Chris Lynch, Rio Tinto CFO – Procurious Big Ideas Summit Review

In the first of our reports on the specific sessions from the Procurious Big Ideas event last week, we’ll take a look at the keynote address and the comments from Chris Lynch, CFO of Rio Tinto, the huge global mining firm.

What I particularly enjoyed about his presentation was that he did not come over as a pure finance man. He is obviously tough on costs, he talked about taking $5 billion out of the cost structure, and I'm sure he knows the numbers backwards. But he was just as enthusiastic talking about using technology in the business; for instance, using ideas that have come from the food industry – such as machines that sort rice being adapted for handling mineral ores. Or using military technology in operational control; or the huge robotic vehicles that the firm uses in mining environments. If I hadn't known he was the CFO I might have guessed that he was the Chief Executive or perhaps the COO.

So what does somebody like Lynch want and expect from procurement? Well, the comment above about the cost base does indicate that he sees cost reduction as an important part of the role. But he was convincing when he said he wanted people in procurement who could deliver “extraordinary outcomes.” Intrapreneurs, as he put it, people who can operate inside the business to drive innovation and lead to change. He wants creativity and cost consciousness – I think there is an interesting issue there in that not many people I've worked with combine both, but you can see where he is coming from.

Procurement people need to challenge the paradigms that others have imposed, he said - organisations often block their own big ideas. And he gave an example of some creative procurement work. The firm faced a monopoly supplier so procurement developed a “virtual competitor.” They sourced the raw materials, found a suitable manufacturer and were able to apply competitive pressure to that monopoly situation. (That is a great example actually of creating a credible BATNA, if you know your “Getting to Yes “negotiation theory.)

Lynch talked about innovation and the need for speed; the faster you innovate the more intellectual property you can create, the more competitive advantage you will realise. And in many cases the best ideas will come from suppliers, so it is important to choose your partners well.

I did manage to question him as to whether the strong focus on cost reduction meant that procurement people were measured principally on that factor. No, he said we look at revenue generation or cash management as well - if procurement come up with an idea that does not save money or even increases working capital, but drives revenue then “that's fine, I will give them credit for that.”

That's what he said and I think I believe in him – although it would be nice to check that with Rio Tinto’s CPO!

He also gave some interesting tips on how procurement people should present their ideas and approaches to top management. It was excellent advice – and I think there's enough in it to save that for another post on another day. But thanks to Chris Lynch from the procurement community for passing on such good insight from the CFO perspective, and we will have more from the Procurious Big Ideas Summit soon.

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