The Role ofSOE in Modern procureance

Transcription

1 PRC WORKSHOP KEY THEMES ARISING FROM THE STATE OF SUPPLY CHAIN MANAGEMENT WITHIN THE STATE OWNED ENTERPRISES FINAL REPORT

2 page 2 of 23 The purpose of this report Africa Vukani Supply Chain Solutions (Pty) Ltd, a subsidiary of Africa Vukani Holdings (Pty) Ltd, was appointed by the Presidential Review Committee ( PRC ) to conduct workshops with State Owned Enterprises ( SOE s ) Supply Chain Management ( SCM ) units. The purpose of these workshops was to establish and unpack the SOE s SCM and preferential procurement practices, to what extent is the procurement spend of commercial enterprises used to address the transformation agenda and socio economic objectives of government The workshop was to further establish the following: What is the understanding of Supply Chain Management and Preferential Procurement legislative, policy and institutional framework? What is the As-is Assessment, Analysis and Evaluation of supply chain management and preferential procurement of SOEs over 5 year span? What is the Supply Base expenditure volume for SOEs and the percentage of it? How have the Supply Chain and Preferential Procurement policies been used to address business efficiencies and relate to business strategy? How has preferential procurement policies in SOEs been used to address socio-economic objectives of the country? This report consists of two main sections, part one of this report seeks to answer direct questions around the extent to which the SOE s SCM spend and policy framework address the key questions listed above. Part two of this report focuses on the ability of the SOEs to address matters of government priorities/government imperatives, in other words, are SOE s SCM unit well organised, enabled and have the right policy framework and strategies to address national imperatives as articulated by various Acts of Parliament, Government policies, and service delivery strategies.

3 page 3 of 23 Approach: Alignment of SOE s SCM with National Imperatives Acts of Parliament such as, BBBE, PPPFA, PFMA ETC Policies & Regulations Part one IDP s or Service Delivery Strategic Plans SCM Policy Framework SCM Strategy SCM Enablers Part two SCM Performance SCM Capacity As it was a fairly mixed audience with both mature and immature SCM organisations it was decided that the approach for the workshops was intended to be very interactive with answers to the key questions coming from the audience itself. The audience consisted of large State Owned Enterprises such as, Transnet, Eskom, SABC, Land Bank, TELKOM and SAA as well as various other smaller entities such as the North West Tourism Agency, SAMA, SA Express, State Diamond cutting Agency etc. Part One: The first day of the workshop was mainly about how SOE s SCM Policies, and strategies address government priorities or government imperatives, as indicated in the diagram above. Responses across all in the room were very similar in nature and pointed to the very government legislations such as PPPFA and BBB-EE as an impediment to SOE s SCM transformation agenda, in a nutshell respondents made it very clear, if SOE s SCM transformation was about addressing government imperatives/priorities, then the entire provisions of BBB-EE and PPPFA need a major overhaul as they themselves are making it impossible for the State Entities to deliver on these priorities. This response was further reiterated by State Owned Enterprises

4 page 4 of 23 Procurement Forum ( SOEPF ) who had gone to the extent of engaging the Department of Trade and Industry ( DTI ) on the weaknesses of these pieces of legislation and how they make it difficult to address national imperatives. In conclusion, all respondents, particularly those with well established SCM units as well as those who has BBBEE monitoring units, such as TELKOM, ARMSCO and ESKOM found it difficult to procure from the emerging black suppliers using the current BBBEE and PPPFA provisions, no matter how they tried, these pieces of legislation still promotes buying from large companies with favourable BEE ratings which emerging suppliers will never have due to their very nature of being emerging, matters were further made worse by lack of effective Competitive Supplier Development Programme( CSDP ) or lack of funding of such initiatives such as CSDP, see responses on this issue below, The following were the themes from the responses of the audience: BBBEE Codes / PPFMA Nature of code does not allow for real transformation. Old BEE was more tranformational Code is not clear on how to achieve transformation or what success looks like International suppliers do not need to comply with codes. This is 30% of expenditure (SOEPF) Does no longer allow for set asides Does not have funding to drive the national imperatives, particularly supplier development Supply chain strategy Often follows PFMA and not an interpretation of PFMA Is stand alone and does not meet SOE strategy or indeed follow through from Stakeholder contracts SCM strategy not always linked to SOE strategy

5 page 5 of 23 Head of SCM not aware of importance of fully aligned SCM strategy / policy that talks to the national imperatives. Developing local suppliers Do not have funding to develop suppliers International companies must leave legacy by developing / training local companies to be sustainable Most SOE s SCM units have no strategy on how to develop emerging suppliers Mandate / governance Mandate from state must be clear in terms of procurement objectives Mandate and objectives must flow through Stakeholder contracts to SOE SOE s head of procurement must sit at board level not below finance SOEs must buy into procurement objectives. This includes all departments including finance and engineering, such that all interested parties have same objectives These must flow through to procurement and procurement teams Procurement maturity With the exception of Telkom, Eskom and Transnet o Procurement is immature and very reactive o Procurement needs to grow in maturity if it is to deliver on national imperatives Collaboration At the moment there is no collaboration on anything that SOEs are procuring All SOE s should become members of SOEPF SOEPF should have profile raised and be a driver of change in SOE procurement Resourcing / capacity SCM departments are under resourced Staff are often not adequately trained / skilled in SCM competencies Perceived as a dumping ground Staff are not empowered to drive change

6 page 6 of 23 Procurement policy / operations Varying maturity levels & varying levels of policy implementation Many instances of procurement being low value add and highly administrative / transactional Often abuse of policy without recourse Section 36; emergency orders and salami effect on R200k orders Does not drive transformation agenda Part two: Part two or second day of the workshop seek to establish if SOE s SCM units were enabled, had strategies and capacity to deliver on national imperatives and how they measured their own performance. The second day started with a questionnaire that required the candidates to rate their SCM organisations on the following aspects, SCM as a Business, SCM Practices as well SCM Processes. The results are tabulated below. SCM BUSINESS SUMMARY Weak Basic Proficient Advanced Expert Strategic Purchasing Enablers Strategic Planning Reporting of Performance Organisation Internal Interface Expectation of Performance Developing the Purchasing Strategy Core Purchasing Focus Change Management Business Support

7 page 7 of 23 Note: not all capabilities were completed by delegates Weak Basic Proficient Advanced Expert PROCESS SUMMARY Weak Basic Proficient Advanced Expert Vendor Management Value Management Supply Chain Management Supplier Relationships Strategic Supply Management Sourcing Purchased Item Management Pre-Contract Supplier Management Post-Contract Supplier Management Performance Review

8 page 8 of 23 Negotiation Measurement of Performance Cost Management Contracts Commodity Management Collaboration Supply Chain Integration Weak Basic Proficient Advanced Expert

9 page 9 of 23 PRACTISE SUMMARY Weak Basic Proficient Advanced Expert Vendor Performance Management Use of Techniques Supplier Financial Understanding Supplier Appraisal Purchasing Thinking Purchasing Behaviour Purchasing Administration Leverage Tactics High Value Contracts Enquiries Weak Basic Proficient Advanced Expert

10 page 10 of 23 ANALYSIS OF THE RATINGS The questionnaire was meant for SCM Practitioners to rate their SCM units as a business, the internal SCM practices as well their internal SCM processes. It is quite clear from the tables above that most of their responses were based on their perceptions rather that the realities on these areas, in practice (current State Analysis), one would have had to get SCM Practitioners to respond to the questions, then follow the questionnaire with individual Practitioners interviews in order for the SCM Practitioner to demonstrate and prove how he/she does Vendor Management for an example or what techniques he/she uses to negotiate prices. The results tend to differ drastically when SCM practitioners are asked to demonstrate and prove how they do what they have rated themselves so highly. Our understanding of the candidates, their organisations and the analysis of the themes coming out of the workshop further strengthens our view that the results in front of us represent perceptions rather than the reality. Examples: Business summary, and specifically ORGANISATION, majority of candidates when asked if their SCM were properly organised (in terms of SCM organisational structures and the SCM reporting lines), the majority had a negative response, in actual fact most had no organisational structures at all, such as SAMA, only one person is responsible for SCM, NEF lady said she was lonely (with her three colleagues) at SCM as nobody within the organisation realised the strategic nature of SCM let alone how SCM fitted into the whole organisational structure. The response on business summary/ organisation gives a different picture altogether, 20 out of 26 think their SCM organisational structures were proficient (13) and advanced (7), indeed a contradiction from their own verbal responses. In conclusion and beside the responses that reflect perceptions rather than realities within SOEs SCM units, it is clear that most responses still fell below proficiency levels, most are still rating themselves as either basic or weak in most of their functional areas. The question therefore is, how possible it is for State Owned Enterprises to deliver on both national priorities as well as Value For Money, if such critical functional areas are still at basic or weak levels? The fact of the matter is most SOEs still need to put effective SCM organisational structures in place before any meaningful consideration of national imperatives can even take place, that in turn will allow them to put

11 page 11 of 23 people in places where they could be accountable, responsible and with authority or else delivery on national imperatives by SOEs will forever remain a pipe dream. The six key enablers of effective SCM, namely, Organisational Structure, Skills, Sourcing, People, Technology, were presented to the candidates and were asked to discuss their procurement challenges and successes in terms of these enablers. A summary of the feedback from each SOE may be found below; SARS Mandate received from Minister (complication collection or revenue) therefore bottom up 5 year strategy including transformation agenda : Process Systems Suppliers Staff Included category management 4 years ago Government does not have procurement objectives that flow to SARS and SARS board does not enforce objectives therefore all good work might not be recognised. TRANSNET Passionate about transformation Boot camp summit on Competitive Supplier Development Programme Policy being approved by Board and must support transformation Staff must be passionate to support Government imperatives. What happens if staff leaves? Sustainability.

12 page 12 of 23 Land Bank Is there a common understanding of strategic nature of SCM? Has PRC spoken to CEO s to explain benefits of SCM? CEO (Landbank) believes in consultants!! Accenture doing procurement review... SA Express Cannot use black empowered companies e.g. consultants because Accenture etc is level 2,3 SAA Has a corporate strategy Has a SCM strategy??? Are they linked? And do they talk to National imperatives? Parks SCM policy derived from national imperatives 2005 Report on transformation on quarterly basis Challenged by skills, financial capacity therefore operate at transactional level National Agriculture small, R10m / annum No strategy Does transactional procurement Has SCM policy, which must linked to National imperatives Individual working on SCM person not strategic enough and requires training Uses legacy systems, no e-procurement TELKOM BEE policy exists Preferential procurement flows from above National imperatives not yet implemented but try through I.D

13 page 13 of 23 Pushing transformational agenda BBBEE not satisfactory for change Is a reporting / compliance function ** no targets for driving levels or pillars of BBBEE and does not talk to black ownership BEE was a better system (had issues with fronting therefore BBBEE) SOEPF - document to be sent to PRC, comments due 1 st Feb Has engaged DTI to change BBBEE. New page has been drafted to suggest amends. This must be reviewed and comments made on...(does not talk to transformation) Has changed PPFMA - DTI SAA Express SAA contract does not talk to transformation Does not have SCM Strategy Busy preparing policy to incorporate transformation Operates on transactional basis (can you believe it, an organisation as big as SAA!) Capacity problems... SAA has different objectives to Government imperatives SA Maritime Safety Authority Did not have unit for 1 st few years SCM established 2009 did not work initially. New CEO has made a large difference SCM no strategy operates transactionally Hoping to put strategy in place ASAP R100m + / year spend

14 page 14 of 23 ARMSCOR Has procurement division and BEE monitoring division BBBEE policy governs procurement operations e.g. 25% black ownership BBEE division signs off all tenders, contract awards to ensure compliance Has transformation agenda, larger than BBBEE e.g. 25% black ownership. ESKOM, etc Mixed procurement capability / maturity Strategic sourcing is mature p.c.p.a Large miscellaneous portion of spend Skills...CIPS, internal training...strong training ground for other companies New CEO s all do strategic reviews which impact purchasing Processes standardised and implemented Centralised body central governance, policy etc Demand planning is weak crisis buying (Engineers) Vendor management busy implementing pre-qualification of suppliers and management thereof. Supplier management Not standardised. Performance appraisal done by sourcing managers. Introducing standardised SRM process. Organisation structure new structure being implemented. No change to Organisation Structure...reports EXCO. Technology use SAP and look to use technology as often as possible. Constantly review new legislation, understand impact and changes that need to be made BBBEE certificates are being falsified. Is there a place for verification agencies!!

15 page 15 of 23 Verification agencies?? Databases supposed to be used to pre-qualify suppliers. Not working properly at all. Keeping database up to date and accurate is a problem Utilise 1 format and 1 super central database Section 36 emergency orders : Abuse of law 10% of total spend Often single sourced Need to define Emergency Urgent Water Policy does not allow transformation agenda Transformation committee has been established to drive transformation SCM not yet part of this due to organisation resistance Is slowly changing to accept SCM and change National Empowerment Fund No SCM strategy to include transformation SCM is support services only Not included in any core business discussions Reports to CFO Not empowered, rubber stamp exercise R80m / annum Talks to transformation but does not do it 4 SCM staff Does funding allocation address transformation agenda?!!

16 page 16 of 23 TELKOM - 2 ND transformation... Tier strategic contracts must see reports on Government RESEARCH Africa Institute cannot pay suppliers unless they are on database...audit query. therefore database important Diamond Board Started SCM practitioner needs training R10m / annum IEC Supply Chain strategy linked to organisation strategy Reports to CFO who sits on EXCO Has a database use it to mine names for RFQ Deviation must be approved via delegated audits Review practice notes and incorporate into process Support national imperatives Does spend analysis every year for last 10 years Spend R100m + / annum IDT Performance objectives related to organisation objectives. related to transformation objectives, also reports into system vendor management linked to whole system SABC Spend not controlled therefore no spend value Procurement not centralised. Regions do own procurement. Risk with separation of duties. GM requests and approves purchases. Not seen as strategic function R4bn on goods and services excluding content

17 page 17 of 23 Powerful personalities supersede purchasing policy CEO can exempt division from procurement policy Unstable leadership In conclusion it is clear that SCM within SOE s is generally at an immature level and practitioners operate at an administrative or low value add level. Teams are under resourced and under skilled and in many instances do not have the support and mandate from executives to effect procurement transformation within their specific environments. Transformation is further inhibited because although procurement is required to be the agent of change, the SOE s themselves do not have a coherent policy of transformation running throughout each business unit. As a result the SCM teams are fighting a brave but ineffective battle on their own while other units pay lip service to these changes. A coherent strategy with measureable performance objectives, aligned to government imperatives is required to flow down from state departments to respective SOE s should this initiative be required to succeed.

18 page 18 of 23 RECOMMENDATIONS After listening to all the arguments about how SOE expenditure address matters of National imperatives, it is quite clear that Practitioners including SOEPF are calling for the changes in the legislation, but we all know that changing the legislation can t happen overnight, while changes in the legislation is being debated, the statuesque will remain. It is our sincere belief that the legislation is meant to be the guideline, it is not meant to replace internal SCM policies and strategies but guide the development of SCM strategies and policies. As it is now, and from the audience responses, there are serious weaknesses in the SOE s SCM enablers, strategies and policies, top management of SOEs themselves still do not see SCM as strategic enough to deserve their attention, and therefore there is very little support from top management, thus making it even difficult for SCM Practitioners to execute their day to day functions, let alone delivering on the letter and spirit of the relevant legislations. What needs to be done? Answer is: Portfolio Analysis as part of a broader current state analysis exercise. Portfolio Analysis is a breakdown of expenditure according to suppliers and also segment suppliers according to Strategic, Leverage, Critical or Routine. Without this analysis, one cannot imagine how SOE can develop strategies that take into consideration national government imperatives, simply because they wouldn t know who is who in their own supplier zoo that need to be empowered. It is the first step towards developing a strategy, a policy, or even a supplier development programme as the diagram below will demonstrate. Portfolio analysis is a simple concept that says, not everything you buy should be managed the same way.

19 page 19 of 23 Portfolio Analysis is a segmentation technique to assist SCM Practitioners to: Understand and challenge where they are vs. the market Ensure that what they do (PRACTICES) and how they do it (BEHAVIOURS) are aligned Allocate responsibility and develop team competence Plan the actions necessary to: Stimulate competition Reduce risk Drive out complexity Secure value Support National imperatives Where will most of the SOE s Suppliers fall? SOE s suppliers will fall within the four quadrant: High Market Difficulty CRITICAL Reduce Risk ROUTINE STRATEGIC Secure Value LEVERAGE Minimise Effort Maximise Returns Low Low Expenditure High

20 page 20 of 23 Each Segment has differing goals and objectives and therefore requires a different thinking, behavior, practices, policy and strategy. ROUTINE : Practices and Behavior Goal Simplify, reduce administration PRACTICES - e-processes - delegate to others (outsource) - Automate EFFORT Minimise day to day attention BEHAVIOURS - Task orientation - Coach internal staff - Annual or bi-annual contracting - Consolidate items - Collaborate with other buying agents

21 page 21 of 23 LEVERAGE: Practices and Behaviours Goal Maximise returns PRACTICES - Extensive conditioning - Unpredictable use of enquiries - Change supplier often - Deconstruction of price - Positional bargaining EFFORT Assertive, focussed cost management BEHAVIOURS - Arms length relationship - Short term or no contracts - Hard. tactical negotiations - Create new approaches - Limited hospitality - Proactive cost containment STRATEGIC: Practices and Behaviours Goal Secure value PRACTICES - Detailed market analysis - Source planning - Supply chain analysis - Continuous improvement - Performance measurement EFFORT Team of highly skilled individuals BEHAVIOURS 1. REMAIN STRATEGIC - Joint ventures - Partnerships - Long term- detailed agreements - Principled negotiations

22 page 22 of 23 - Partnership management 2. MOVE TO LEVERAGE - Develop new suppliers - Remove barriers to entry - Review specifications CRITICAL: Practices and Behaviour Goal Reduce risk EFFORT - Concentrated effort - Technical know how PRACTICES - Risk and vulnerability analysis - Extended notice periods - Knowledge of substitute - Supply chain analysis - Collaborate with others BEHAVIOURS - Use of detailed analytical skills - Influencing business needs - Creativity generate options - Relationship skills - Project management It is therefore very clear that until SOEs begin to do proper portfolio analysis, that will assist them in developing policies and strategies suitable for their own environments and mandates to deliver on government imperatives will never be achieved. It is also through this

23 page 23 of 23 exercise that SOEs will realise and acknowledge the extent of their sourcing weaknesses beside the weaknesses in the legislation. In conclusion, yes, there might be weaknesses in the legislation that needs the government attention but SOEs themselves need to first get their houses in order, this will assist them and support their efforts in achieving Government Priorities before they advocate for the changes in legislation which we know will take long.