Set suppliers up for success and mitigate preferential procurement risks

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Even if organisations are not doing business with organs of state, they may well form part of the supply chain of organisations to which the PPPFA directly applies. Therefore, they need to be aware of its scope and provisions.

Corporate businesses are actively seeking and supporting black-owned and black woman-owned Exempted Micro Enterprises (EMEs) and Qualifying Small Enterprises (QSEs) as suppliers to meet the stringent Preferential Procurement Policy Framework Act (PPPFA) regulations.

If successfully implemented, this approach could stimulate the desired growth and economic transformation as the B-BBEE Act intended from the start, by providing greater opportunities for small, medium and micro enterprises (SMMEs), particularly those owned by historically disadvantaged South Africans (HDSAs).

“However, while this is positive, merely complying with the PPPFA is not going to guarantee the success of SMMEs: there are factors outside the control of regulations and policies that need out-of-the-box solution,” Terence Gregory, CEO of Ecsponent Limited, told SmartProcurement.

SMME’s access to finance

Access to finance remains a key hindrance to growth and sustainability within the SMME sector. Meaningful growth among small businesses and start-ups will, therefore, require alternative, yet accessible financing solutions.

The reality is that growing start-ups often don’t meet the stringent lending criteria enforced by banks and many other credit providers, and these institutions are more inclined to put
resources into established businesses. Typical finance obstacles that small businesses face include inadequate collateral, a lack of credit history, and, in certain instances, the inability to produce an acceptable business plan in line with the financial institution’s criteria.

This means that without the capital to finance contracts, it is doubtful that these small businesses can execute the obligations, remain profitable and ultimately grow to create a sustainable business.

Procurement from HDSAs can introduce risk, unless skills are improved

On the side of corporate business, the PPPFA presents ongoing challenges that cannot be solved by financing alone. In fact, there is a level of market distrust around preferential procurement, that has developed largely based on poor supplier performance, governance at supplier level and the ever-present problem of fraud and corruption.

From an operational perspective, procurement and supply chain officers ultimately demand quality management practices, guaranteed on-time delivery and adherence to the required specifications. Furthermore, a business must build a list of reliable suppliers to ensure uninterrupted operations, especially in business-critical areas. Therefore, in addition to financial support, suppliers must be upskilled in operations, finance and supply chain management.

The upskilling should take place in the following areas:
 Applicable regulatory requirements
 Accurate interpretation of relevant specifications
 Functional guidelines to ensure effective procurement and sourcing
 Logistics management
 Financial and cash flow management in the supplier’s business (including VAT and other tax provisions).

Addressing financing and skills development problems

Solutions are available to mitigate traditional preferential procurement risks, benefit both emerging and large enterprises, and provide the transfer of critical skills, without adding more pressure on the corporate’s supply chain.

The structure of the Ecsponent Development Fund* solution creates a synergy across the supply chain, fostering a more trusting environment of mutual benefit with goods delivered, compliance standards taken care of and vendors being upskilled and empowered. Additionally, this service eliminates the potential for fraud and provides corporate businesses with evidence of supplier and enterprise development progress, which will contribute to improved BEE scores.

However, perhaps the biggest advantage to accessing these funding solutions is that
emerging SMMEs will not miss out on any lucrative opportunities. Instead, they will be given the helping hand required to assist them on the road to becoming profitable and sustainable businesses, which will contribute to broadening the country’s economic base.

*Ecsponent Development Fund is a subsidiary of Ecsponent Limited

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