The role supplier development can play in the localisation agenda

Supplier Development (SD) is often recognised as a compliance element born out of the B-BBEE Codes of Good Practice (Enterprise & Supplier Development priority element) and so is often considered a “grudge purchase” that to a certain degree disturbs everyday business. However, many companies internationally choose to run SD programmes because it can be an effective strategy to improve their services to clients, to save money, or make money by investing in their value chain and companies that complement their own needs. Companies like Toyota, Nike, Intel get very clear returns on investment (ROI) from these initiatives.

Many of the SD strategies that we see in today’s supply chains incorporate various elements of lean methodologies (especially in manufacturing) to ensure that waste can be eliminated and gain more value for customers. Which organisation doesn’t want to reduce operational costs and stay competitive? It’s imperative that companies in South Africa start viewing SD through world-best-practice glasses and not just B-BBEE spectacles. And a good way to start reaping benefits from SD is using localisation strategies when designing and implementing a specific initiative. 

Localisation strategy as part Supplier Development

There are a number of industries where localisation as part of the company’s SD strategy is more critical than in others:

· Food Retailers and Tourism: think of the costs associated with transporting lettuce from South Africa to Zambia to appear on the shelf of a large retailer or on a plate of a hotel guest at a local establishment. Localisation SD strategy, focusing on development of local farmers, makes perfect sense as it cuts costs on transport. 

· Manufacturing: automotive industry (now the rail industry as well) is a good example where certain manufacturers implemented localisation SD initiatives a while ago and are reaping great benefits. By developing local suppliers these manufacturers can stay true to the lean just-in-time approach Toyota pioneered decades ago. These suppliers are not only behind some of the cost cutting, by saving time and money, but also bring an element of innovation that can be critical for future product-development strategies.

· Mining: some mining companies face great disruptions to their operations from local communities demanding socio-economic upliftment and ownership in the mine’s value chain. SD focusing on localisation is not only the right thing to do when it comes to concepts of shared value and creating economic activities beyond the life of a mine but in the shorter period it can reduce heavy costs caused by disruption delays and again achieve some operational efficiencies. 

· ICT: previously, companies in India or Eastern Europe might have provided specific work for a number of South African companies in the ICT sector. But with the Rand depreciation many companies decided to bring IT development back to South Africa to manage costs; a clear example of localised SD. 

What is LOCAL in Supplier Development Localisation strategy?

Is a South African supplier ‘local’ enough? Or do we need to look at suppliers within a specific radius (often defined as 50km from the location of the factory/establishment)? 

There is no rule, it’s about what makes a business sense. For a factory, a mine or an establishment within 50km makes perfect sense because of the cost savings that can be achieved in transport or holding stock. For other businesses, working with a South African supplier may result in hedging costs in terms of foreign exchange exposure if dealing with suppliers locally and not overseas. The reason for addressing localisation may be different from one organisation to the next, but the business case for doing so is often compelling. 

Supplier Development must achieve ROI
An organisation may choose to invest time, money and other resources to developing new and better suppliers to their local operations or it may develop franchises to sell their products in new markets. Ultimately the investment should be made to either optimise the business operations (saving time, increasing quality, reducing cost) or to grow the business with suppliers that compliment a sales strategy. At this point one needs to add the BEE parameters to an SD strategy to ensure it is aligned to the B-BBEE Codes of Good practice as well – scoring double.

The key to achieving meaningful impact in localisation SD strategy is to:
1. to clearly define the problem at hand; 
2. to set clear objectives and targets;
3. to align those to the B-BBEE Codes of Good Practice; identify, source and screen the right supplier candidates that can assist to you resolve these issues and achieve your goals. If there is no existing   supplier you may even need to find the right individual (internally or externally) to build from the ground up;
5. to provide relevant support that will genuinely help the supplier to deliver to spec; and
6. to monitor, re-align and make changes to the programme where necessary.

Local value chains have a strong basis in sustainable business practice as it encourages a circular economy and more resilient business ecosystem. Because SD is a requirement of the B-BBEE Codes in South Africa, it is also a great testing ground to refine localisation strategies that can be implemented elsewhere.

Contributed by: Petra Rees, Managing Director of Lean Enterprise Acceleration Programmes (LEAP), specialists in ESD strategies and implementation

Article first appeared in Bespoke Procurement Bulletin:  BESPOKE.png