Achieving economic and social value through procurement professionalism
Responsibility for economic and social transformation of the country also lies in the hands of the Procurement profession. While the emphasis on social transformation through BEE procurement has been well documented, the macro economic impact of public sector procurement practices was clearly illustrated by Karen van Vuuren, CPO of Transnet and President of IPSA at the recent SmartSourcing 2007 Conference.
Her presentation dealt with:
“PROCUREMENT PROFESSIONALISM”– Capturing maximum economic and social value in South African State Owned Enterprises ( “SOE’s”)”
“So”, she started,” why does procurement apply strategic sourcing? Obviously ‘to put money on the table’. Then ask yourself, how do you continue to put money on the table? The answer to that is, what you do ( everyday) must be sustainable ( in the future) and, the key to maintaining those cost savings is ongoing education. We must continually share ideas and best practices and, that is exactly what we are all doing here (at the conference) today (the 10th October 2007)”.
Public Sector Capacity and Capability
“The crux of the problem (in public sector procurement) lies in the question” What are we doing to build national capacity and capability?”; bearing in mind that South Africa’s unemployment in 2006 was 26% ( vs 7.5% in the EU!), among the highest in the world. And through ASGISA, the country aims to halve poverty by 2014 by increasing national growth to more than 6% per annum. Our objective is clearly to reduce unemployment, poverty and inequality.
The SOE’s are playing a key role in the infrastructure investment programme as they are in the main responsible for bulk freight transportation ( ports, rail and pipelines) and, for electricity generation and distribution. They deliver these investment programmes through procuring goods and services from local and global suppliers and, make a major impact on domestic sourcing by lowering the imported infrastructure component of this massive spend. For instance, Transnets annual budget is R22.2555 billion of which 52% or R11.655 billion is for CAPEX and 48% or R10.6 billion is for OPEX.
However, due to the low expenditures over the past 30 years, the capacity of the SA supply industries have been significantly reduced and it is forecast that there will be a 40% infrastructure import requirement for Transnet and Eskom’s requirements
The Procurement process in SOE’s is presently administrative rather than that of providing strategic support services. This results in sub- optimal supplier relationships, which is clearly evident from the poor ‘ value for money outcomes’ SOE’s obtain when they procure. As National Treasury are the custodians of the country’s money they make the rules on how we do procurement in the Public sector and, they are working hard to improve P & SM. The challenge in our economy is that we are quasi 1st world with a large 3rd world element. Accordingly, we need more competitive supplier development programmes!
To achieve this Karen proposes adopting the novel concept of ” Co- optition!”. This means bringing together the two key market forces of ‘collaboration’ and ‘ competition’. For example this approach has been applied successfully in the local Automotive Industry where they invested in infrastructure and developed supplier clusters to stimulate SA’s global competitiveness.
“What you need in the public sector are crack negotiators, people with guts”, she emphasizes, “only team up with the best!”. In short, the public sector mandarins need to educate and train up their people to build really ‘snazzy’ skills. According to a recent McKinsey report, success is assured when you:
- stimulate high aspirations ( among your personnel);
- develop top class procurement skills, and
- align the procurement function to your business strategy.
To get funding for skills development and training is not a problem as there are many willing donors with lots of money. The question there is simply: “do you have and, can you show, a sound business case? If you do, then you need to dazzle the donors!” Education and training in procurement accordingly plays a very important role. In this regard, IPSA have picked up the ball and have allocated resources who are are busy mapping the qualifications and, setting the standards to get national benchmarks in place.
For the immediate future Karen says that the main deficits in the SOE’s public procurement capacity will be addressed by the ICCPP:
- The Integrated Capacity and Capability Procurement Programme;
- It consists of three components and is part funded by a donor, the UK based DFID ( Dept. for International Development);
- The principle component is an Online Academy (ISAPA)- Institutes of Southern Africa Procurement Academy , which is supported by both of the leading P & SM representative organizations, IPSA and CIPS;
- Transnet as an organization have subscribed to ” ISAPA with CIPS inside”, and have enrolled 700 learners for the programmes offered by this revolutionary educational platform.
Strategic sourcing certainly also has a major role to play in public sector procurement. It embodies several fundamental principles which are not only about ‘savings’. It’s also about strategically thinking ‘ what is important for the country and, the organization in which you work’. She is extremely emphatic:” Always understand your market and, understand your commodity1″. The elements of strategic sourcing also involve three clear stages:
- The Pre- agreement stage which involves identifying the need(s) and suppliers, analyzing the market, planning… etc;
- The Agreement stage involves just that: finalizing negotiations and ensuring that your organizations needs are met and that the supplier(s) are clearly mandated and managed through the appropriate SLA;
- The Operational stage then involves the logistics and work- flow aspects based on the specific commodity group and, your spend management.
She then ends by sharing key thoughts with the delegates:
- strategic sourcing is not about theory, it’s about doing it. You must get involved, get all the data you need upfront;
- the value of good information is inestimable;
- ensure you procure sufficient capacity for the project; and
- the ( supplier) cluster environment is the future.
“And above all”, Karen believes, “don’t ever live in a bubble!”.
Karen van Vuureng
At the SmartSourcing 2007 conference SmartProcurement was especially privileged to welcome Karen Van Vuuren, the President of IPSA, to add her gravitas to the conference by opening the second days presentations.
occupies one of the top slots in Public Sector procurement as General
Manager of Group Supply Management at Transnet Ltd, the S O E tasked
with providing national transport infrastructure and logistics.