In this month’s SmartProcurement, Stuart Townshend, Edge Growth Director, explores how you can use your Enterprise and Supplier Development (ESD) initiative to be cash efficient, and become self-sustainable – yet making a positive impact where it is needed most.
Optimising in a turbulent economy to recession proof your business
In the midst of general negative growth for South Africa, businesses are bracing themselves for some more tough economic times ahead. According to Statistics SA, weak manufacturing and trade sectors led the recession, with falls of 3.7% and 5.9% respectively in the period of Q4 2016 and Q1 2017. More worrying still is that over the last quarter, the tertiary sector (comprising government, trade, transport, personal services and finance) recorded its first decline since 2009.
It may seem counter-intuitive, but experience tells us that tough times call for action and innovation, not conservatism. While it can be tempting to put any big plans on hold, you might be missing a golden opportunity to recession-proof your business.
Investing in ESD has a direct influence on cash efficiency. By offering SMEs a valuable spot in their supply chain, an organisation is not only making an investment in the South African business landscape, they are also investing in their own competitiveness and continued relevance in tough economic times. Here’s how:
One way to get ahead of your competitors may be to evolve business processes. Another to develop new products or services, or improve customer service. A smaller, more flexible SME supplier can help – quickly, more affordably, and often with more bespoke customisation.
Manufacturing in mass volumes, warehousing, logistics and other factors tend to dramatically hamstring larger suppliers in terms of service speed. A smaller, locally-based supplier could decrease turnaround times, translating into reduced costs and a boost in client responsiveness.
3. Augmented access to new and emerging markets
In a period of recession, it’s not enough to merely hold on to existing clients. Breaking into new markets is equally important, and SME suppliers can help you do this. Often on the cutting edge of innovation themselves, they bring insights into current trends and new solutions.
4. Improved competitiveness through B-BBEE scorecard
Compliance with B-BBEE mandates are now scrutinised like never before. Over and above the business advantages of using SME suppliers, implementing an ESD programme is the most impactful way of improving B-BBEE rating, amounting to 40 of the total 107 points available.
The vital impact of procurement in tough economic times
What if the answer to survival lies not in cutting your list of suppliers, but growing it in a smarter, more forward-thinking way? Changing your business practices to be more in line with ESD is an under-utilised tool, which may help business owners reduce costs while maintaining their competitiveness.
Small means nimble
Rationalising a supplier database doesn’t always mean shrinking it. Diversifying to include small suppliers has many benefits. Without massive overheads, they are likely to meet – if not beat – your current price point.
For a small supplier, a large corporate contract can be make-or-break, and they are willing to develop new products and deliver better service, passing the cost cutting, time saving, and business-innovating advantages on to you.
The benefits of localisation
They may not be able (just yet) to serve you at a national level, but when speed and convenience are of paramount importance, that may not be a bad thing. Small, regionally based suppliers are not only more agile and cost effective, they usually have strong area-based networks. Local suppliers can improve customer experience and decrease turnaround times in a way that services individual communities more efficiently.
“Building SMEs has a profound effect on the surrounding community. By contracting with these suppliers, you’re helping increase spend and consumption, while promoting job creation on a local level and boosting the economy.”
A glowing scorecard
ESD plus Preferential Procurement now contributes a whopping 40% towards a business’s overall B-BBEE score, and organisations are increasingly eager to partner with businesses who can help them improve their rating. Taking on small SME suppliers, who are themselves empowering employers, is the best way to boost your rating in a meaningful way.
How big business and SMEs can help each other
Because of the huge potential impact that empowering entrepreneurs and SMEs in South Africa has in uplifting communities and economies, ESD is undoubtedly one of the most powerful forces for change.
However, a successful ESD strategy often requires a continual, gradual injection of capital. This can be a bitter pill to swallow in the middle of an economic recession, when the SMEs you’re investing in don’t ultimately benefit your bottom line. Fortunately, there is a better way to go about it.
Have you done your due diligence?
Your team need to ensure they select SMEs of the highest calibre. While an SLA might ensure accountability, it won’t go very far in counteracting disruption and downtime, if- and when it happens.
When to invest in professional help – it is all about management
The benefits of ESD are clear, particularly now when reducing cost and managing risk are the mandate. But does your team have the resources – or experience – to effectively diversify the supply chain and unbundle spend, or find and assess the most suitable SMEs?
The difference between a successful ESD programme, and an unsuccessful one, is management. It’s not enough to merely inject capital, SMEs need to be nurtured and mentored.