework in FY18 saw our Broad-Based Black Economic Empowerment recognition points increase significantly from FY17. The increase in our Enterprise and Supplier Development Spend of 150% resulted in a 13.9 point and 8 point Broad-Based Black Economic Empowerment scorecard increase for ASA and HMM respectively whilst the increase in Preferential Procurement spend resulted in a 18 point and 6 point increase for ASA and HMM respectively.

¥

¥

¥

ASA

FY2017 FY2018

0

5

10

15

20

25

ESD PP

13.85 point increase

18.02 point increase

HMM

FY2017 FY2018

0

5

10

15

20

25

ESD PP

7.95 point increase

5.54 point increase


VALUE CREATED

The value created in the lives of these business owners and their communities surpasses the legislative and compliance achievements gained by South32.

There are numerous examples that could be shared of Suppliers and Enterprises whose businesses have been positively impacted as a result of Enterprise and Supplier Development funding. Below are three examples of Small, Medium & Micro Enterprises (SMME’s) within our supply chain who benefitted from Enterprise and Supplier Development funding in the 2018 financial year.

CASE STUDY 1: MAIKTRONIX

MEET MAIKTRONIX

Maiktronix is a 100% black woman-owned business founded in 2011. They design, fabricate, supply and install steel and aluminium products; as well as install electronic security and gate automation systems. To date, they independently secured Cash Build as a key client and were identified for the SAB kick-starter accelerator programme which took their business from turning over R600 000 to R7 million in revenue over 3 years.

HOW DID SOUTH32 ASSIST THIS BUSINESS?

Procurement of assets

Debt settlement

KEY BENEFITS

Able to target more larger scale clients due to improved predictability and consistency in manufacturing processes.

Maiktronix employees in workshop


CASE STUDY 2: COSMOPOLITAN HAULIERS

MEET COSMOPOLITAN HAULIERS

Cosmopolitan Hauliers is a 100% Black woman owned logistics supplier and a preferential procurement success story for Hillside. The company has depots in Durban and Richards Bay where they service 3 major clients: South32, Hulamin and Mpact. Cosmopolitan is approved by Road Traffic Management System (RTMS) which ensures that the highest industry standards in terms of vehicle fitness, driver wellness and legal loading limits are adhered to.


Settlement of Scania truck financing

Renegotiated contract terms

Cosmopolitan Hauliers has become one of the market leaders in the Durban and Richard bay corridor. This positions them in a position where they are able to provide advice to Small, Medium & Micro Enterprises who want to enter the logistics market. The directors are willing to assist in the mentoring and coaching of EMEs and QSEs as part of them contributing to the growth of the industry.

KEY BENEFITS

Able to return contract to profitable state and grow the company to now becoming a generic company which can develop other EMEs and QSEs.

Cosmopolitan Hauliers employeesCosmopolitan Hauliers in action


CASE STUDY 3: KZN LAUNDRY SERVICES

MEET KZN LAUNDRY SERVICES

KZN Laundry is a cleaning and laundry services business based in Richard’s Bay, mainly operating in the hotel industry. They are currently contracted to run laundry services at Hillside (awarded by tender) with good service delivery to date. The company has expertise in dry cleaning, mending, embroider labelling, barcoded labelling and screen printing.


Procurement of assets

Raizcorp incubation and training

The business was over indebted prior to receiving the funding, this meant that the owner had to focus on ensuring that expenses were paid and as a result, focusing on the business’ growth strategy took a back seat. KZN Laundry Services has since seen the following improvements:• Revenue growth from a turnover of R715k in 2017 to an expected turnover of R1.68m in FY19• Cost containment strategies which includes developing energy efficient drying methods• Research improved chemical dosing methods

KEY BENEFITS

Able to focus on optimising service delivery and adding value over and above contractual requirements.

KZN Laundry Services employeesKZN Laundry Services owner


HOW DID WE ACCOMPLISH THIS?

THE PROCESS

A fit-for-purpose process was designed to support the Enterprise and Supplier Development Framework strategy, and this was embedded into an operating model through a Standard Operating Procedure Manual.

MONITORING AND REPORTING (CONTINUOUS)

1Beneficiary

Identification

2Beneficiary Selection

3Beneficiary

Development Proposition (BDP)

4Investment Approval

5Investment Execution

6Monitoring

and Reporting

The approach taken was to enable value beyond compliance through two, mutually reinforcing, streams of work running in parallel to one another. This was a two phase process as highlighted below:

PHASE 1 PHASE 2

STRATEGIC AND EVIDENCE BASED ENTERPRISE AND SUPPLIER DEVELOPMENT

OPPORTUNITY IDENTIFICATION

IMPLEMENTATION

• The Enterprise and Supplier Development team undertook a supplier-commodity procurement spend analysis

• This team then highlighted gaps in achieving Mining Charter and Department of Trade and Industry preferential procurement compliance targets

• Thereafter, opportunities and initiatives were identified to address compliance gaps

ENTERPRISE AND SUPPLIER DEVELOPMENT FRAMEWORK SITUATIONAL ANALYSIS AND

BEST PRACTICE REVIEW

• The Enterprise and Supplier Development team then assessed our current Enterprise and Supplier Development Framework at the time and identified improvement areas

• The team then Identified gaps when measured against cross industry best practice and recommendations were made for each element of the Enterprise and Supplier Development Framework

• Implemented the initiatives, taking Enterprise Development and Supplier Development potential beneficiaries through the new Enterprise and Supplier Development Framework process

• Monitored and reported Enterprise and Supplier Development and scorecard impact on a continuous basis

• Preparation to enable interim and final phase implementation of Enterprise and Supplier Development Framework

• Performed interim processes including governance and resourcing to enable the Enterprise and Supplier Development implementation


ENTERPRISE AND SUPPLIER DEVELOPMENT TRANSFORMATION TOOLS

In order for a Small, Medium & Micro Enterprise to benefit from Enterprise or Supplier Development, it has to go through thorough business assessment so that gaps may be identified. Once we have identified these gaps, the appropriate funding is determined, for example, if a business appears to lack infrastructure then the appropriate assistance may be to procure assets.

Subsequent to the disbursement of funds, each business received a Business Development Plan that provides business owners with an Action Plan to address key issues and improve as a business going forward.

3. DEVELOPMENT PLAN

Business Development Plan to address gaps through identified Enterprise and Supplier Development support initiatives

Actionable plan, with targets and timelines addressing sustainability and growth

THREE-STEP PROCESS

1. BUSINESS ASSESSMENT

Beneficiary Documentation

Initial Questionnaire

Qualitative Interviews

Business Assessment Tool

2. GAP ANALYSIS

Maturity scale

5 Leading

4 Performing

3 Functional

2 Developing

1 Lagging

Key

Current state

Ideal state

Problem state


CONCLUSION

WHERE TO FROM HERE?

The journey to creating an improved Enterprise and Supplier Development Framework and focussing on providing Value Beyond Compliance to our host community, has not been without it’s challenges. However, we are proud of the vast improvement in the first year of this transformation journey.

Our vision for the future, is one of collaboration with our industry partners in the Mpumalanga region in order to exponentially increase the value provided to these communities.

Collaboration between industry partners allows for:

Along with industry peer collaboration, we intend to increase the involvement of our site operations and supply teams in the implementation of the Enterprise and Supplier Development Framework.

Furthermore, we have structured our Enterprise and Supplier Development program to provide different types of support based on the Small, Medium & Micro Enterprises’ stage of business maturity and existing operating gaps. While our Enterprise and Supplier Development programme is already capable of providing beneficiaries with funding assistance in the form of grants, we are in the process of acquiring the capabilities to provide beneficiaries with both interest-free loans and interest bearing loans. This further diversifies the method of how we are able to provide funding for a larger variety of beneficiaries and in turn make a greater impact on companies and communities.

Enhanced scale of support

that can be provided to Small, Medium & Micro

Enterprises

Improved delivery

success and increased impact of

programmes

Resolution of challenges related to

implementation and community

engagement


OUR JOURNEY PATH...

3

2

1

COLLABORATION with our

industry peers in Northern Cape and

KwaZulu-Natal

INCREASED INVOLVEMENT

of Operations and Supply teams in

the implementation of the Enterprise

and Supplier Development Framework

INTRODUCTION OF LOAN FUNDING

as an additional funding option

alongside grant funding

may 2019 - south32

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