Contractor management at Sasol Mining

Content Objectives of the presentation Background on Sasol Mining procurement Contractor management learning

Objectives The presentation would try to: The presentation would not: Give background to Sasol Mining procurement Share the learning made in Sasol Mining on contractor management from a Procurement perspective The presentation would not: Cover all safety related issues, COP’s etc Provide a comprehensive list of terms to consider

Procurement at Sasol Mining Sasol Mining do in the region of R 2,2 billion procurement per annum Main categories of spend are: Production equipment Operating material Mining services Consumables Sasol Mining currently has about 1300 accredited suppliers Sasol Mining has term agreements covering 80% of spend

Contractor management from a procurement perspective Approach The first step in successful contract management is a comprehensive strategy on managing the procurement process: Need Industry analysis Sourcing strategy Supplier accreditation Procurement channel Contracting Contract management Sasol Mining compiled models for these processes with detailed considerations on what is important to consider

Contractor management from a procurement perspective Approach Sasol Mining identified a number of Procurement drivers Complexity reduction Risk management Sourcing optimisation Total cost of ownership reduction Process efficiency Value optimisation Supplier collaboration Correct Procurement channel Automation Not all these drivers are important from a contractor management perspective The discussion would focus on the drivers with the biggest impact on contractor management

Contractor management from a procurement perspective Complexity reduction Statistics Sasol Mining places 233 000 purchase order lines in a year from the 1300 suppliers. There are 83 000 catalogued items on the Sasol Mining material master A service master currently in progress would compile about 7 000 catalogued services excluding repairable items Complexity reduction is at the heart of efficient contractor management from a procurement perspective Knowing what is needed from the supplier Classifying services Cataloguing services Standardising specifications Limiting the number of suppliers accredited Less agreements Ensuring supplier collaboration

Contractor management from a procurement perspective Complexity reduction Why Complexity reduction? Improved compliance on all aspects – compliance decreases when supplier numbers increase Turnover of suppliers decreases – leading to increased compliance and less pressure on internal resources to ensure new suppliers comply Decrease in cost Decrease in maverick spend – Better governance Better contract management - less pressure on all stakeholders in business

Contractor management from a procurement perspective Complexity reduction - How? Sasol Mining together with other companies in Sasol group set up a project team to classify and catalogue services Assigned resources Knowledgeable people Standardised methodology Project management approach Change management Term agreements Sasol Mining started compiling comprehensive scopes of work Assigned knowledgeable resources Involved all stakeholders Clarified deliverables Standardised across business units Involved suppliers / contractors in process

Contractor management from a procurement perspective Complexity reduction - How? Clear accountability for contractor management Centres of excellence for certain routine services – facilities maintenance Dedicated, accredited suppliers / contractors with term agreements Contract ownership by end users of service

Contractor management from a procurement perspective Risk management Three main risks identified in Sasol Mining: Supply risks – supplier unable to fulfill contractual obligations Governance risks – irregularities, process and procedures Business risks – cost, non-performance, safety Mitigation steps to reduce risk at Sasol Mining No award of long term agreements to new entrants Split award of business Probation period for high risk spend areas Right to set-off No cession of debtors Penalty and termination clauses Resources for new supplier development Alignment between contractual terms and business requirements

Contractor management from a procurement perspective Risk management: How to: Sasol established the Highveld Business Development Centre to assist as an independent third party with supplier development involving: Local municipality Local businesses Corporates Business councils Banks Sasol Mining introduced an approval entity for high value agreements Sasol Mining implemented a process for supplier accreditation whereby all aspects relating to the capacity of the supplier are evaluated

Contractor management from a procurement perspective Risk management: How to: Sasol Mining standardised its contract terms and conditions at the hand of risks identified Sasol Mining implemented a strict governance process by means of route guides and limited approval authority.

Contractor management from a procurement perspective Sourcing optimisation Having the correct suppliers or contractors to start with is a result of a comprehensive sourcing strategy Measuring performance of Sasol Mining and suppliers is important to ensure the right suppliers Sourcing optimisation: How to Sasol Mining compiled a sourcing strategy for total spend by category Sasol Mining introduced rigorous health checks measured on a daily basis as a production report

Contractor management from a procurement perspective Golden rules – learning at Sasol Mining First develop supplier then contract Be careful of conflicting interests Ensure well structured agreements with remedies Non exclusiveness as far as possible Effective document management from end users and procurement Consequence management always in line with agreement Clear performance criteria and penalties

Contractor management from a procurement perspective Golden rules – learning at Sasol Mining Standardise indemnity and insurance No award of long term agreements to new entrants Split award business Probation period for high risk spend areas Right to set-off No cession of debtors Penalty and termination clauses