Many companies in South Africa are grappling with the question about what the difference between Enterprise Development and Supplier Development (ESD) is. Has anything changed? Is the only difference really in when the development is applied, pre and post transaction? Enterprise Development companies that have competed in the 3% NPAT space before are arguing that nothing has changed and that a slight nuance is applied.
Yet changes to the ESD ecosystem are appearing. Many companies that have realised the impact to their operations are now becoming more sensitive to what Supplier Development is. Slowly supply chain language is creeping into conversations and budgets are being moved from one department to another. Let’s have a look at some of the major differences in the developmental focus.
Developing an Entrepreneur vs. developing a Company
It would not be a generalization to say that in all or most of the cases the Enterprise Development focus has always been on the person managing the company, the Entrepreneur. Most of the selection criteria for developing companies has therefore been on selecting the right Entrepreneurs. “The jockey and the horse” analogy has been flogged to death and still holds truth, but less so in the Supplier Development space. When completing a Supplier Risk Assessment you never ask who the Entrepreneur is and if they have Entrepreneurial skills. What is a core activity in Enterprise Development becomes less so in Supplier Development.
In Supplier Development you are developing more than one person. Your focus is therefore on departments, teams and interaction between people in the organisation. A small bit of the development that will take place will therefore be around Leadership and communication, but most of the development will be around structuring communication systems and embedding continuous improvement through these systems.
Improvement to the Business Model vs. the SLA
In Supplier Development as opposed to Enterprise Development the business model has already been defined. The focus in Supplier Development is on scale and optimization. For this reason the developmental focus is on the Service Level Agreement. Most of the innovation that takes place will be incremental in nature as your supply chain will not like radical departures from the way business has been done in the past.
During the start-up stage the business model is not defined and the core objective of the Entrepreneur is to search for a viable and scale-able business model. One of the sad realities of the new BBBEE codes is that many companies will stop funding the search for radical business models that will become the new driving engines for our economy. Funding will now be provided for copying existing business models.
External vs. Internal Development
In the past Enterprise Development could be done in isolation.
Working as the Supplier Development manager for a large corporate I had a big argument with an ED Fund management company when they asked me to trade our enterprise development budget for points. Enterprise Development could then and can still safely take place external to the organisation. It was therefore easy for companies to sell BBBEE points on the back of a loan or a company’s ED spend.
The same cannot be said for Supplier Development. If you implement the amended BBBEE codes your supply chain and operations will be affected. In many cases the changes within the company sponsoring the development might be as drastic as those in the company being sponsored for development.
During one lean supplier development project we implemented the employees at the sponsoring company came up with incremental innovations that saved both companies millions of Rands. The success of this project was however based on high levels of stakeholder engagement at both companies.
Specific vs. Generic
Enterprise Development has a generic approach. Companies employed a focus on ribbon cutting ceremonies to bring them the points and the PR. As long as they did something in the communities that looked like it generated PR then everything would be fine.
Supplier Development is specific. You have targeted Total Cost of Ownership (TCO) savings to achieve, you have a specific percentage DIFOT (Delivery in Full on Time) that you need to improve on. You need to focus on reducing Lead Time, increasing Throughput, and increasing Overall Equipment Efficiency (OEE). All these metrics are determined based on specific performance benchmarks.
Supplier development requires a cross-functional approach to development in which teams from both the operations as well as the supply chain are involved in supplier development.