Towards a Strategic Decision Making Model for South African Supplier Development
There is no disputing that the South African Supplier Development environment is significantly different from that of other countries. Considering this, relatively little has been done regarding working towards a holistic model by which strategic decisions can be made.
We have found in most of our engagements that all Supplier Development activities fall into one of four different categories. In this model we specifically focus on the Supply Chain, therefore do not consider Enterprise Development activities that are customer facing such as in Retail operations.
Further given the dire need for the diversification of South African value chains we cannot separate supplier development from the transformation mandate within which it was first conceived. We shoud however be equally realistic regarding the competitive mandate of South Africa as a nation in order to increase economic development and ulitmately the development of the nation.
In our engagement with corporate companies we have found most Supplier Development Strategies falling within four major objectives. In order to simplify our discussion, we will consider these objectives individually, although all four of the areas could be used in combination with one another.
Most of the Enterprise Development activity in South Africa before the 2013 Amended codes of good practice took place in this realm. The changes in the codes have led many companies to now seek alignment between their supply chain and the entrepreneurial activities.
In most cases the focal point of the development activities is the entrepreneur with the objective of delivering specific commodities to the supply chain from more diverse suppliers.
Due to the commoditised nature of this development there is little short term gain for the organisation in these activities. Much of the focus here lies in developing an enterprise in the value chain in order to overcome some of the risks that exist to the sponsoring organisation. One of these risks being the commercial dependency of the developed entity on the sponsoring entity.
In most cases the goal of diversifying supplier shareholder equity has been to increase Preferential Procurement points leading to a better BBBEE scorecard for the organisation. In this case diversification could also relate to Transformation, where over a period of time a company has higher levels of black ownership or black woman ownership. Sponsoring companies should, however, consider how Supplier Diversity can make the sponsoring company more competitive.
Diversity can relate to age, ethnicity, race, gender or various other characteristics. Diversity, if correctly managed, has been shown to lead to increased levels of innovation over the long term, however, it does not organically lead to innovation and can also be highly disruptive if not carefully managed.
As an example Youth-Led innovation has been used in the past to benefit from the affinity that generation-Y have for various technological advances.
Supplier Development has the aim to reactively or strategically enhance the operational efficiencies of the supplier. This could have direct benefit to the supplying organisation in the form of decreased cost, more accurate delivery times and higher levels of quality.
Where a relationship with an existing supplier exists it could be in the interest of the sponsoring organisation to increase the scope of the contract via either increasing the supplier’s scope of delivery or increasing the delivery volumes. Benefits in doing this could be derived in relation to both increased economies of scale as well as higher potential for shared value creation.
Consider the cost discount opportunities that one large construction company received by allowing their smaller suppliers to make use of the pricing discounts on their long term fuel contract or the benefits that a large multinational received when they started sharing their shared services operation with their suppliers.
Supply Chain Innovation
The best example of this type of innovation was done by the mining company BHP Billiton in the Chilean World-Class Supplier Program (https://sharedvalue.org/groups/bhp-billiton-and-codelco-foster-innovation-supply-chain). The goal of the programme was to focus on innovation within the operations of the sponsoring organisation. By doing so the company created unique and viable world class suppliers with competitive market offerings.
Supply Chain innovation requires the sponsoring organisation to be highly mature regarding its strategic sourcing practices, cross functional and supplier relationship management and have to a clear understanding of the entrepreneurial and market development needs.
Currently the majority of Supplier Development decisions in South Africa is being made from a cost/points comparison. By doing so much of the value that strategic thinking can deliver to the sponsoring organisation is lost. Rather considering the strategic value of Supplier Development allows the organisation a much more structured engagement and higher levels of competitiveness.
About the Author
Wybrand Ganzevoort is the Managing Director of Collective Value Creation. Collective Value Creation assists companies in the development and implementation of their Enterprise and Supplier Development Strategies. Wybrand is married to an amazing wife and has three beautiful kids. He loves South Africa in all its diversity.