Competitive Supplier Development: Surfing a Tsunami

Eskom, Transnet move to shift procurement focus from compliance to the ‘national value add’ imperative

There is a concerted effort under way by the Institute of Purchasing and Supply South Africa (IPSA) to help put in place the systems and skills-development programmes necessary to assist State-owned enterprises Transnet and Eskom to realign their procurement practices to the rigours associated with the Competitive Supplier Development Programme (CSDP).

Both utilities, which will spend upwards of R400-billion over the next five years on expansionary and replacement capital expenditure, have signed up to the CSDP, an alternative to the National Industrial Participation Programme (NIPP) for those SOEs with long-term capital procurement programmes – Eskom and Transnet are in the process of developing and getting their first Supplier Development Plans (SDP’s) approved by the minister of DPE.

The CSDP scheme, which takes into account the fact that it has become a suppliers market where security of supply is an ever increasing challenge, is modelled on successful industrial-development and localisation schemes in countries such as Korea, where capital expenditure programmes were used to build competitive enterprises.

The idea is not simply to encourage import substitution, but, ultimately, to facilitate the integration of South African manufacturers into the supplier networks of the main global original-equipment manufacturers (OEMs) in the energy and transport milieus.

Value for Money & Social Good

IPSA president Karen van Vuuren, who is also the Strategic Supply Management GM at Transnet, says that steps are being taken to foster a “maturing” of the procurement mindset at SOEs from a narrow focus on compliance, to one that incorporates the concept of ‘national value add’.

She explains the national value add, (NVA), is emerging best practice for public procurement as an example of “social value add” as described by the University of Bath, of the UK.  They have conducted a comprehensive study of public procurement systems in 20 countries, as the fourth level of procurement maturity.

The first level, she explains, is the creation of governance structures to ensure compliance and the removal of corruption. The second is the ability to buy to specification and on time, while the third is to procure best value for money, an art normally honed in the private sector.

By contrast, The University of Bath defines “social value add” and NVA as the ability to procure best value, while doing social good, including the localising of the supply chain, black economic empowerment and even corporate social responsibility.

“That is where we, as South African SOEs, need to move, and move fast, given that this is the level at which CSDP is pitched,” according to Van Vuuren.

“Such maturing of the procurement system,” she adds, “is also going to be vital if we are truly going to be able to ‘surf the tsunami’ that is unfolding in the area of capital expenditure in SOEs as well as to fully exploit the potential multiplier effects for local manufacturing that this expenditure offers.”

Supplier Benchmarking Key

Indeed, the Department of Public Enterprises’ (DPE’s) Sean Phillips, who is responsible for the CSDP, describes as a “major thrust” the creation of a procurement framework that is supportive of developing a domestic capability. He says supply management, embracing everything from the analysis and identification of domestic opportunities through to selection, development, monitoring and dispute resolution, has been identified as a priority.

Further, Transnet’s first SDP suggests that its long-term aim in applying the CSDP is to localise its supply chain of imported manufactured goods or imported services to a “reasonable level”, while promoting local industries and South Africa as an offshore site of choice for key OEMs.

He believes the SDPs, that is being finalised by the two SOEs accredited to deploy CSDP, will incorporate NVA procurement models through a phased introduction.

Van Vuuren says that a key success factor will be to have as precise an alignment as possible between the supply-side and demand-side opportunities, with support programmes that help close any gaps that exist.

The SOEs, through their capital programmes, will then be in a position to play a facilitator role in “matchmaking” local enterprises with the best-in-class OEM supplier, or their top-tier sub-suppliers.

“In terms of manufactured equipment the SOEs will contract preferably with the OEMs, and allow those OEMs to control the process of building a relationship with local suppliers,” Van Vuuren explains, adding that the SOE should resist trying to micro-manage this process as, for the relationship to be sustainable, the OEM cannot feel that a partner is being forced on it.

But the SOEs should play a role in creating a picture for the OEM of the manufacturing capacities available in South Africa. To this end, Phillips says that the DPE has signed a three-year contract for supplier benchmarking with the United National Industrial Development Organisation (UNIDO), and some R11-million of public funding has been set aside to kick-start the process.

The aim of this exercise is to increase the visibility, both for the SOEs and the OEMs, of the opportunities to contract with local suppliers, as well as to highlight those gaps preventing domestic manufacturers from subcontracting directly with the OEMs or their first and or second tier sub-contractors.

But to achieve the overall goal of the CSDP, Transnet, Eskom and the PBMR Company will need to overhaul their internal procurement systems and equip their procurement teams with the necessary skills and insight to achieve the NVA objective.

Big Professionalism Push

IPSA CEO Marius Bosman says that the organisation was appointed by the DPE in 2007 to help the transformation processes at Eskom and Transnet. He says IPSA’s collaborative agreement with the CIPS, of the UK, and the joint solution which was developed, is providing customised material for SOEs and accelerate the training necessary to position the two utilities for the rigours of the CSDP.

Van Vuuren says the skills-upliftment solution, named ‘the Integrated Capability and Capacity Procurement Programme’ (ICCPP), has been designed not only to upgrade professional procurement skills, but also to introduce a standard professional qualification.

The programme embraces a so-called ‘bottom-up professionalisation’ aspect, which involved the creation of the “Institutes of Southern Africa Procurement Academy” ISAPA with the CIPS. The ISAPA academy, which went live in December 2007, offers learners in subscribed SOEs an e-learning set of qualifications based on a framework developed in the UK.

But Transnet also created a so-called ‘top-down rapid intervention’, which was designed to accelerate the upgrading of formal procurement skills for those 5% of procurement practitioners responsible for 90% of its high-risk, high-value projects. Van Vuuren says it centres on an intense eight-day event, dubbed a ‘mini procurement MBA’ or Bootcamp.

She says the corporation has also created a ‘learning in action’ (LIA
) programme, which involves a 15- to 18-month course through which procurement practitioners can qualify for a full ‘MCIPS’ professional certification at honours degree level.  The CIPS Graduate Diploma Award, obtained through a 36-month process, together with three years’ relevant work experience, enables CIPS members to use the designatory letters MCIPS – Member of the Chartered Institute of Purchasing and Supply. Following the tutor-led LIA route modules have been adapted to home in on work related problems faced by learners in their every day tasks.

“There is little question that the role of procurement officers is going to become increasingly important, if the SOEs are going to be able to manage the vital balance between delivering value for money and social benefits. That is why this professionalisation drive is so important,” Bosman concludes.

Mr Marius Bosman
CEO Institute of Purchasing and Supply South Africa
Postnet Suite 218, PO Box 2226
(011) 331-6650
Fax: (011) 3310383

Ms Karen Van Vuuren
IPSA National President/Transnet Strategic Supply Management GM
PO Box 72501
(011) 308-2510
(011) 308-3637
(083) 274-9926

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