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
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