6 minute read
How To Manage A Transformative Supply Chain
3 Transformational Steps
By Kebalepile Matlhako, Transformation Specialist at The BEE Chamber
I have been active in the B-BBEE industry for 13 years, and a phrase one often hears is, “I cannot find black or black female suppliers for these goods and services, nor can I find beneficiaries for Enterprise and Supplier Development Support.” These are common phrases while small, black-owned small, medium, and micro enterprises continue to complain about access to markets or being given opportunities to supply large corporations.
Productivity SA cites over 2.3-million SMMEs in the country, of which 65% are in the informal sector. This suggests there is a pool of SMMEs that are neither known nor accounted for; however, there are still 800,000 formal SMMEs available, of which 600,000 are black owned as per the SEDA SMME Quarterly Update 2022 Q3.
The phrase not being able to find black-owned suppliers or qualifying SMMEs for enterprise development may have merit, especially if one were to look at the quality of data from the Central Supplier Database (CSD). This lack of quality data and the unavailability of a central database necessitate an intervention that will focus on collecting data on small businesses in South Africa.
One of the shortfalls of B-BBEE is its understanding of the intention of inclusive economic growth. This phenomenon of inclusive growth, which is both an outcome and a process, demands continued and deliberate action to ensure the outcome while the process maintains momentum. Ranaeri and Ramos define inclusive growth as broad-based growth that enables the widest range of people and places to contribute to economic success and to benefit from it too. Its purpose is to achieve more prosperity alongside greater equity in opportunities and outcomes. This approach will ensure increased market demand for goods and services.
B-BBEE uses an enterprise and supplier development element, comprising:
Preferntial procurement, which measures the buying of goods and services from diverse suppliers based on B-BBEE status and size of company, with a particular focus on SMMEs, black-owned companies, black women-owned companies, and black-designated companies owned by youth, unemployed black people, people living with disabilities, people living in underdeveloped places, and military veterans.
Enterprise development, which is geared towards providing support to businesses outside your supplier database; this support must ultimately lead to sustainable operational and financial independence for the identified qualifying businesses.
Supplier development support, which primarily focuses on developing qualifying value-adding suppliers towards sustainable operational and financial independence. All of these seek to achieve inclusive growth through supply chain diversification and the further development of black-owned SMME’s to partake in the tendering of goods and services.
Diversification of supply chains is a complex matter and requires resolute intervention. What makes it even more difficult are the relationships formed between supplier and client. This relationship drives predictability, upon which companies base their decision-making, and limits margins of error from unknown suppliers.
Newer suppliers pose a threat to existing processes and systems as their responses to environmental shocks have not yet been tested, so companies opt for safer approaches that limit exposure to uncertainty. The COVID-19 pandemic demonstrated the shortsightedness of undiversified supply chains, as production capacities were at a halt and goods could not be accessed due to the majority of contract manufacturing being concentrated in China. This provides a good case for why diversified supply chains are important.
Diversified supply chains require a strategic focus to ensure cost competitiveness and business survival. This requires a lot of investment, both human and financial, in creating and developing new suppliers from diverse backgrounds, races, and gender compositions, which breaks the comfort zone of familiarity, and requires continued growth and awareness of one’s conscious bias. The amount of work required to ensure business sustainability can be daunting. Fortunately, business sustainability is a product of culture and teamwork and would require growth and an incremental mindset.
After all, there is a business case as more diversified supply chains reduce the risk of supply, increase the market, reduce monopolistic opportunism and price, and position your company as a responsible corporate citizen, which adds to your brand equity. These are imperatives for business survival in the twenty-first century.
I will highlight three steps that will assist you in transforming your supply chain for both business survival and B-BBEE compliance. The steps include identifying the opportunity, reducing the risk, and increasing your power. These are based on Porter’s 5 forces and the Kraljic Matrix.
Identifying the opportunity: This refers to a good or service that you are not comfortable with based on the performance objective of the supply, which is quality, time, speed, flexibility, and dependability. Once you identify the gap, you segment the good or service based on its importance to business goals. There are four quadrants in which the service or good may belong: non-core, bottleneck, leverage, or strategic, in the Kraljic based on your business need.
Reducing the risk: Having identified the opportunity and its level of importance to business, you need to manage the risk it may pose to the business. If the service is in the strategic quadrant of the Kraljic, then it suggests that the good or service poses a higher risk to business continuity and needs to be drastically reduced. Some of the risk reduction strategies may include introducing another supplier and moving a small percentage of the supply towards the newly introduced supplier. This will reduce the supplier’s power and ability to control pricing.
Increasing your power: Moving a small percentage of orders to a new supplier based on supplier diversification objectives (ownership, race, gender, location, business size, B-BBEE status), you need to ensure that the supplier meets your performance objectives and can withstand market shocks. This is done through supplier development. The new supplier’s needs must be mapped against your expected performance objectives; this will help identify gaps and areas of intervention that will lead to the desired performance objectives. The next phase is to implement growth strategies that will help close gaps and lead to a new supplier being developed to meet your business needs. This will result in having suppliers that have to compete for business, resulting in efficiencies and even price reductions.
The steps are based on one supply, and if you had 900 suppliers supply over 10,000 goods or services, this exercise can be formidable, and you may feel like you cannot find suppliers, but it may just be a feeling of being overwhelmed. Unfortunately, no one size fits all, but the approach must be tailor-made to suit your business and industry needs.
At the BEE Chamber, we can assist with the implementation of our Supply Chain Transformation Plan, where we will identify opportunities, identify and vet diversified potential suppliers, assess their capacity, develop them for supply according to defined performance objectives (Enterprise and Supplier Development), and ensure efficiencies that will help reduce the load and help achieve your business performance and B-BBEE objectives. In doing this, we can find and increase the pool of SMME’s that can be earmarked for supply and further development, transform value chains, and create inclusive growth.
