The original intention of the BBBEE codes was to link Enterprise Development to Preferential Procurement. From a procurement point of view there was and is however a lot of risk associated with procuring from companies that require development. By the time a procurement officer looks at any company in the stages of commercial adjudication all the boxes need to be ticked regarding the quality assurance of the product or service that the company will be delivering. When procuring from a supplier that requires development the risk in the eyes of any procurement department is substantial.
The result in the gap that was left in the 2007 BBBEE Codes was, therefore, that companies were focusing on enterprise development that was unrelated to their business or even their industry. The consequences of this was that the link between enterprise development and preferential procurement was never closed. Added to this was the problem that many companies used the loopholes in the codes to gain BBBEE points rather than actually develop Black Owned companies.
Further to this many companies have sought to use BBBEE in their distribution chain rather then in the supply chain. By having Enterprise Development take place in the distribution chain, large companies are able to continue doing business with other large companies or with government without any major changes to their ownership.
The Supplier Development Link
The amended BBBEE codes (2013) sought to address this gap, but unfortunately has gone to the extreme in doing this. In the amended codes the link between Enterprise Development and Preferential Procurement has been closed by adding the element of Supplier Development. The goal therefore is to have companies develop enterprises that in the future will be taken up into the supply chain. The problem faced by many large companies though is that most of the work in developing a company takes place in the field of Enterprise Development and not Supplier Development. The division in the amended codes regarding 1% Enterprise Development and 2% Supplier Development, therefore, does not take into account that you need a considerable amount of work in the field of Enterprise Development before procuring from a company. This will lead to most large companies still opting to develop beneficiaries in the peripheral field rather than in core production related areas.
The change in the amended codes will, however, start placing emphasis on one major area where little attention has been placed before – Quality. Most of the work in the field of Enterprise Development has been around access to finance and training on basic business skills. Even though this is critical and still very much needed, the problem was that companies were not developing past a specific point and that companies were being developed in areas where there were low barriers to entry.
Supplier Development and the focus on Quality Assurance
Could Supplier Development lead to an emphasis on Quality?
Supplier Development and the requirements of longer term contracting will enable a developmental shift to the focus on the increase of product and service quality in the small companies that are being developed. This will occur as larger companies will have no choice but to start procuring from companies where the products and services will be related to core activities. This will align the needs of the customer and the end user with the requirements of the suppliers, leading companies to place an increased focus on quality.
Placing an emphasis on quality assurance will also lead to a decrease in costs as rework will be driven down. As most of the sales in large companies take place through referrals the impact of quality will also be directly linked to an increase in sales and ultimately job creation.
Across the world the emphasis of most Supplier Development programmes is on Quality, Delivery and Cost. Will South African organisations follow suit?