BEE Supplier Development: How to pass the buck but still get the credit

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By Bernie van Niekerk

No doubt, BEE is an ultra-hot topic. In this election year, it will dominate many political speeches. It will also dominate many deals and already is. (see BEE News section). For procurement professionals in Government and the Private sector this means meeting BEE targets. And the more broad-based the empowerment targets, the hotter it will get for the procurement fraternity.

“But there aren’t any good BEE suppliers available”, I hear some end-users say. “And we’re spreading the spend too thin for decent negotiations”, says Procurement. “And the amount of admin…!”

Earlier when companies could do a couple of big deals with huge companies, it was easier to meet targets. (Not easy, but easier) But with broad-based empowerment becoming an issue, it means more deals with more suppliers.

Each time I’ve presented to South Africans on World-Class Supplier Management, they all agree with the wisdom of reducing the supply base, of partnering with key suppliers, of measuring total performance and going for win-win. But without exception, someone in the audience asks something like this:

“How do you reconcile BEE Development with World-Class Procurement principles?” Where we are (and people in government will identify quite strongly), it means more suppliers. Many, many more than we’ve had before. More orders, invoices, delivery notes, payments, cheques, supplier registration info (Big One!!), phone calls, credit checks, goods received notes… and that’s just the paperwork. We have duplicates on the system and entire departments involved.

“Where is the time to act strategically?” they ask. Those in the private sector might find it interesting to note that government organisations are not allowed to turn suppliers away from being on the database. This means that the number of suppliers on the system just GROWS and GROWS!

Then there are the other issues, such as front companies, greater scope for fraud and of course “I personally know your CEO, and he told me I would get business.”

The conclusion must therefore be that in SOUTH AFRICA, we are obviously different. Therefore World-Class Supplier management is good in theory but cannot be practiced …. in practice!

But procurement is a key determinant of overall supply chain performance. Therefore, our economy and our companies cannot afford to have a sub-optimal supply base. The ultimate performance of our supply chains is greatly influenced by the performance of our suppliers. This means fewer, better suppliers. It’s a fact.

“How to reach out to more suppliers but have fewer suppliers to deal with,” then becomes the question.

In trying to deal with a very administratively intensive environment, the following questions are always helpful:

a. Can it (the process, the issue etc) be eliminated? If not,
b. Can I get somebody else to do it? If not,
c. Can I simplify it? if not,
d. Can I automate it?

Regarding question a.) I think the BEE issue is here to stay and will be for the foreseeable future. There may however be certain parts of the spend that we can remove from the BEE measurement criteria for reasons that it can’t be sourced form anywhere else. Its OK to do this. Many governmental organisations do this as well.

However, there are some good possibilities arising from b,c and d.

Firstly, get somebody else to take over the development of many BEE suppliers.

By identifying areas of spend where there are many suppliers, an opportunity may exist to outsource it to a single entity. For example: Combining cleaning, mail and messenger services, gardening, landscaping, security and catering with a single facilities management company, that already has BEE credentials (Example: TSEBO Outsourcing-Group Subsidiary: Drake and Scull)), has the following effect.

A greatly reduced supplier base BEE credentials on a substantial part of the supplier base. (“We bought from a large BEE supplier”.) AND As part of the service-level agreement (SLA), the supplier in question agrees to procure from a “Broad-based empowerment” set of suppliers. The supplier has broadbased BEE targets that it feeds back to the buying company, that it uses for its own reporting. (“Therefore, at the same time we promoted broad based empowerment”) Access to the specialised management expertise, infrastructure and systems inherent in the outsourced provider. This allows for more effective and cost effective management of the specialised, non-core activities This type of deal is clearly not a front company, but that of a value added service provider.

SO in effect, the outsourcing supplier does the work on developing the BEE’s but your procurement function can still claim the credit.

Secondly, for b) getting someone else to do it, c) simplifying and d) automating it, I say “Give it to the Bank!”.

I would suggest that companies re-evaluate the humble Procurement Card. Available from Mastercard, VISA and Diners, the cards will:

1. Ensure that BEE suppliers get paid in 5 days. (Major reduction in accounts payable admin, and the supplier is very happy!)
2. More controls are available than at present
3. You can measure end-users on how much they buy from BEE suppliers
4. Reduce transation processing costs by 70%
5. AND, the supplier does not have to be on your system, but the bank will give you the info as to how much was bought, on what and from whom.

I agree that not all of the areas of spend can be addressed in this manner. But perhaps the 20% of the BEE spend that is causing 80% of the admin, headache and work can be addressed.

This will then free up time to spend working on the more strategic areas of the spend (and the BEE spend) where World-Class Supplier Management can make a major difference.

To your success!

Bernie van Niekerk

5 Comments

Hi Bernie

How can we develop BEE companies where the technicalities of the contract cannot allow us to give a contract to a BEE companies interms of BEE company meeting the requirements of the contract? How can we intervien in order for the BEE company to be also involve in the same contract. I need to come up with a strategy to help the BEE companies in this manner.

Thank you

Hi,

I have just discovered your website and i must say that it is an eye opener. As a commodity manager, i also do feel sometimes that i am between a rock and a hard place, when it comes to justifying BEE. Now i do realise that an organization can conform to legislation and still cut down on its procurement costs.

I am looking forward to reading more of your articles.

Ms Z Moloi
Commodity Manager (Spoornet)

I want to know what do I have to have to be BEE compliant for a transport company. Or is there a site I can visit to see what I need. I want to tender for government contract and other BEE compliant companies

Thank you

Hi Bernie

Hope you still remember me. I use to get procurement related correspondence from your organisation while I was working for Metrorail.

Anyway, this is to make you aware that I'm still around. I work for Shell South Africa Energy in Cape Town, as a BEE Procurement Analyst. The subject of supplier development stimulates my thoughts and am interested to see how companies will handle this one. To many, development means granting loans to those who lack capital. My view is that development also entails capacity building, in areas where there are gaps. What's your take on that one?

Regards,

Thobeka Moraka
Tel : (021) 408 4333
email : thobeka.moraka@shell.com

Bernie,
The "large BBE supplier" you postulate - who can do the BEE supplier developement for you, is nevertheless fallible. This large supplier supplier has to do its job very well indeed, otherwise we, as end user/major company/parastatal will receive unnaceptable service and product quality. Even highly-focused single-product suppliers with good intentions don't often produce a class act. I suggest that to put all your eggs big baskets and hope for the best is a quick way for one's own corporation to become even less than mediocre.

The answer is pressure. In the same way that the State has exerted unbearable pressure on the first rank of corporations to increase their BEEP, these companies must relentlessly force their suppliers to do the same. A businessman will not share his wealth with others willingly. We have to be coerced. That is the strategy behind the elegantly cascading procurement Component of the Scorcard.

Why do end users now suddenly think about accepting excuses or feel sympathy for their suppliers because their owners say something is too difficult?

Like FW de Klerk, Anglo has shown that transformation and the sharing of wealth and power is possible on an enormous scale. They did the calcs, then like the intelligent men they are, they acted in their best interests. We should all just do it - not because Anglo does, but because it's inevitable.

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