BHP battens down to boost balance sheet, learning lessons from Covid

BHP looks to unlock billions in productivity gains to bolster its balance sheet through the next commodity cycle.

BHP looks to unlock billions in productivity gains to bolster its balance sheet through the next commodity cycle, says Sundeep Singh. PICTURE: SUPPLIED.

The lessons learned from the coronavirus pandemic could be the key to finding new savings for BHP, according to procurement boss Sundeep Singh, as the company looks to unlock billions in productivity gains to bolster its balance sheet through the next commodity cycle.

Speaking via video link to Melbourne’s iMarc mining conference on Tuesday, Mr Singh will tell delegates the sudden shock to BHP’s logistics chain in early 2020 as the coronavirus hit suppliers in China and then the rest of the world forced a scramble to ensure the company’s operations had enough parts and equipment to keep running.

“If there was any doubt, the pandemic has truly proven that supply chains are a vital source of competitive advantage and I don’t just say this as the Group Procurement Officer,” Mr Singh says.

“Supply chains have had to withstand massive market change, rising trade tensions, disruptive technologies, the effects of climate change and now COVID-19. These challenges have really showed us that supply chains not only need to be cost effective and reliable, but truly resilient and sustainable.”

Mr Singh will tell the online conference audience BHP used artificial intelligence algorithms designed by consulting giant Deloitte to build up a comprehensive picture of not only its own supply chain, but also key weaknesses in those of its own key suppliers, helping them fix issues before they became a problem for their customers.

BHP hopes the lessons learned from the pandemic will free up working capital into the future, as the measures the company took to reach deep into its supply chain — to ensure it has ready access to key materials and spare parts despite the global disruptions — flow into savings in the future.

When taking the top job at the mining giant a year ago chief executive Mike Henry identified incremental gains, primarily through new technology, as the key to unlocking billions of dollars for shareholders in the rounds of savings and productivity improvements.

BHP’s full-year results show the company rebuilt $US700m ($957m) worth of inventory last financial year to prevent a repeat of problems caused the previous year by low inventory levels.

But the sudden pressures of the coronavirus pandemic, which forced the company to act fast to protect its operations from disruptions first in China and then through Europe, could be one of the keys to unlocking those long terms gains and increasing shareholder returns, rather than keeping more cash locked up in its warehouses in the form of inventory.

Mr Singh cited BHP’s “partnership” model with its suppliers for its quick response to the pandemic, saying they also offered all parties future benefits.

“It has allowed our supply chain to rapidly repair with preferential treatment, re-route through joint collaboration and reinvent for new value,” he said.

“We were able to leverage advanced analytics – AI with Deloitte. This helped us to create visibility through multiple tiers of our supply chain. We can now see information on our suppliers’ suppliers and their suppliers.”

Mr Singh said sharing that information with its major suppliers allowed them to bolster parts of their own supply chains, even when their internal systems had not yet identified a looming problem.

After identifying early concerns with the initial spread of the coronavirus in Europe, Mr Singh said BHP pushed its major suppliers to rebuild their own inventory and find local alternative suppliers for key parts, mitigating the impact on the supply chain across its operations.

“The illumination was a catalyst for Liebherr to review their stock holdings and identify parts that were better supplied locally. It also helped them identify second tier suppliers requiring monitoring if lock downs were to persist in Europe,” he said.

“This meant that parts still flowed and we took actions together where we saw our tier 2 or even tier 3 suppliers being impacted.”