The foundation of local growth

6 June 2007
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07 June 2007

How are purchasers in South Africa tackling the problems caused by the absence of a strong supply base and a lack of training? Paul Snell reports

As most buyers know, it takes two to tango. You cannot be an effective buyer without having decent suppliers to turn to.

It is an issue that has plagued many buyers in South Africa for some time. You can be the sharpest buyer around, but if you can only find one supplier, it won't make much difference.

It is a fact not lost on the government. At the Institute of Procurement and Supply South Africa conference last month, the minister for public enterprises, Alec Erwin, stressed the need for a strong supply base to get value for money and to improve the economy.

"When buyers focus on obtaining value for money they change their behaviour in ways that encourage investment in local industry and the development of more competitive suppliers, which are foundations for economic growth and development."

Erwin points to the apartheid-era government as the primary cause of the current problems. "It led to corrupt relationships between the regime and favoured suppliers, which in turn became inefficient and uncompetitive."

But Erwin is clear about how buyers can address the problem now. "Value-seeking buyers start appreciating their potential power to influence investment decisions." Buyers understand the cost structure and drivers of their supply chain and recognise the impact on suppliers of stability of demand and economies of scale, he added.

The government is addressing the lack of supply base head-on with the creation of a Competitive Supplier Development Programme (CSDP), to increase investment in critical supply areas such as manufacturing, mining and energy generation.

It is hoped that by getting state-owned enterprises such as infrastructure firm Transnet and energy provider Eskom to analyse supply markets, it will become clear where suppliers are not competitive, so local markets can be developed.

Supply problems are also hampered by under-development of buyers. At the same event Erwin gave his backing to a programme to boost skills through training. The Integrated Capacity and Capability Procurement Programme - a venture between CIPS, the Department of Public Enterprises and state-owned enterprises - will develop buyers' skills using local knowledge and UK-based training.

Things are further complicated by the Black Economic Empowerment (BEE) Act, which has set firms a target of making sure 50 per cent of their suppliers are black-owned.

According to Fortune Ntlhoro, procurement manager at South Africa Port Operations (SAPO), this leads some suppliers to believe they will automatically receive business because of their minority status.

He says SAPO is keen to get away from open tenders and instead build a list of approved, trusted suppliers to whom he can offer fixed contracts.

But others say BEE shouldn't present a big problem.

"BEE implementation is not unique," says Nat Maelane, group executive for supply chain management at South Africa Post Office. "You are just trying to expand your supplier base."

Developing the supply base is crucial to growth in South Africa, especially with major projects such as the 2010 football World Cup approaching. But this will not work in isolation, without development of the procurement function.



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