Effectively addressing supplier and enterprise development in SA

The role of procurement has become increasingly complex amid growing pressure to deliver tangible value and bottom-line savings under extremely tough market conditions. At the same time, procurement practitioners are expected to achieve these business outcomes while addressing a mounting number of softer external stakeholder sustainability issues, particularly transformation and economic empowerment.
A fundamental shift in the revised Broad-Based Black Economic Empowerment (B-BBEE) Codes of Good Practice has been the increased focus on companies procuring more from and developing small, micro and medium-sized black-owned enterprises. As a result, procurement departments find themselves grappling with the challenge of responding to the B-BBEE codes while continuing to meet core procurement outcomes. The inclusion and specific referencing of supplier development as a priority element of the revised B-BBEE codes has become a red herring for many procurement leaders in corporate South Africa. This is compounded by the need to still focus efforts on addressing the enterprise development element of companies’ B-BBEE scorecards.
Although these legislated requirements have exposed the low levels of supply chain maturity that procurement divisions have become accustomed to, it presents a major opportunity to address such shortcomings and implement enterprise and supplier development strategies that align to and support their departmental and organisational strategic goals. In essence, a paradigm shift is required.

Shifting the paradigm – from points to performance and profit
Instead of viewing enterprise and supplier development as a compliance cost and additional strain on already limited resources, companies should position enterprise and supplier development as the business case for strengthening supply-and-demand-chain performance. Mutual value should be delivered by enhancing the capacity and capability of current and future-targeted upstream suppliers and downstream business partners.
It is critical that the business case supporting this paradigm shift enjoys executive support because it clearly articulates a compelling argument for implementing an enterprise and supplier development strategy that addresses the following:

1. The benefits and risks involved with both taking the proposed action or, conversely, not taking any action;

2. Any potential avoidance of and/or reduction in costs from a short, medium and long-term perspective;

3. The prospective value opportunities that can be generated/liberated looking forward (e.g. increase competition and innovation);

4. Any improvements in both tangible and intangible organisational performance; and

5. The increased profitability (e.g. new market access) and overall return on investment (ROI).

Aligning enterprise and supplier development
The value chain concept is widely being used as a facilitation tool for integrating small enterprises into high-value markets – after all, businesses form a network of supply and demand chains linked to other businesses. There is broad recognition that strategies for enterprise development need to focus on the entire value chain rather than focusing on a particular aspect of input supply or non-value-chain-related corporate social investment. Value-chain development is fundamentally about strengthening market relationships so that businesses work better together to compete more effectively in the global market.

That said, an integrated approach to enterprise development and supplier development that is focussed on strengthening corporate value chains, should result in resources and efforts being directed at:
a) supporting targeted enterprises with the necessary capacity and capability to compete for and successfully access corporate procurement markets through improved competitiveness;

b) assisting existing and new suppliers with the resources to reduce their operating costs and deliver improved performance by operating more efficiently and productively;

c) developing business partners, agents and distributors to better represent and service corporate customers as value-chain intermediaries.

As many companies downsize, procurement needs to focus on its core competencies, and attempt to achieve competitive advantage by leveraging all of their suppliers' capabilities and technologies. There is currently a greater dependence on suppliers compared to a decade or two ago. Thus, there is an increased need to effectively manage suppliers.
Better-performing suppliers means a better-performing supply chain. Better-performing business partners and agents mean better sales and improved customer retention and loyalty – in other words, a better-performing demand chain. Need any more be said? Investing in supplier and enterprise development is thus crucial for strengthening your value chain.

Contributed by: Gary Joseph, CEO of the South Africa Supplier Diversity Council, an S&ED partner to Bespoke.

Article first appeared in Bespoke Procurement Bulletin:  BESPOKE.png