CIPS News


A CPO’s Perspective on the Proposed New Codes of Good Practice

CIPS 16 October 2012

A CPO’s Perspective on the Proposed New Codes of Good Practice.

After a thorough review of the proposed new codes it is clear that the new scoring mechanisms will separate the excellent from the mediocre. Organisations will need to drive their transformation strategies a lot harder if they are going to be ranked amongst the best, and open the organisation to additional economic opportunities that are available to companies that achieve the right things.

The principles of the proposed new codes definitely appear to have the right objectives, which is to stimulate transformation, skills development, small business growth and ultimately employment growth.

Due to higher recognition thresholds and the introduction of Supplier Development, organisations could see themselves dropping by as many as 4-5 levels if they do not implement the appropriate mitigating strategies. Furthermore companies that previously scored well on their procurement scorecard, could see themselves struggling to achieve the minimum required thresholds due to a combination of the higher scoring thresholds compounded by the probability that as high as two thirds of the Supply Base are also likely to see a significant reduction in their scoring.

Professional Buyers in the South African context receive training in first world procurement principles of managing price, cost, quality and performance – however the Buyer will need to embrace a new responsibility and that is the aspect of enterprise/supplier development if we are to collectively succeed. This places a critical responsibility on organisations such as CIPS [Chartered Institute for Purchase and Supply] to guide collaboration and training for industry to be influenced on how best to achieve these objectives.

The requirement for organisations to design and implement a Supplier Development Plan is not unique to South Africa, but a best practice followed by organisations around the world. Any investment in Supplier Development will ensure reliable and competent supply chains for the future. The challenge is that our buyers are traditionally not schooled in the art of Supplier Development.

Organisations that lack execution skills may need to look to specific training interventions, or may need to establish additional Supplier Development competency within the Supply Chain / Procurement management team.

Some areas of concern that will require further discussion:

1) There are many “Supplier Development” organisations that lay claim to provide an outsourced solution to assist enterprises to achieve their Enterprise Development objectives. Some of these solutions may well qualify as legitimate expenditure on Supplier Development – however some are absolutely ineffective in delivering results. Organisations will have to ensure that any outsourced solution is perfectly aligned with its strategic procurement objectives, to safeguard that a sustainable solution is achieved, and that it does not simply become a “numbers” game to satisfy a scorecard. Some form of accreditation on such organisations in terms of SAQA standards could eliminate organisations that lack the competency to deliver such outsourced solutions.

2) The position that an Exempt Micro Enterprise only needs to secure a BBBEE certificate once – with a letter from the accounting officer annually thereafter confirming turnover and blackownership. A concern is that this methodology may open up the opportunity for fraudulent behaviour in that once a certificate is issued a falsified accountant’s letter claiming higher black ownership could be submitted in an attempt to secure business, propelling an EME from a Level 4 to a Level 1, and that this could go undetected. A recommendation would be that the Proposed new codes be amended to allow the process as defined – however in the event of Black ownership changing to the extent that the enterprise’s Recognition level will change from that stated on the BBBEE Certificate, then the equirement should be that a NEW BBBEE Certificate should be obtained. This will ensure that changes in Black ownership are still independently verified, specifically where it has the impact of changing the recognition level.

3) A more serious area of concern is that the new Scorecard only allows for the inclusion of Value Adding Suppliers in the calculation of empowered spend. There are many suppliers that are emerging stars, however in their growth phase they do not meet the definition of a Value Adding Supplier – in that the combined labour and profit does not meet the minimum reshold of 25%. The requirement to drive procurement through Value Adding Suppliers is well understood as this becomes an enabler to employment growth – however the unintended consequence is that CPOs may be encouraged to exclude non Value Adding Suppliers from the procurement strategies – denying the emerging stars the opportunity to grow into a Value Adding Supplier. One idea could be for the new Codes to allow for the inclusion of a non-Value Adding Supplier – providing such supplier forms part of the organisation’s formal Supplier Development Programme. Another idea could be that a non-Value Adding Supplier’s recognition level is discounted by one or two levels.

4) There is a call for public comment on the treatment of a Black QSE - A growing small business economy will contribute to the country’s need to create much needed employment opportunities. Irrespective of whether an enterprise is a Black QSE or not – if the objective of creating employment can be achieved the QSE should be rewarded for making this contribution. The fact that QSEs are now measured against all five elements of the new scorecard, should in its own right introduce a differentiator between those QSEs that embrace transformation at all levels versus those who don’t. Introducing further differentiators could have the unintended consequence of dampening the small business and employment growth objective.


Malcolm Farrell - Group Supply Chain Director
Group Five

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