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