SUPPLIERS Supplier classification
At Gold Fields, suppliers are classified according to risk (i.e. operational impact), spend and how many vendors can supply the particular service or product (i.e. replaceability of the solution). Classifying suppliers allows Gold Fields to understand and manage its supply chain risk profile. The classification process assists in highlighting where Gold Fields is dependent upon certain suppliers for the ongoing sustainability of its operations.
The hierarchical nature of the supply chain is often referred to as the ‘Tiers of Supply’ as illustrated by way of the hypothetical camp services contract arrangement outlined below:
In the above example, a local business supplying fruit and vegetables is considered a Tier 3 supplier. This business is sub-contracted by the contractor awarded the Catering Services contract (Tier 2), who in turn is contracted by the Camp Services Operator (Tier 1), who has a direct relationship with Gold Fields.
Tier 1 suppliers are those that supply goods or services (including intellectual property (IP) / patents) directly to Gold Fields. These vendors constitute Gold Fields’ active supplier base and their performance is monitored against a range of metrics, including: Delivery in Full On-Time (DIFOT), service delivery, and invoice accuracy.
In addition, all Tier 1 vendors are regularly screened via a third-party screening tool for recorded transgressions (as well as for adverse media exposure), against an array of pre-defined criteria, including: regulatory, labour practice, environmental, health & safety, management and operational issues.
A critical supplier is one whose goods or services have significant impact upon Gold Fields’ operations and/or sustainability, as well as a large footprint in one or more of our operations in terms of allocated personnel, equipment and resources, making replacement or substitution highly difficult without a detailed plan and a significant replacement process.
Examples of Critical Tier 1 Suppliers include:
An example of how Gold Fields evaluates supplier criticality is outlined below.
The initial assessment is based upon two criteria, measured on a 5-point scale:
|Criteria / Score||1||2||3||4||5|
|Operational Criticality||No impact on production||Production inconvenienced||Some production activity is delayed - mine still operational||Production ceases for a short period (days)||Production ceases for a medium period (weeks)|
|Replaceability of the Solution||Quickly replaceable||Quickly replaceable with some effort or loss of quality||Replaceable in short lead-time and with considerable effort||Replaceable with long lead-time and high effort||Irreplaceable in the medium term|
These scores are multiplied together to yield a Supplier Criticality Score.
Note: a supplier that scores a ‘4’ or ‘5’ in either category is defined as a ‘Critical Supplier’.
The final factor in determining whether a supplier is considered ‘Critical’, depends upon the level of annual expenditure.
In the Australian region for example, annual expenditure must exceed A$250,000 p.a. for a supplier to be considered critical.
Critical Non-Tier 1 Suppliers refers to suppliers that are considered critical, and who provide products and/or services to the supplier at the next level above in the supply chain (e.g. Tier 1 Suppliers). An example of a Critical Non-Tier 1 Supplier is a quicklime manufacturer in Malaysia that supplies product to an Australian importer and distributor of quicklime, who in turn supplies to Gold Fields’ Australian operations.
Tier 2 & 3 Suppliers provide their products and services to the supplier at the next level in the chain (e.g. Tier 3 supplies to Tier 2, and Tier 2 supplies to Tier 1). These suppliers are typically more difficult to monitor than Tier 1 Suppliers, as visibility of their operations diminishes as the number of tiers in the supply chain increases.
One way in which Gold Fields seeks to increase visibility of Tier 2 & 3 suppliers is by encouraging Tier 1 Suppliers to incorporate locally-owned and operated suppliers in their supply chains. This strategy supports Gold Fields’ ‘Stakeholder’ Strategic Pillar, which seeks to increase Host Community Procurement and Employment, considered an essential component of Gold Fields’ licence to operate.