Basic Guidelines on Transforming your Supplier Base

In their report titled  “The role of procurement as a Key Driver to SMME Development”, the Foundation for African Business and Consumer Services (FABCOS) notes that “procurement is one of the ways SMMEs can enter the mainstream economy through supplying services and products to government and large companies.

SMMEs rely on strong relationships with government entities and the private sector to access markets for their offerings. However, the practice to date has been to ignore SMMEs as partners even though the sector is the key driver for employment creation and economic growth”.

Large corporate and government have always been wary of “over spending “with SMMEs lest that lead to their demise due capacity constraints. However, the new Broad-Based Black Economic Empowerment (B-BBEE) codes prioritize spend with small business (exempt micro enterprises and qualifying small enterprises). Large corporates using the generic scorecard are expected to spend up to 30% with small business as part of the procurement scores.

As a response to these changes, it is critical that companies build comprehensive B-BBEE plans that speak into the long-term overhaul of the procurement structure, based on a sound business case. A mere tactical approach with no clear return on investment will not yield any sustainable results, and may not even get the shareholders` support that is required for sustainable transformation.

There are guiding principles in developing a robust procurement plan that could yield meaningful results in transforming procurement value chains. Below is a list of some important hygiene factors that help build long term sustainable procurement transformation agenda:

• Ensure that any plans to transform the supplier base must begin with a commitment from the board and top management, who must own the process of change management and be the accountability structure in the business.
• Appoint a project team, with a responsible champion to drive and project manage the process of change. In certain instances, outside consultants may provide valuable input to guide the process.
• Before embarking on reforming the supplier database, it is important to have solid understanding of the spend profile of the business. With solid data, it is easy to set targets, develop priorities and to build a monitoring toolkit.
• In changing suppliers, again it is important to start with the easier areas of the business i.e. less strategic low risk suppliers allow one to generate easy quick wins that are visible to everyone, and thus, are good for building momentum within the project team and the rest of the business.
• A solid and reliable network for finding new and potential suppliers is important. Such bodies as incubators and industry associations could provide a decent pool from which to develop potential suppliers for replacement.
• For all the new business, preferable small business that come into the procurement chain, supplier development initiatives such as mentoring become the key to monitor and develop further for quality and standards to be maintained over the long term.
• A review of the internal processes, people, and the barriers that may exist is necessary. The champion is a key role player in managing and communicating change internally. Any procedural and policy changes must be communicated properly for success. The champion must wary of any further capacitation that may be needed in order equip all relevant stakeholders for them to adequately deliver on the required targets.
• Linked to the internal systems review, it is also important for the company to bear in mind some practical realities that the small businesses may face. For example, it may be necessary to review payments terms for smaller business, rather than insisting on longer payment terms that may be detrimental to the survival of the smaller suppliers.
• In larger businesses where buyers are the decisions makers, it may be necessary to involve them from day one and make sure that their key performance indicators are linked to the transformation strategy.

This article was written by Mkhaphi Nkosi. Should you require more information on this and other service offerings, please do not hesitate to contact us on 011 442 2433.