Supply chain's role in Africa's development, unlike underwear, is not about the bottom line



DBoateng.JPGA few professional Chief Supply Chain Officers (CSCOs) could have saved the Cape Town textile industry. Not just saved it, but turned it into a multi-million dollar industry that exported world-class goods, like underwear, to European and American markets. Instead, Capetonians, and the rest of South Africa, now purchase their underwear from China.

Purchasing cheaper Chinese imports sent money out of the country, South African factories closed, unemployment increased and any skills that were being developed in the textile industry were squashed.

China, however, opened factories, employed people, developed skills and took our money. Why? Well, because the only thing that counted at the time to South African CEOs was, excuse the pun, the bottom line.

According to the IMF, Africa contains the fastest growing economies. That may be true on paper, but in reality it is not the case. “Two years ago Ghana threw around economic growth figures as high a 15%-16%. But the poverty one witnesses in that country is a stark contradiction,” says Douglas Boateng, who has been studying professional procurement, company culture and governmental service delivery practices for a number of years.

Boateng says that a proper understanding and utilisation of procurement would not only grow the companies involved, but also South Africa and the rest of the African continent. “Procurement has a long-term role to play in the development of Africa, to industrialise and create jobs for locals.”

Long term means procurement cannot merely pursue lowest cost

There was a time when purchasing at the lowest price was the procurement officer’s job – to simply squeeze the supplier for the cheapest price. The fact that procurement could have an extremely valuable part to play in the strategic planning of the company, or the country, was missed. Instead of reporting to the CEO, some procurement functions, bizarrely, reported to the Head of Security - in one case to Catering!

There are companies and government departments that still run like this - they fail to see the significant contribution their procurement officers can make to their organisations. In fact, 73% of C-Level executives still think that procurement does not add real value, a 2014 KPMG survey revealed.

Now is the time for long-term thinking, in which professional procurement makes procurement alliances and bundles spend-volumes for a greater and more effective use of local raw materials, increased access to global markets and more skilled labour in the future. All of which translates into substantially higher profits down the road.

Ghana is an example of short-term action, says Boateng. “Because of a lack of bigger-picture thinking, long-term vision, professional procurement practices and supply chain management, Ghana, an oil-producing country, still needs assistance from the IMF. Part of the dichotomy of Africa’s expanding economies and stagnant poverty lies in the fact that all its raw materials are being exported, as in the case of Ghana’s oil or South Africa’s cotton going to China to make underwear.

“If you can’t produce your own underwear, how can you move forward? Procurement needs to be addressed with the bigger picture in mind,” says Boateng.

Changes in the wind, locally and globally

In the last two-and-a-half years, there has been a dramatic shift in thinking.

Procurement is not buying, it’s trading. And CSCOs need to become expert global traders.

Sven Linden, Partner and Head of Operations and Knowledge Deployment - Global Center of Excellence SS&P at KPMG AG, describes the procurement officer as a Value Chain Manager, one that adds value to the whole company, in the present, and in strategic planning for the future. “But only when reporting directly to the CEO is the use of the procurement professional properly articulated,” notes Boateng.

In the past, CEOs would decide what needed to be done and procurement officers would simply carry that out. If, as happened in the past, procurement sits under finance it becomes nothing more than a number cruncher that squeezes suppliers.

The C-Suite is increasingly recognising that procurement is essential to improve their companies’ competitive edge and is consequently seeing procurement as a corporate function. According to KPMG, in 2025 procurement will be as vital to a company, and hold the same business partner status, as HR, IT and Finance.

With this in mind, the best companies globally are beginning to ensure that procurement plays a large part in their strategic planning, relying heavily on procurement for market astuteness. CSCOs have gone from being simply a purchasing officer (buying product or services at the lowest rate possible) to a multi-skilled C-Level professional who combines the talents of a financial analyst, an internal consultant, a market- and trend-driven intelligence officer, a relationship broker for new and emerging markets, an environmental and community steward, a risk advisor, a legal expert and a supplier coach.

For Africa, understanding the true value of supply chain management affects government’s ideals for job creation and service delivery, says Boateng. Supply chain management increases leveraged spend, industrialisation and job creation; reduces business risks; develops local content; grows SMMEs; tackles youth unemployment; and develops local suppliers.

However, in order to meet the challenge of a changing procurement environment some fundamental modifications are required, beginning with where procurement professionals come from.

Career choice, or corporate restructuring placement?

Most procurement practitioners, especially in Africa, end up in procurement by default, as there are not enough professionals.

If value contribution is essential, according to Linden, to improve a company’s competitive position, how can you do that if you become a procurement officer by accident? It’s often not most people’s first career choice.

Procurement, says Boateng, has an image problem: if one mentions being in procurement, it raises a red flag and people draw an assumption that you are corrupt. And it’s an assumption made not only by South African CEOs, but also those in the UK, Canada and the United States. And that’s not all that has given procurement a bad name.

Boateng has had the opportunity to engage with the CEOs of companies that have revenues greater than most African countries and what they revealed was extremely interesting.

According to the CEOs, the CSCOs themselves were to blame for their bad image. They had titles, but were just paper pushers. They did not add the value to the organisation that they could have.

Both Boateng and Linden agree that this all comes down to the fact that procurement is not seen as a legitimate profession, but rather something people were moved into by corporate structuring.

The profession has to alter this mind-set, says Boateng. “Most procurement officers started somewhere else and have training and degrees which have nothing to do with procurement, and that needs to change. Procurement needs to be offered as a career choice to students and there needs to be University degree-level education and training. “Without it the profound value-adding talent companies and government require will not be created.”

“There needs to be a sustainable return on education and to achieve that there is a desperate need for procurement academies,” says Linden, highlighting the need for client-specific qualification programmes based on structured analysis. “It’s important that the CSCO knows and understands the industry in which he or she works in order to transact purchasing correctly and to the company’s advantage. There needs to be a vast education repository setting the basis for designing client specific and relevant content, methods and tools.”

Procurement has a vital role to play in advancing the real economic and community development of Africa, but that can only happen when the mind-set on procurement has transformed. Once it has, the CSCO can focus on accessing the best long-term value for the company or government.

And who knows, perhaps the Cape Town textile market will rise like a phoenix and we can once again make our own underwear.

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