Strategic Social and Environmental Sourcing Strategies
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Strategic Social and Environmental Sourcing Strategies

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Fernando Mares By Fernando Mares | Journalist and Industry Analyst - Wed, 02/01/2023 - 17:36

In 2022, the price of machinery and raw materials increased because of supply chain constraints, which raised production expenses for both equipment makers and end users. Faced with this problem, experts argue that the success of a project now depends on the ability of companies to integrate local talent and resources into their plans. Other than being locally available, suppliers must be environmentally and socially responsible.

Luis Ibarlucea, Director of Supply Chain, First Majestic, said an efficient local supply chain should have standardized equipment to facilitate new projects, feature solid contracts with key suppliers that get involved with clients and visit mining projects to offer tailored service and contractors with proven experience in the mining sector, as well as good team management skills. 

Fortunately, Mexico is a highly relevant country for the mining industry. This enables companies to look for local solutions. “We live in a country with a 500-year mining history. This is an advantage because the most important manufacturers of machinery, equipment and technology have offices here. Most of them even manufacture in Mexico, which really makes communication easier,” Ibarlucea added. 

He said that sometimes, innovation teams want to bring products or ideas from other countries while Mexico has the same or even higher-quality products. “For this reason, it is important to participate in forums and go to expositions or conventions to see what players are doing in different states. This is where the opportunities are,” he continued.  

Cooperation and collaboration are also important to develop a local supply chain and harness innovative operation approaches. “The Sonora Mining Cluster constantly promotes alliances. We seek better practices through contact with embassies to learn what happens abroad, examine successful cases and bring them to Mexico,” said Fernando Estrada, General Director, the Sonora Mining Cluster. Estrada highlighted the work of the cluster in promoting contact between local suppliers with bigger companies, as suppliers sometimes do not know how to reach major mining players or adapt to the requirements to work with them.

Industry insiders said governments and community leaders today want to encourage partnerships between mining operators and local suppliers since they can add significant value to communities, particularly in marginalized regions. “Suppliers are strategic in this sense because from them we obtain the solutions, technology and innovation. There is room to pivot and collaborate between suppliers and bigger companies to create value proposals that fit updated best environmental, social and governance (ESG) practices,” Ibarlucea said, adding that suppliers should be aware of their limitations so that they do not take on projects beyond their capabilities.

"ESG is an issue for the entire industry to face challenges like maintaining a positive corporate image and optimal operational standards. It is important to create synergies between mining developers and their suppliers, which must follow these standards. It therefore key to build up said suppliers since these companies can then go on to provide greater support in the future as they grow in size," said José Jabalera, an independent mining consultant.

Ibarlucea highlighted First Majestic’s commitment to develop its local supply chain while collaborating with communities. For instance, the company trains inhabitants of nearby villages to provide services to the mine and teaches them skills that may be a benefit to the community after the mining project finishes.

Several experts emphasized the solution to these problems lies in the localization of materials, suppliers and services. Norine said that one of the biggest advantages of localization is cost reduction since local talent and materials will always be more cost-effective. In addition, great savings are achieved by reducing shipping costs, customs duties and transportation delays. Building a local supply chain is difficult but the benefits speak for themselves.

Mining companies could make mining a more tech-oriented industry with improved safety conditions. “One of the best-equipped CONALEPs is in Zacatecas, near Peñasquito. It stands out because mining companies help educate students, which in the long term will benefit the mining project. In the future, mining operation rooms will consist of millennials with joysticks and screens rather than people getting hurt with a drill on the ground. Workers will operate their equipment remotely,” Ibarlucea added. 

According to Estrada, the notion that new technology will shrink the number of jobs in the mining sector is inaccurate. The same was said when the first computers showed up, after all. On the contrary, new technologies provide workers with more time to think and foster a better decision-making process.

Estrada highlighted the cluster’s commitment to promoting better practices in the mining supply chain. This year, it awarded 46 companies that maintained or were awarded the Socially Responsible Company (ESR) label. “This is always going to be the trend: companies able to combine their service portfolio with a social responsibility strategy will have better opportunities to be a boon to the mining supply chain, one that adds value and provides solutions,” he added. 

In addition, industry leaders aim to ensure that environmental and social issues are on the industry’s agenda. “The cluster has a vision of integrating four pillars: investors, academia, the state and society. Together, they are to cover the needs that can arise in any mining project,” he said, adding that “the mining industry today needs capabilities that were previously not considered relevant in the sector,” said Estrada.

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