In the stope: Khutso Sekgota: procurement becomes strategic

The traditional role of procurement officers has changed significantly, Khutso Sekgota tells Leon Louw.

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Khutso Sekgota, associate director: Business Process Solutions at Deloitte. 
Image credit: Leon Louw

Khutso, as associate director Business Process Solutions at Deloitte, what do you specialise in?

My speciality is in providing sourcing and procurement strategy and managed services to clients in the energy and resources, consumer services, and public sector space. I have more than 15 years of experience in management consulting and engineering operations, and hold a Master’s degree in industrial engineering from Wits University and a Bachelor of Science degree in mechanical engineering from the University of Cape Town.

Deloitte has been undertaking global research about the procurement industry since 2011. In the latest report, more than 480 procurement practitioners took part. What is the main goal of the research? 

The report has a global reach and in 2017, it covered 23 countries. The main goal is to determine what chief procurement officers (CPOs) have to think about every day. The purpose is really to give practical advice to procurement practitioners on how to respond to day-to-day challenges. It also looks at understanding their role in driving partnerships and collaborating with their business counterparts. In addition, the study aims to determine the strategies CPOs employ to be able to realise their business objectives. Managing and attracting the right talent to reach their objectives is another goal. We also investigated the role of technology in procurement in the 21st century.

How strategic has the role of a procurement officer become?

A CPO’s role has become more strategic over the past few years. Collaboration, for example, is extremely important. Practitioners in the procurement space need to serve as strategic partners to the business. They need to devise strategies that will enable the mine to increase profit or reduce costs, rather than waiting for the company to dictate to them.    

For them to achieve these objectives, they will need to partner with business. From our research, most CPOs are given the platform by their business counterparts to play a more proactive role in identifying opportunities for cost reduction, mitigation against risks, and innovative ways of delivering services.

In other words, increasingly, CPOs are moving out of the backrooms, where they were just executing business strategies, to being at the front-end in terms of the C-Suite of priorities.

Do you think this trend will continue even as the economic situation starts improving? Will the chief procurement officer play an increasingly strategic role in the company?

Absolutely. What the downturn has brought to light is that profitability needs to grow continuously in terms of revenue and reducing cost. The trend of being proactive will remain a priority for CPOs. Moreover, as these objectives become entrenched, it also becomes part of the agenda of the chief executive officer (CEO) and the chief financial officer (CFO). The relationship between the CPO and the CFO is becoming more and more complementary. Whatever value is realised by effective procurement is locked into the CFO’s budget.

What are the main priorities for procurement officers? 

Globally, about 79% say that cost reduction is the number one priority. Managing risk is the second one. To achieve their goals, procurement practitioners have consolidated their spend across the business. They are now looking beyond local site requirements and aggregating the requirements across multiple sites. Contracts are consolidated to improve economies of scale. In this way, they are able to agree a better rate with suppliers because they are looking at the requirements of multiple sites, not only one site.

While consolidating that spend, they are also looking at alternative sources beyond borders to induce competition and create new businesses. In South Africa, CPOs are looking at how to incorporate transformation objectives to drive that competitiveness. CPOs are increasingly interrogating their needs and specifications. For example, do I always have to use the same equipment manufacturer, or should I define my specifications and use an open platform? 

If CPOs have a long-standing relationship with a trusted global original equipment manufacturer (OEM), but the procurement costs are high and they can save costs by using a reliable Chinese supplier, should they turn their backs on an established relationship?

They would have to be very cautious and consider the after-sales service and the availability of spare parts, for example. It is not so much about the upfront purchase cost of the equipment but the full life cycle costs. Other factors like the cost of spare parts will come into play. Then of course you must keep transformation and Black Economic Empowerment (BEE) requirements in mind. You will have to make sure the equipment provider will be able to source certain consumables and spare parts that have been manufactured locally. In addition, these companies will need to drive transformation as well. It’s about weighing up all these factors, taking a long-term view, and making sure that the total cost of ownership is taken into consideration.

The entire life cycle of the products and services that are being procured should be considered. It is risky to focus only on the purchase price. Maintenance costs, operational costs, and even the retirement cost of the service must be considered. For mining companies, it’s not only about driving enterprise development or even cost optimisation at production phase, but it is looking at opportunities after closure.

Will the evolution of procurement and the consequent shift from transactional activity to a more strategic role require different skills and talent?

Yes, it will require a very different type of talent. An engineer with knowledge about the technical and operational aspects will be an ideal candidate. CPOs must understand the categories, market sentiments, and the market drivers that will influence the cost of the services they are procuring.

A category focus is taking shape more than a departmental focus, for example, a metallurgist procuring processing equipment or a mechanical engineer procuring underground equipment.

What was the background of a procurement manager in the past?

Historically, the procurement roles were filled by people with a financial background, like accountants. These roles are now challenged by engineers who bring in technical skills and commercially trained professionals who add their business knowledge.

Collaboration with businesses is an essential function and someone like a sourcing specialist understands the long-term perspectives. The role has become a lot more multidisciplinary. 

CPOs are increasingly seeking to understand exactly how business can cooperate with the sourcing and procurement team in defining the strategies for categories in jointly committing to savings. Savings targets are shared by both procurement and technical and therefore, there should be an alignment in terms of the drive. If the savings target was only given to procurement, the technical team might be more concerned about making sure that the equipment uptime is maximised but not necessarily be concerned about the cost of the equipment. However, if you share those objectives, then the procurement person cannot be obsessed with the purchase cost and not worry about the equipment uptime.

Do CPOs spend enough on training and skills development?

In an economic climate where companies are trying to cut costs, CPOs run the risk of being tempted to reduce their investment in talent and skills development. The study has shown that in 2016, about 29% of CPOs invested at least 1% of their procurement spend towards training. In 2017, the figure has gone down to 25%. This trend is a concern, as it is short-sighted not to invest in the future.  

Where would you like to see the mining industry in 10 years?

Locally, there has been a massive reduction in investment in growing the mining industry. This indicates that there has been a reduction in high-yield reserves, increased cost of operations, and uncertainty from a regulatory perspective. In a tough business environment, it becomes important to drive cost optimisation to determine how to involve local communities. It is paramount that the dialogue between communities, government, and business is enhanced. Beneficiation is important, as is transformation and partnerships.

We need to be looking at how to invest in research and development, and at alternative mining methods, to ensure mining can continue in areas considered to be marginal.

How do we make mining attractive to the younger generation?

By creating communities surrounding mines in which people can see themselves living. If the aspiration for a decent lifestyle is only compelling when you live in the city, then mining won’t be attractive. We have to look at how we manage the environment and how are we beneficiating the resources, so that there are other industries in addition to mining. That will attract more young people.

Click below to read the October 2017 issue of Mining Mirror

MM Oct2017 160



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