The Amended Codes of Good Practice brings together preferential procurement, supplier development and enterprise development into one priority element, forcing organisations to proactively address historic disparities within their supply chains.
It is clear that the Department of Trade and Industry, in merging these three vital transformational elements into one, seeks to create diversity in organisations' supply chains, says Wybrand Ganzevoort, Managing Director of Collective Value Creation.
As a new era of transformation emerges, there will be a dramatic shift in how enterprise and supplier development (ESD) is viewed. Globally, the trend of supplier development and diversity has formed an integral part of many organisations' growth patterns. Providing supplier diversity is managed appropriately, an organisation will realise improved performance, as well as a competitive advantage.
At the other end of the spectrum, Empowering Suppliers (named as such under the Codes of Good Practice) will realise dramatic changes through having a place in the market to which they previously did not have access.
However, it is imperative that organisations change their mindset when cultivating an ESD strategy: focussing on long-term relationships and innovation as opposed to the legacy of lowest-cost supplier.
Organisations can either apply themselves through strategic planning to supplier development, which will bring about diversity, or continue to take the clinical reactive procurement approach. My experience in-the-field tells me that it is the initial attitude of an organisation when initiating an ESD strategy that is key to determining the outcome.
The race for compliance
It is unfortunate that many ESD strategies that should promote diversity, stem from the 'constrains of compliance', rather than the actual 'foundation of compliance'. As a consultant, I have engaged with many organisations in initialising their ESD strategy. By and large, this process rolls out along the following lines: "What is the cost to company? What scorecard points will we receive in return?" And, lastly, "can the points be achieved before the next measurement period?" Typically, there is no reference to transformation, empowerment, or development.
Taking into account the time, effort and resources to create and implement a workable ESD strategy that encourages integration and opportunity, we have to question, "why is the cost of B-BBEE versus impending points on a scorecard, the first matter for discussion on an agenda when organisations seek to initialise their ESD strategy?"
This approach, more often than not, sees organisations rationalising their tactics, based on the actual cost to the company, in lieu of points they expect to achieve. This results in organisations having to realign their strategy to fit their tactics. Consequently, this outcome of 'enjoying the destination before taking the journey', has led some organisations to use their enterprise development fund and then realise their targeted suppliers do not necessarily require financial funding.
Many organisations will find this 'back to front' rationale increasingly difficult to roll-out as they come to terms with the Amended Codes of Good Practice. This is owed to ESD in the old Codes forming an external element of an overall B-BBEE strategy. However, within the amended Codes it becomes a fully integrated internal element with outcomes necessary to feed preferential procurement.
Investing in people
Rationalising the benefit of investing in supplier diversity is often challenging, especially in light of the global economic climate, where organisations are 'cutting back' subsequently, bringing about the following questions.
"When will my ESD investment make me money? I need a return on investment?"
An investment in relation to ESD is an investment in human capital and diversity. The core aim is to empower through providing opportunities and mentorship, which will ultimately reap rewards owing to a diverse supply chain.
Risk vs Investment
"What happens if the identified supplier beneficiary does not fulfil their commitment to delivery after I have invested resources, man hours and my organisation's reputation?"
Agreements with suppliers are nothing new. Like any business transaction, it is necessary to outline an organisation's obligation to an identified supplier, with specific deliverables, obligations and measurement criteria. It should ensure specific terms and conditions are instituted. The contract must include consequences to both parties, should either side not fulfil their commitment.
This makes the voice of both parties clear and specific.
"Find me a somebody"
"Our internal capacity is under huge pressure. Assigning a person to mentoring and training a supplier development beneficiary is not an option." "Can you perhaps find a company that I am able to financially contribute towards, without investing man hours or my brand credibility?"
Under the previous codes, this approach did not lead to sustainable suppliers or any return on investment. Investing within one's own supply will cultivate ongoing interaction, which will build trust and form solid relationships, resulting in diversity becoming part of the organisational culture.
Every organisation is unique. Consequently, there is no strategy in stone, no blue print, only the expectations and interpretations to guide us. However, there is one common factor to a successful ESD strategy that will bring about supplier diversity, namely attitude and commitment of an organisation during the initialisation and roll-out process which, in essence, are the driving tools to realising a successful outcome.
Good attitude, good strategy
The right approach is one where allocated points are viewed as an added extra, in contrast to the core rationale. An ESD strategy should be developed through a holistic theory of change, focussing on diversity, innovation and sustainability. This progressive approach values human capital resources, encourages and nurtures partnerships, promotes innovation and realises a return on investment.
This approach can be successfully achieved through marrying ESD to preferential procurement, allowing each of these sub-elements to complement the outcome. Evaluating the cost benefit of your ESD strategy through your preferential procurement points, allows you to keep track of the outcomes.
An integral part of a successful ESD strategy, is realising a competitive advantage in your supply chain through personal interaction and building solid relationships.
10 questions to guide you to initiate, communicate and integrate a successful ESD strategy.
1. What are the desired societal, economic and organisational outcomes you want to achieve within in your ESD strategy?
Try not to start the process justifying the cost in return for points.
2. How closely aligned is your ESD strategy to your organisation's objectives?
This should be long-term. Use your organisation's mission, vision and values to guide you.
3. Will your Socio-Economic Development (SED) align to your ESD strategy?
Aligning your SED and ESD strategies will allow for consistency and a less complicated roll-out.
4. What are the specific barriers to entry that SMMEs may face when gaining access to your supply chain? What practical assistance do these QSE/EME suppliers require?
There may be issues surrounding vendor application documentation, i.e. tax clearance and B-BBEE certificates, a letter of good standing and industry specific certification, i.e. ISO.
5. Describe your organisation's expected ESD maturity curve over the next three to five years?
Take a reality check; remember "Rome was not built in a day"
6. When discussing strategic sourcing with the drivers of your strategy, does it hinge around diversity and sustainability? Is there a shared vision surrounding diversity and sustainability between various stakeholders, or does one person drive and take ownership of the strategy?
A tip - transformation begins with human beings talking and wanting change and flourishes when it evolves from person to person.
7. What will your measurement benchmarks be? How will this step-by-step change be measured?
Note the 'what' and 'how' go hand-in-hand.
8. What degree of involvement do you expect your workforce to have in your overall ESD strategy? How can you make Transformation a practical process?
Identify how and who will handle the day-to-day issuing of purchase orders, sourcing suppliers and general access to resources, etc. Define up front the corporate reporting structure.
9. What tactics should be applied in order to achieve milestone and outcome success?
Remember tactics follow strategy.
10. How will you communicate your ESD strategy and intended roll-out to your workforce?
Communicating a strategy should be ongoing in setting the scene for change. Communicate the process, not the desired end result. Devise a meaningful media strategy. Remember, seeing is believing.
It is imperative that organisations evaluate the long-term benefits of supply chain diversity. ESD is an investment which needs to be carefully managed and navigated in order to reap the long-term benefits.
"When diversity is embraced, it creates an internal culture and intelligence that is ultimately extended through an organisation's supply chain. Studies* reveal that organisations that actively promote diversity realise a 'return on investment' that far exceeds industry norms.
Wybrand Ganzevoort, Managing Director of Collective Value Creation, specialises in the development and implementation of Enterprise and Supplier Development (ESD) strategies, with a specific focus on Lean Enterprise and Supplier Development. With a passion for entrepreneurial development and Transformation, he actively assists organisations to establish and implement workable ESD strategies that deliver shared values in the South African transformation arena.