Sustainable Supply -r Rio Tinto Pocurement - Phoenix Conference - 9 June 2007

-0-

Rio Tinto Procurement

Sustainable Supply

Lowell Millburn

Global Manager - Sustainable Procurement

9 September 2006

Local Communities / SD Workshop

Scottsdale, Arizona

Org Review Conceptual design Nov 2005v2.pptRio Tinto Procurement

Sustainable Development Leadership Panel (SDLP)

Mission

Rio Tinto has made a commitment to sustainable development, in the belief that acting responsibly will result in long term business benefits:

• Risk mitigation

• Reduced operational cost

• Social and economic opportunity

• Environmental, energy and natural resource conservation

• Enhanced reputation / brand recognition

SDLP exists to assist Rio Tinto ExCo and BUs in the development of business plans that action sustainable development initiatives.

SDLP’s commitment involves ongoing engagement with key stakeholders such as shareholders, employees, suppliers, customers, governments and communities.


Sustainable Supply: RTP’s Commitment to SD

Sustainable Supply is RTP’s contribution to Sustainable Development

What it Is:

• Building long term, commercial synergies among BU communities

• Aligning Supplier performance against Rio Tinto / RTP SD Policy

• Collaborating with suppliers to improve product/service quality

• Supporting local communities to strengthen relevant skill/supply base

• Applying globally recognized standards to meet local community needs

What it Is Not:

• Long term, irrevocable commitment to specific suppliers

• Rigid application of global standards that poorly address local need


Rio Tinto inbound supply chain comprises a set of industry standard processes. Collectively the processes can be easily described as “Source – Buy – Deliver” …

Sourcing Records

MaintainVendor

Relationships

PurchaseMaterials and

Services

ManageTransport

ProcessConsignment

Stock

AuthorisePurchase

Orders

TransmitPurchasingDocuments

ReceiveMaterials and

Services

ExpeditePurchase

Orders

ManageStorage ofMaterials

ConsumeMaterials

TransferMaterials

Dispose ofMaterials and

Waste

Stock takeMaterials

ProcessInvoices andCredit Notes

Review Invoice andCredit NoteProcessing

PayAccounts

Designand Maintain

Operational Metrics

Review and ReportSavings and Benefits

Against Plans

Modify Plans basedon Learnings

Develop

Strategies

and Policies

Procurement

Planning

DetermineRequirements

Determine

Source

of SupplyProcurement

UseMaterials

Account forMaterials

and Services

BenefitsRealisation

Createand Maintain

Sourcing Records

MaintainVendor

Relationships


Services

ManageTransport

ProcessConsignment

Stock

AuthorisePurchase

Orders



Services

ExpeditePurchase

Orders


ConsumeMaterials

TransferMaterials


Waste

Materials



PayAccounts

Designand Maintain

Operational Metrics


Against Plans


Develop

Strategies

and Policies

Determine

Develop MaterialsAnd Services

Catalogue Strategy

Analyse BUOperational and

Maintain

Catalogue

DevelopProcurement

Strategy

DevelopOrganisation

Strategy

DevelopSupplier

Strategy

InventoryManagement

Strategy

DevelopWarehousing

Strategy

DevelopTransport

Strategy

DevelopPaymentStrategy

Develop

Supply SystemsStrategy

Analyse HistoricalProcurementTransactions

Gather andAnalyse Market

Intelligence

DevelopLong Term

Procurement Plan

DevelopAnnual

Procurement Plan

Develop Savingsand Benefits

Forecasts

MaintainService

Catalogue

MaintainMaterial and

Service Classifications

ForecastFuture

Requirements

Requisition Non

and Services

AuthorisePurchase

Requisitions

MaintainVendor Master

SourceRequirements

Negotiateand Award

Contracts

Implementand Maintain

Contracts

Createand Maintain

Contracts

Createand Maintain

And ServicesCatalogue Strategy

Analyse BUOperational and

Maintain

Catalogue

DevelopProcurement

Strategy

DevelopOrganisation

DevelopSupplier

Strategy

InventoryManagement

Strategy

DevelopWarehousing

Strategy

DevelopTransport

Strategy

DevelopPaymentStrategy

Develop

Supply SystemsStrategy

ProcurementTransactions

Gather andAnalyse Market

Intelligence

DevelopLong Term

Procurement Plan

DevelopAnnual

Procurement Plan

Develop Savingsand Benefits

Forecasts

MaintainService

Catalogue

Manage

Inventory

ForecastFuture

Requirements

Requisition Non

and Services

AuthorisePurchase

Requisitions

MaintainVendor Master

CatalogueMaintain Vendor

ManagementSystem

SourceRequirements

Negotiateand Award

Contracts

Implementand Maintain

Contracts

Createand Maintain

Contracts

Createand Maintain

Sourcing Records

MaintainVendor

Relationships


Services

ManageTransport

ProcessConsignment

Stock

AuthorisePurchase

Orders



Services

ExpeditePurchase

Orders


ConsumeMaterials

TransferMaterials


Waste

Materials



PayAccounts

Designand Maintain

Operational Metrics


Against Plans


Develop

Strategies

and Policies

DetermineRequirements

Createand Maintain

Sourcing Records

MaintainVendor

Relationships


Services

ManageTransport

ProcessConsignment

Stock

AuthorisePurchase

Orders



Services

ExpeditePurchase

Orders


ConsumeMaterials

TransferMaterials


Waste

Materials



PayAccounts

Designand Maintain

Operational Metrics


Against Plans


Develop

Strategies

and Policies

Determine

Purchase-to-Pay Map

Source

Buy

Deliver

Find, qualify and contract the

suppliers that best match the

customer needs for goods & services

Automate and integrate with customer

processes the buying of the goods &

services at negotiated T&C’s

Manage the delivery of the

goods/services at the time and place

required by our customers

Simple Model Of An Integrated

Inbound Supply Chain

All BU’s Have To Manage An Inbound Supply ChainRio Tinto Procurement Has Proposed And Had Accepted A Unified Service Model That Spans The Rio Tinto Group

RTP Mission – Inbound Supply Chain Services

Group Leverage Points; Scale, Process, People & Systems


Mandate:

Business Units outsource all procurement / supply work

(Source, Buy, Deliver) to RTP

A statement of how the in-bound supply

chain is managed in Rio Tinto.

Encapsulates how RTP works with our

customers and our suppliers.

Business Unit

Authorise service and value delivery

plan

Direct decision making:

- Determine specification

- Determine demand

- Authorise award decisions


Application of Group authorised

standard processes

Deliver procurement excellence:

- People

- Processes

- Systems

Health & Safety and Sustainable

Development applied in the

in-bound supply chain

Governance- BU direction through plan

development and review

- RT Legal & Internal Audit oversight

- Funding benchmarks

Organisation- Hub and Spoke structure

- Practice Leader roles to

drive improvement

Service Level Agreement- Commercial authorities defined

- Mandate in practice

RTP’s Operational Support of Rio Tinto Business Units


“Sustainable Supply” concepts are proving to be key success factors for Rio Tinto....SD principles provide context to the way we buy, while achieving BU stakeholder obligations.

Key Success Factors Underlying “Sustainable Supply”

Factor A: Influence Of DistanceWhat are the current geographic, logisitical

constraints to supply? How to mitigate risk?

Factor B: Influence Of TimeWhat opportunities exist to develop or promote

resources within local communities?

Factor C: Influence Of OpportunityWhich supply categories best leverage / support a

given community? How does RTP optimize its

relationship to local communities?

Note To Slide; The above focuses mainly on the critical communities aspect, supply chain reputation risk mitigation is also covered under the general SD topic

Optimized, World-Class Supply Chain

Capital/Infrastructure

Requirement

Operational

Supply Chain Need

Mutual influence increases with the proximity of a community to a mine.

• What does the community

supply base look like

today?

• How can we address

economic, cultural, or

environmental concerns

over logical time

horizons?

• How best to engage

existing and potential

suppliers within region?

Key Success Factors:


RTP must analyze what the concentration of suppliers is versus distance from BU

operations…what the dynamic is between a local community as “neighbor” rather than

simply a set of potential suppliers/resources.

Example Only; Resolution Copper

Factor A: Influence Of DistanceCommunity Supply Capability v/s Distance

By reviewing the proximity of supply

to operation, RTP is able to gauge

how best to approach and develop

a community to its inherent

strengths and skillset, as well as

assess how to develop additional

supply opportunity.

upon

Key Questions:

What economic What operational spend is

committed within 50 miles of site? 200

miles?

What / environmental pressures exist in a

local community that complicate critical

supply chain opportunity within region?


A Few Key Questions

• What does the community supply

base look like today?

• What can we look to develop over

logical time horizons?

• How do we engage with potential

new suppliers?

• How far back the chain do we go to

promote capability growth (e.g high

school)?

We must take a time dependent view to developing the community supply base. The long term, quality ore

bodies at most of our operations permit us the flexibility of extended time horizons to plan against.

Given time we should be able to

develop a community supply base

that services our mutual needs.

Illustrative Only

+1yr +5yr +10yr “x” yr

Development Time

Increasing

Community

Supply

Capability

Service

component,

low complexity

Sophisticated services.

high developed IP

component, moderate

investments

Increasing

complexity, e.g

local distributor

and services

Local investments

in infrastructure for

goods and services

Factor B: Influence Of TimeDevelopment Of A Community Supply Base


A Few Key Questions

• What does the spend map for the

BU look like?

• Does the spend map change over

development time?

• After the exclusions what are the

targeted opportunities?

• What community systems and

structures can we use to leverage

the targeted opportunities?

We can take a targeted approach to community supply opportunities by mapping the opportunities against

known spend maps of our operations.

We can apply logic to help

target the type of community

supply that we can effectively

mutually develop.

Illustrative Only

Rio Tinto Supply

Markets “SECT”

150 Total

Theoretical

Markets

Exclude; Global or pan

regional suppliers

requiring no local

service/infrastructure

Exclude; Specialist

remote service providers

requiring no local

presence

Exclude; those Group

supply markets not

required by the

specific BU

150

Target opportunity;

remaining SECT categories

including distributors to

established supply markets.

Factor C: Influence Of OpportunityCommunity Spend Mapping


Potential Sustainable Supply Areas/Activities

Black Economic Empowerment (BEE)

Project Procurement Standards (Capital)

- Expectations of suppliers on SD

Indigenous Community Development

- The Americas, Australia, Africa

- Diavik, Argyle & Weipa Regional Plans

Emerging Markets

- Developing suppliers in consideration

of The Way We Work

HME Suppliers

- Products improvements, tyre re-tread, engine

emissions & noise

RTA Strategic Procurement

- Technical & supplier development

Environmentally Sensitive Inputs

- E.g. caustic, fuels, explosives etc

- Storage and disposals

Transparent Sourcing Process

- Evaluation criteria, local, HSE, systems

Local Community Development

- Resolution Copper local community program

Measurement

- Value improvement reporting to include non-

dollar factors/targets

The way we buy

Economic Social Environment Governance

Black Economic Empowerment (BEE)

Project Procurement Standards (Capital)

- Expectations of suppliers on SD

Indigenous Community Development

- The Americas, Australia, Africa

- Diavik, Argyle & Weipa Regional Plans

Emerging Markets

- Developing suppliers in consideration

of The Way We Work

HME Suppliers

- Products improvements, tyre re-tread, engine

emissions & noise

RTA Strategic Procurement

- Technical & supplier development

Environmentally Sensitive Inputs

- E.g. caustic, fuels, explosives etc

- Storage and disposals

Transparent Sourcing Process

- Evaluation criteria, local, HSE, systems

Local Community Development

- Resolution Copper local community program

Measurement

- Value improvement reporting to include non-

dollar factors/targets

The way we buy

Economic Social Environment Governance


Sustainable Supply Project Framework & Lifecycle

Mission

Policy

Outreach

Plan

Project

Engage

Measure

Rio Tinto SDLP Benchmark Focus / Guidelines

The way we work / The way we buy

RTP Sustainable Development Plan (SDP)

BU / Community-Based Needs / Opportunity / Idea Generation

BU Procurement Programming VDP / SD Playbook

↓

↓

↓

↓

↓

↓

SD-Oriented Contracting / Improvement Initiatives

RTP/Supplier/Community Performance Metrics/Reporting

Sustainable Supply initiatives follow RTP’s Process Framework:


SD Performance Metrics – Global/Local Action

RTP Sustainable Supply initiatives will have key metrics to monitor progress


Project: Long Term Cement Supply / Transport Strategy

BU: Diavik Diamond Mines – Capital Projects

BU Objective: Value Improvement

SD Objectve: Local/Tribal Skills Training / Business Development

Strategy: Develop a long term material / transport strategy leveraging ice road to permit

DDMI to reduce the landed cost of cement required for kimberlite

pipe backfill from $450/ton to less than $350/ton.

SD initiative: Identify, solicit, develop local and tribal businesses base to

participate in the development of limestone/cement operations

in NWT. Potentially assist in funding/training local resources

to transport, store, and inspect FIBC bulkbags for reuse.

SD Example Case – Strategic Sourcing / Logistics


Local Community Initiatives Can Vary by BU / Region

Potential Sustainable Supply Initiatives:

• Resolution Copper – Promote a progressively skilled/competitive local

supply base (trade education/business dev. support)

• Diavik Diamonds – Create long term strategies for Yellowknife/Tribal

business development (regional cement/transport/

packaging strategies)

• Potasio Rio Colorado – Rebuild material/services supply base in

Mendoza/Neuquen provinces, drawing upon

environmentally sound, sustainable business cases.

• Pilbara Iron / WA – Aboriginal / Local Community Supplier Enablement

• Guinea – Progress high profile, philanthropic social programs

(e.g., used asset disposal/donation: computers )

• Core Technologies – Fostering sustainable technical improvement

(e.g., HME Noise/Safety/Quality Standards)


Sustainable Supply – Implementation Schedule 2006/2007

2006 2007

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter 3 Quarter 4

SDLP/RTP Strategy Alignment

Town Hall: Sustainable Supply

SD Playbook Development

SD Foundation Training

Hub Funct. Stream Training

SDT/BU Stakeholder Training

SD Pilot BU – Project Dev.

Full Phase I Implementation

Activity/Milestone


Immediate Focus (Q3/Q4 2006)

Sustainable Supply Objectives:

• SD Playbook Development (VDP driven process/templates/metrics)

• SD Training – Rio Tinto Foundation Modules (RTP Portal)

• BU/Local Community Introduction to SD (Progressive Sites Q4)

• RTP Pilot Initiatives (RCML; PRC; DDMI; QMM)


Lowell Fields Millburn, M.A., M.L.I.S.

Global Manager - Sustainable Supply


5295 South 300 West, Suite 300

Murray, Utah 84107

Phone: 1(801) 743-4619

Cell: 1(801) 599-3228

Fax: 1(801) 743-4666

Email: [email protected]

Presentations & Public Speaking

Sustainable Supply -r Rio Tinto Pocurement - Phoenix Conference - 9 June 2007