Will undertaking supplier development stimulate jobs?

Posted by Dr Robin Woolley
Wednesday, 2 September 2015  |  Comments
Dr Robin Woolley is a consultant at Transcend Corporate Advisors.
Read all of Dr Robin Woolley's Posts

In the Revised Codes of Good Practice (RCoGP)[1] there is a significant strategic shift into ensuring smaller, emergent, black-owned entrepreneurs have access to economic opportunity through re-defining Enterprise Development as both Enterprise Develop and Supplier Development. The motive presented for this shift is towards enabling job creation through the SMME’s, as neither corporate SA nor public sector are likely themselves to absorb the levels of unemployment South Africa is currently experiencing. The purpose of this article is to test this premis. – “Will undertaking supplier development stimulate jobs?”

Supplier development is clearly attempting to address, through corporate support, the significant barriers to growth for small entrepreneurs, which includes access to the opportunity to quote for work.

Besides this “access to work” barrier that is symptomatic of our twin economies legacy, the SimoDiSA research[2] on barriers to accelerating the growth of SMME’s shows the following five critical barriers to growth common to SA SMME’s:

The logic is hence, that if corporate South Africa is going to play a positive role in job creation it should be driving Supplier Development of black SMME suppliers in a direction that addresses these barriers. I would suggest that this is good a qualitative benchmark of any good supplier development program.

The potential weakness in the supplier development logic to my mind is twofold: that all small businesses can create jobs, and in the intervention weakening of the supplier compact and creating paternalism. The case in these two weaknesses are highlighted below:

There are at least two types of “small businesses”

The diagram below shows that SMMES can be thought of in at least two catagories, those that remain very dependent on the founders inputs and can be classified as survivalist enterprises. Many of these businesses are started out of a desperate need to provide, in the face of no jobs availible. Many would close if job opportunites were presented, and even if they do persist only tend to exist for the duration of the founders input. These businesses generally are never sold, and reach a lifespan beyond the founder. Hence the jobs created by these companies a are relatively short lived. The next type of SMME, has come through all the start-up trials, is piosed for strong growth and has reached a critical mass of business momentum to achieve life beyond the founder and contribute to job-creation, but is facing the barriers to its growth described above. These organisations are noticibly missing in the South African landsape and can be depicited in the missing middle diagram[3] below:

It would be these types of organisations that we would want to empower as they have the potential to grow into the corporate landscape.

Hence supplier development plans, need to explore carefully the types of suppliers that are to be supported. However B-BBEE compliance can often cause more “indiscriminate” support in a rush to score the points. We work backwards from the budgets we have to spend and often find we are not spoilt for choice in the number and nature of black owned small suppliers we have, and so we conduct a “needs analysis” on all qualifying suppliers, which quickly turns into a “wish-list” and forms the basis of our supplier development plan. Implementing this plan with these suppliers often also then distorts the psychological compact between customer and supplier as detailed below:

The impact on the psychological compact:

A useful matrix to reflect on the impact of B-BBEE pressures on the psychological compact is described below,

             
   

Wants

 

 
 

Offers

 

 
 
 

SED Contributor

 

 
 

B-BBEE points

 

 
 

Contributions

 

 
 
 

SD Beneficiary

 
 

Contributions

 

 
 

B-BBEE points

 

 

Fig 2: Current compact due to B-BBEE

I would argue that too often what the SD contributor “wants” is to score points on their B-BBEE scorecard, and is prepared to offer donations or other contributions in order to secure these points. The qualitative impacts on the country and the beneficiary are not considered. So we give some cash, it artificially supports the SD beneficiary while we contribute and when we stop contributing the company falls over.

For the SD beneficiary, if they are offered easy cash, they “want” it, which builds a culture of dependency instead of entrepreneurship.

I would argue that this compact is superficial, unsustainable and does not automatically generate growth or jobs.

I place quotes over “wants” because if we look at what the country, our corporates and the entrepreneurs “need” and we reflect on a model of effective supplier development, we see a very different compact that I believe we can all learn from.

The Malaysia model has an supplier development objective of using the energy of smaller entrepreneurs to plug into and support / supply the corporates. These “two economies” (formal and informal), are learning to speak each other’s language toward an objective of mutual growth and benefit. This increased capacity in the supply chain drives up competiveness and drives down prices and is particularly effective in supply classes where economies of scope and scale are not a business requirement.

             
   

Wants

 

 
 

Offers

 

 
 
 

SD Contributor

 

 
 

Competitive supply base that efficiently supplies its needs

 

 
 

Market access and development support towards efficient supply

 

 
 
 
 

SD Beneficiary

 
 

Market access and support to eliminate barriers to efficiency

 

 
 

Services

 

 

Fig 3: A more sustainable compact

I would argue that the effectiveness of supplier development in B-BBEE is all in how it is implemented, with carefully constructed supplier development programs driven by business needs unlocking value for the entire value chain. The lessons for your supplier development program rest on whom you choose to develop and how you go about the development so that it does not strengthen a culture of paternalism.

Conclusion:

Supplier development is a strategic tool, with South Africa poised at a moment of truth, we need to have every South African engaged and using these tools, clear on how they are contributing to a transformed stable company and country, which can be a great heritage for our children.

Supplier development can play a key role in this journey; it just depends on how you use this tool.

About the author

Robin is a specialist in corporate strategy development, black economic empowerment implementation and scorecard development. His PHD is in empowerment. Robin has consulted in organisational empowerment initiatives to a great number of medium and large-sized South African and multinational businesses.

[1]Government Gazette: (36928, October 2013)

[2]SiMODiSA: Accelerating growth of small and medium enterprises in South Africa, 2014

[3]Phitidis, P (2015)

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