But that’s just another day in the mining industry, where a complex supply chain is made even more complex by the fact that many job sites are located "in the middle of nowhere," said Mike Efting, the newly named CEO of Quadrem, a mining and metals e-marketplace. "Mines aren’t exactly located in major cities. It brings a complexity to the supply situation, having to travel 60 miles down a dirt road to get to a mine somewhere in Montana."
Yet mining is anything but a backwater business. Mining companies spend about $200 billion per year on suppliers, and Quadrem has landed about 20 companies—representing about $80 billion in spending—as customers, Efting said. The companies mine everything from aluminum and copper to gold and diamonds.
The Quadrem e-marketplace, announced last May by a consortium of global mining companies including Alcoa Inc. and De Beers Consolidated Mines Ltd., has already held some beta auctions and is in the midst of integrating the buyers into its e-marketplace for a full-site launch this quarter.
Its goals on the supply side are even more ambitious, aiming to bring more than 2,000 suppliers online this year. The e-market is built on technology from Commerce One Inc. and SAPMarkets Inc.
Efting, who joined El Segundo, Calif.-based Quadrem last November, said recently that the company "has been running like a project, but now we’re turning it into a business."
Quadrem is focusing mainly on indirect procurement goods, such as pumps, motors, valves, conveyer belts and explosives, Efting said.
The exchange faces many of the usual e-market problems, including integrating its members’ back-end systems into the marketplace and establishing liquidity in the form of available goods to buy and sell. Complicating matters even more is the fact that the Quadrem launch is a global one; the company is operating on six continents, Efting said.
Industry changes ahead
Also notable is the fact that the global mining industry is undergoing a major consolidation. And as companies buy each another, one of the biggest opportunities to take costs out of the deal is to standardize computer systems and aggregate buying and procurement functions, Efting said. That’s where Quadrem can help.
"The reason that consolidation is happening in this industry is that it has very low margins," he said. "Companies are very aggressive in wanting to utilize new technology. It is part of their culture."
Also part of the culture is the fact that while mining companies do compete over mineral rights at times, "these guys aren’t really direct competitors in the marketplace," Efting said. "They don’t really have direct competitive sales forces. Gold mines don’t compete; they sell all the gold they can mine at a market price."
For that reason, mining companies aren’t afraid to partner to drive costs out of their business, he said.
The tough part of the Quadrem message is reaching out to suppliers, Efting said. A third are eager and ready to go, a third don’t fully understand the value of Quadrem, and a third are afraid this new middleman will "impact their margins, commoditize their products, make me change my business model and cost me money," Efting said.
For that reason, "the supplier side is where I’m going to be spending most of my time this year."
One supplier in early Quadrem pilots, Corporate Express Australia Ltd., said Quadrem can better help it serve the mining industry, "which has typically been a difficult industry to target due to the remoteness of most sites and the diversity of needs," said Grant Harrod, the supplier’s general manager of sales and marketing.
"I understand the suppliers’ issues," Efting said, noting that early in his career he worked for chemicals suppliers that called on the mining industry. After that he held top spots at two early e-marketplaces, e-Chemicals.com and ChemPoint.com, before moving on to Quadrem. "That’s why they hired me rather than someone out of the mining industry."