Amended BBBEE Codes Emphasis On Development

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The DTI has a tough mandate. Broadly speaking they need to encourage economic growth and simultaneously transform the wealth disparity between black and white South Africans in the country. At this stage many have asked why BBBEE has not ended yet and unfortunately the answer lies in that progression around transformation has been slower than anticipated. Wybrand Ganzevoort, Lean Enterprise and Supplier Development consultant, offers a comparative analysis between the amended and previous BBEEE codes relevant to Supplier Development.

The intention in the previous codes has been to link the various elements of the codes so that your BBBEE transformation plan really is your development plan. In this way the various developmental elements at the bottom of the scorecard would lead to the intended outcomes at the top of the scorecard.

So for instance, the area of Enterprise Development was intended to contribute to Preferential Procurement and the area of Skills Development was intended to contribute to Employment Equity.Unfortunately these paths were not clear which led to many companies doing work in the areas of Skills Development, Enterprise Development and Socio-Economic development that were not linked to the top four elements of the codes.

With the amended codes the DTI has forced us to consider the linkages between the different elements. The way that they have done this in the area of Enterprise Development is by introducing Supplier Development and combining Enterprise Development, Supplier Development and Preferential Procurement into the same element. The significance of Enterprise and Supplier Development is further highlighted in that it is now scoring more points than any other element and forcing us to consider it as part of a value chain approach to development.

The value chain approach to development

The value chain approach to development that is used in Enterprise and Supplier Development (ESD) is not unique to South Africa and is a major international approach to economic development, especially in developing nations. The value chain approach has an emphasis on localisation, requiring companies to determine how they will be sourcing their imported products nationally. What the amended codes have further done is to allocate specific targets to each area within ESD. In this change Supplier Development and Preferential Procurement receive the bulk of the point allocation making us view it as a priority.

What makes Supplier Development different from Enterprise Development?

Broadly speaking, through Enterprise Development you could previously focus on developing any company that was more than 25% Black Owned. There was no need for these companies to supply to you.  Supplier Development now specifically targets the gaps that your company has in the areas of Preferential Procurement. This relationship is made clear through the contracting bonus points that you could achieve by contracting from companies that you are developing. You can therefore only claim supplier development points if these companies are supplying to you. The goal therefore is to sustainably develop companies in your enterprise development efforts to an acceptable standard of service delivery, before they will be supplying to you. Once these companies have entered your supply chain you can go about developing the companies through a long term contracting relationship in order for the companies to become sustainable and deliver the intended volumes over a longer period.

Do transformation practitioners require a new skillset?

With the change in the codes many transformation practitioners are finding that the skillset required in the Enterprise and Supplier Development area is significantly different than that required from the other elements of the codes. Skills such as contracting, procurement, value chain analysis, core business skills and change management are now expected in this field in order to consider the holistic business ecosystem when developing an ESD plan.

This will force many South African companies up the maturity curve in order to deal strategically with many more small suppliers than they had previously dealt with. In the case of the procurement department a much stronger cross functional skillset will now be required for many more suppliers than the traditional core strategic suppliers.

Is Supplier Development a new concept?

Even though Supplier Development is relatively new to the South African landscape it has a rich international history. One of the benchmark companies that has made use of Supplier Development has been Toyota, leading to such a level of success that companies all around the world have made use of the practises in the Toyota Production System.

Toyota had a view that if they were to develop their suppliers, that advantage would positively impact on Toyota itself. Put very simply, Toyota believed that if they could develop their suppliers they would have a reduction in cost, an improvement in quality and an increase in delivery or throughput. These then are the major goals of most international supplier development programmes.

What makes South Africa unique regarding Supplier Development?

South Africa’s needs are slightly different to that of the rest of the world when we think through what is required in the area of Supplier Development. Many SMME’s that have been developed in the past are facing serious barriers to enter the supply chains of large South African companies.

Previously supplier development could be done on any size of company that was more than 25% black owned. The amended codes specify that Enterprise and Supplier Development can only take place on suppliers that have a turnover of less than 50 ZARM and are more than 51% Black Owned. Further to this, added bonus points were created in the codes for job creation.

The goal of supplier development in South Africa is, therefore, not only to focus on the quality of products and services, but also the sustainability and growth of SMME’s.

The requirements expected from a Business Development Support Provider

In the past much of the attention given in the area of Enterprise Development support has been associated with sales. This will not change as it will always remain the focus of any small company. Attention will still be given to increased turnover, managing the sales pipeline and managing cash flow, but closer emphasis will now be placed on the delivery mechanisms associated with the increased demand.

In the future, a strong emphasis will also be placed on Operational Management and Continuous Improvement methodologies linked to quality improvement. Service Level Agreements will start to become an instrument in the Supplier Development process which will emphasize areas such as Mean Time to Deliver and Delivery in Full on Time.

Does Lean Manufacturing benefit Supplier Development in South Africa?

If we define Lean as a method to enhance and deliver consistent value then it becomes quite rational to see how Lean will benefit South African organisations. Working in the supply chain of a multinational company I have been surprised at how many companies have sought to compete based on the business they have conducted in the past. These companies have assumed that they will deliver in the future and have not been able to define the value that they add to the companies that they are supplying to.

When their contract comes up for renewal they realise that they are offering a commodity and suddenly find themselves negotiating based on cost. Lean supplier development will assist companies in determining value from the customer’s point of view, embedding practises of continuous improvement in consistency of delivery and leading to value offerings rather than commodity offerings. If done correctly supplier development will have significant benefit to both the customer as well as the supplier.

This article was originally published in Medo Magazine Third Quarter, 2014.

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