Increasing Diversity In The Supply Chain
Supplier development – as defined by the Chartered Institute of Procurement & Supply (CIPS) – is the process of working with certain suppliers on a one-to-one basis to improve their performance and capabilities, for the benefit of both buyer and supplier. It can take the form of a one-off project or an ongoing activity that may take some years to come to fruition.
The major driving forces for the development of suppliers are the competitive pressures of the marketplace, and it is through the decisions of many individual purchasing departments that these forces act. As marketplaces go from local to national to global, the strength of these competitive forces dramatically increases. CIPS therefore believes that the widest possible professional tendering process is a tried-and-tested vehicle for deriving the benefits and value of this market process.
Of course, in South Africa, this approach to supplier development is further tempered by the need to meet Broad-based Black Economic Empowerment (B-BBEE) requirements. This is because preferential procurement is a key aspect of the overall scorecard and the ultimate level the enterprise will obtain.
The principle of supplier development in terms of the B-BBEE codes is for the large enterprise to obtain a better overall B-BBEE score, while at the same time offering opportunities for, and the upskilling of, smaller suppliers in the chain that may otherwise never have had such chances for improvement and growth.
Supply chain risks
Vusi Fele, chief procurement officer for Absa Group, suggests that technology today can be viewed as both a bane and a blessing for society. If you start looking at the technologies of the Fourth Industrial Revolution, it is clear they offer many advantages to society, he explains, but cautions that there are always risks if technology is not governed correctly or ethically – then it can become a danger or
“An obvious benefit in the logistics space is the fast pace and traceability it offers to the entire supply chain management value chain, ensuring that different parties can connect and share information at speed,” says Fele.
“Of course, there are also cyber-risks, which sit top of mind for procurement officers,” Fele continues. “It is important to manage these risks and put controls in place to protect the value chain. Thus, it is essential to ensure that any supplier partners work with the standardised solutions available to the industry. Not only is this more secure, but all involved then also understand the relevant processes and protocols involved in using these effectively.”
Fele adds that supplier control obligations define the standards Absa uses to secure the value chain. “To ensure the integrity of the chain, we also have a team that provides training to supplier and enterprise development candidates, to ensure they understand these standards, as well as to identify gaps within the value chain.”
Security through visibility
According to Andre du Plooy, executive consultant at SYMBIOSYS IT, far from increasing the risks to the supply chain, technology reduces them by virtue of the visibility and transparency it provides to the entire value chain. “Think about it: a vehicle transporting goods that has a tracker unit fitted enables the organisation, and even the customer, to track the truck’s route, to provide security around the cargo and to identify unplanned stops. Sensors can even be used to detect weight fluctuations on the vehicle, proving whether or not anything has ‘fallen off the back’. Remember that with digital, you have an audit trail that cannot be altered, so you can clearly manage your risks better.
“Not only does the smart use of technology enable you to control the logistics environment more effectively, but it also opens the door to additional supplier development, as you can bring in an SME to provide the servicing required to keep the technology in top shape,” he adds.
Of course, while going digital improves security and the audit trail, and ultimately allows you to undertake forecasting and predictions, it is still important to weigh up the cost of introducing these mechanisms against the potential losses they will offset, says Du Plooy. “Risk management in the context of enterprise and supplier development is a critical portfolio for any enterprise. Remember that smaller businesses don’t always understand their risks and – especially in a tough economic climate – may be tempted to take on more than they can actually deliver.
“Therefore, part of the education process required to develop them involves educating SMEs around the risks they may face and how these may impact your own organisation. Practising effective development thus means managing the risks in conjunction with them.”
He advises that you make it clear from the outset exactly what your requirements are, so you can effectively evaluate their risk exposure level.
“On the other hand, a good development strategy is a balancing act,” states du Plooy, “since they may have the right talent, but lack some of the required skills. Having the right levels of enthusiasm and commitment is important, and it may be worth your while to take the time and trouble required to mentor and train them properly. Leaving them to their own devices may expose your supply chain to greater risks, but if you help them to manage these better, you should end up with a true win-win scenario.”
Identifying, recruiting and developing SMEs
The phrase “due diligence” tends to be reserved for mergers and acquisitions, but it is equally important to undertake the same process with the SMEs you are choosing to do business with, says du Plooy. “Due diligence enables you to understand your SMEs’ abilities and capabilities clearly. After all, if you are going to spend the money to bring these entities on board, it is probably worth spending a little more in order to be thorough and to ensure they are the right fit for your organisation.”
There is another way to undertake the development process, du Plooy explains, which is by spinning certain employees out of the existing company and helping them to launch their own business, one that provides a service to your supply chain. “This has some positives: such an approach will mean you have a business with a ready-made understanding of, and insight into, your business. On the other hand, the former employee will likely know your profit margins and may try to squeeze more money out of you. There is also the concern that they may know people more senior within the organisation than the person managing their contribution to the business. This could lead to instances of them going over their manager’s head, thus potentially compromising your supply chain.”
Fele points out that Absa has a clear procurement policy that uses internally developed standards based on previous engagements with third-party suppliers. “We have recently announced a supplier code of ethics, to ensure we are all on the same page. In addition, we offer training, to ensure suppliers understand and can work within these same standards. This is key, as it is imperative that anyone working with our group properly understands the why, what and how of our processes.
“We regularly scout the market for potential new SMEs to act as suppliers, as this helps ensure we secure future sources of supply. We also implement intervention programmes to help them grow and innovate in the longer term.”
Transformation, of course, is a critical aspect of supplier development. Fele says Absa works closely with those already in their supply chain that may not meet all their own internal transformation demands. This involves not only advice, but also exposing them to networks where there are organisations that do meet these targets. In this way, they are afforded the opportunity to partner and thus meet the relevant transformation requirements.
“When selecting new suppliers, we start by identifying the need we need them to fulfil,” says Fele. “We then go to the market looking for a business that can meet this need, but one that at the same time is B-BBEE-compliant. Of course, first and foremost, they need to be able to meet the requirement we need fulfilled, then they must be able to deliver consistently and efficiently – so their technical and skills competencies are absolutely vital.”
Fele indicates that once brought on board by Absa, businesses are provided with support through a programme designed to identify gaps in their knowledge and to assist them in integrating with the enterprise’s systems. “We enable them to grow with us through the provision of our internal business coaches, whose goal is to provide the knowledge required for the supplier to bridge any gaps. There is another aim to this: we want to ensure ultimately that they are capable of being more broadly successful in the market, so they aren’t dependent on us for their business survival.”
According to CIPS, a fundamental prerequisite for supplier development is for organisations to analyse, evaluate and appreciate their own corporate objectives and business needs. The supplier development projects undertaken must be in support of the enterprise’s own purchasing and supply management (P&SM) strategy. Supplier development requires key technical P&SM skills, as well as contract management and project management skills. It also demands excellent interpersonal skills, such as empathy, to develop stronger communication between the buying organisation and the supplier.
Asked about the future of supplier and enterprise development, Fele is adamant that Absa will continue investing resources and funds in developing SMEs, both from an infrastructural and business fundamentals point of view. “I believe the reason we are so successful is that our programmes are linked to our business deliverables. Furthermore, as a leader in the market, we not only support supplier development, but also invest in supporting new suppliers and encouraging small organisations to collaborate with us in various ways.
“Collaboration is key in today’s digital world: it enables our suppliers to understand things more easily and quickly, and has generally made the world more efficient and transparent. This, in turn, makes it easier for Absa to ensure we always have future channels of supply at hand, because we can more easily, successfully and consistently develop new potential suppliers,”