Supplier focus in FMG plan

WESTERN Australian iron ore player Fortescue Metals Group is giving Pilbara small businesses and Aboriginal businesses across the country access to 14-day payment terms, under new company-led guidelines looking to improve operational cash flow for suppliers.
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Andrew Forrest.

Karma Barndon

The traditional 30 day payment term has long been considered one of the main barriers to building sustainable businesses, especially for Aboriginal-owned and Pilbara-based suppliers.

FMG CEO Nev Power said the payment terms were the result of discussions initiated by FMG’s procurement and Aboriginal business development team on how to improve processes to ease the pressure on suppliers.

Power acknowledged thriving small businesses were fundamental to the economic prosperity of communities and he said FMG placed a strong emphasis on engaging with small business suppliers to establish and maintain mutually beneficial partnerships.

“We are especially proud for our relationships with highly capable and competent Aboriginal businesses, including through the Billion Opportunities program, which helps communities local to our mining operations benefit from Fortescue’s growth and development,” he said.

“Ensuring these businesses have the option to apply for favourable payment terms aligns with our broader community vision to build capacity and strengthen communities in the Pilbara.”

Power said that since the inception of Billion Opportunities in 2011, 240 contracts and sub-contracts worth $1.85 billion had been awarded to 103 Aboriginal-owned businesses and joint ventures.

To be eligible for FMG’s new 14-day terms, Power said small businesses must satisfy classification criteria, including having fewer than 20 employees, an annual turnover less than $20 million per annum, and annual Fortescue spend under $10 million.

Next-door iron ore neighbour Rio Tinto is also looking at ways to make it easier for WA businesses to compete for contracts, announcing a commitment to a local procurement program.

Rio Tinto currently makes suppliers wait 45 days for payment, but unlike FMG it has no plans to shorten that time frame or lift that barrier for Aboriginal and Pilbara-based companies supplying it.

In a release Rio Tinto iron ore chief executive Chris Salisbury said the company has spent nearly $57 billion with WA businesses over the past seven years but wanted to do more.

He said 1200 WA suppliers had already contributed to Rio Tinto’s Pilbara iron ore business and the company made large contributions to the state economy through local procurement, taxes and royalties.

While promising a series of local procurement workshops would be held in the Pilbara and Perth to share information on the company’s forward procurement plans, Salisbury was quiet about what that procurement program would actually look like.

A Rio Tinto spokesman told Australia’s Mining Monthly that the company had an ambition to make the procurement process easier, and would use a dedicated team to better link its procurement opportunities and spending with WA suppliers.

He said Rio Tinto valued its place in the community and had pride in the fact that 77% of procurement had already gone to WA local suppliers, but it was time to see what else they can do.

Despite lacking content, WA’s Chamber of Minerals and Energy welcomed Rio’s move to help local businesses from the Pilbara and across the state benefit from increased contract opportunities.

CME CEO Reg Howard-Smith claimed resources companies were continually looking at ways to boost local content on projects, and he praised Rio Tinto for increasing job opportunities for Western Australians.

“Efforts by companies like Rio Tinto to boost local content on projects significantly benefit the Western Australian community,” he said.

“The resources industry’s spending flows through to every part of the state by way of wages and salaries, business purchases and community contributions.”

 Howard-Smith said the Rio announcement was just one example of how the industry was trying to improve the lives of Western Australians by increasing job opportunities for local businesses and workers.

WA Premier Mark McGowan said he was pleased to see Rio Tinto acting on his government's calls to secure more work for Western Australians, and that it was great to see companies following the government's lead and working to create opportunities for local businesses to work on big projects.

“We've made it clear that Western Australians must get a fairer share of this work and Rio Tinto has recognised that,” he said.

“I would encourage more companies to provide further opportunities for Western Australian businesses.”