Educational Research and Review Vol. 4 (9), pp. 427-435, September, 2009 Available online at http://www.academicjournals.org/err ISSN 1990-3839 2009 Academic Journals Full Length Research Paper An exploration of supply chain management practices in the central district municipality I. M. Ambe Department of Business Management, University of South Africa, P. O. Box 392, UNISA 003. E-mail: ambeim@unisa.ac.za. Accepted 24 July, 2009 The main objective of the paper is to explore supply chain management practices in the Central District Municipality, North West province of South Africa, using the grounded theory methodology. Supply chain management was introduced in the South African public sector to alleviate deficiencies related to governance, interpretation and implementation of the public procurement policies. The findings of the study reveal that, the Central District municipality and its affiliated municipalities practice supply chain management, but their practice is far from satisfactory as required by the Municipal Supply Chain Management Policy. The municipalities lack proper knowledge, skills and capacity to effectively implement supply chain management. The paper concludes by recommending training of personnel involved with the implementation of supply chain as well as appropriate organisational structures to achieve integration, collaboration and coordination. Key words: Supply chain management, transformation, grounded theory, central district municipality. INTRODUCTION The South African government has undergone initiatives and reform processes that have resulted in the transformation of local government supply chain. Public procurement reforms started after the change in political dispensation in 1994. Procurement reforms processes were supported by the introduction of a number of legislative measures, which include the Public Finance Management Acts (PFMA) (Act No. 1 of 1999), Municipal Finance Management Acts (MFMA) (Act No 56 of 2003) and the Preferential Procurement Policy Framework Acts (PPPFA) (No. 5 of 2000) [National Treasury (NT), 2005]. It was directed at the promotion of principles of good governance and the introduction of a preference system to address socioeconomic objectives. A uniformed implementation approach to procurement was required as studies such as the Report on Opportunities for Reform of Government Procurement in South Africa (2000) and Joint Country Assessment Review (CPAR) conducted by the World Bank during 2001/2002 indicated that there were divergent interpretations of government's objectives and strategies. The difficulties highlighted was that, there were inadequate provisions to capacity building for disadvantaged enterprises to successfully compete for government contracts. Also, the preferential procurement policies were not clearly formulated and targets were not met. The performance of these initiatives did not take place in a holistic evaluation environment. Furthermore, the report revealed that the effective and efficient financial management within government was questionable (NT, 2005). The aforementioned situation led to the National Treasury to embark on reform initiatives which lead to the introduction of supply chain management (SCM) in government (NT, 2005). Hence a SCM policy was adopted to replace these outdated procurement and provisioning practices. The aim was to implement a SCM function across all spheres of government which will be an integral part of financial management and which will conform to international best practices (NT, 2005). The objective of this paper is to explore SCM and to depict the state of art of supply chain practices in the Central District Municipality. The remaining sections of the paper explain SCM and the South African SCM practices, the research method and analysis, discussion of the results and conclusion.
428 Educ. Res. Rev. Supply chain management Supply chain management (SCM) is one of the most cited and analysed concepts recently in logistics and operations management. Several researchers have dealt with SCM from research areas such as logistics, transportation (distribution), strategy, marketing, organizational behavior, economics etc. It is also a fashionable term today in business circles and links all the supply interacting organisations in an integrated two-way communication system to manage high quality inventory in the most effective and efficient manner. It represents a significant change in the way organisations view themselves (Sahav and Mohan, 2003; Meberg and Speh, 2003). The goal of SCM is to meet the needs of the final consumer by supplying the right product at the right place, time and price. Defining supply chain management Authorities such as Lamming (1996: 2); Dumond (1996: 2); Gattorna (1998: 2); Warner (2002: 6278) affirmed that SCM have existed over the past three decades (Hugo et al, 2004). According to Christopher (2005), SCM is a wider concept of logistics. Dumond (1996: 2) noted that the literature claims SCM is an extension of logistics a further development in managing the supply base and therefore the development of the purchasing function. There are various definitions of SCM. According Leenders and Fearon (1997: 295), SCM is the systems approach to managing the entire flow of information, materials and services from the raw materials suppliers through factories and warehouses to the end customer. According to Christopher (2005: 5), SCM is the management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole. Gansler et al, (2004: 8) noted that SCM is the management and control of all materials, funds and related information in the logistics process from the acquisition of raw materials to the delivery of finished products to the end user. More so, Hugo et al. (2004: 5) defines SCM as the management philosophy aimed at integrating a network of upstream linkages (sources of supply), internal linkages inside the organization and downstream linkages (distribution and ultimate customer) in performing specific processes and activities that will ultimately create and optimize value for the customer in the form of products and services which are specifically aimed at satisfying customer demands. Although the definitions of SCM differ across authors, they can be classified in three categories (Mentzer et al, 2001: 8): a management philosophy, implementation of a management philosophy and as a set of management pro cesses. Public sector supply chain management Countries such as the UK, US and Canada have long employed SCM in the management of their procurement and logistics. Gansler et al. (2004: 4) acknowledge that the Department of Defence (DOD) in the US have minimised cost through lead time in the management of its logistics by employing SCM best practices. Also, the Office of Government of Commerce (OGC) in the UK releases year to year updates about best practices of SCM in the public sector. Luby [Consultant for Department of Defense Supply Centres and Defense Supply Chain Leader with IBM Consulting Services (2004)] noted that the key to modernizing SCM in the private sector has been internal and external digital integration, including new linkages, procurement and finance operations. He however, suggested that governments can and must do more to adopt available and proven tools for implementing a modern supply chain. These include: instant worldwide communications; interoperable, flexible and secure information technology; remote diagnostics and automated decision-making aids and employ modern, high-speed transportation (Essig and Dorobek, 2006). Streamlining and modernising government supply chain can result in substantial cost savings as well deliver-time improvement (Gansler et al., 2004: 5). According to Essig and Dorobek (2006), the integration of SCM in the public sector is playing a critical role in optimising logistics support and improving the management of secondary inventory. Government SCM is a concept that offers a reference framework for the composition of government supply chains and multilevel networks. South African supply chain management practices SCM is an integral part of prudent financial management in the South African public sector management. It introduces internationally accepted best practice principles, while at the same time addressing government s preferential procurement policy objectives (OGC, 2005: 11). SCM aims to add value at each stage of the process from demand of goods or services to their acquisition, managing the logistics process and finally, after use, to their disposal. In doing so, it addresses deficiencies in current practice related to procurement, contract management, inventory and asset control and obsolescence planning. Therefore, the adopting SCM policy ensures uniformity in bid and contract documentation and options as well as bid and procedure standards, among others, will promote standardisation of supply-chain management practices (National Treasury (NT), 2003a: 2). SCM has received a lot of attention and the terminology has been used (sometimes misused) by municipalities to describe the set of service and logistics processes that result in delivering services to their consumers. Some
Ambe 429 principles of SCM are: 1. SCM is a philosophy for conducting business. It is a philosophy for sharing risks, benefits and rewards, for long term cooperation and trust between partners and for joint planning and mutual exchange of information across all the nodes of supply chain. 2. SCM implies optimised performance from all supply chain members across all processes and activities and ultimately the development of consumer-driven performance measures aimed at ensuring the continuous improvement of the supply chain as a whole. 3. SCM is the integration of multiple layers of municipalities striving as a team to optimise the shared supply chain processes in support of the strategic objectives of the supply chain of the municipality and stakeholders in the supply in the chain. 4. SCM is the management of all links and interfaces in the supply chain. However, all of these links and interfaces are not of equal importance and therefore the management task of various nodes or interfaces in the supply chain will differ according to impact on the relevant supply chain processes on the creation and delivery of consumer value. 4. SCM is guided by the principle of co-operative governance and intergovernmental relations as stipulated in the constitution, enshrining the autonomy of each sphere whilst regulating the relationship between those spheres. 5. SCM is based on shared vision of what consumers value is and therefore compatible with municipal philosophies are essential in achieving the necessary levels of planning and coordination. Some of the legislative framework that guides the SCM policy includes: 1. The constitution. 2. Public Finance Management Act (PFMA) (Act No. 1 of 1999). 3. Local Government: Municipal Finance Management Act (MFMA); (Act No 56 of 2003). 4. Preferential Procurement Policy Framework Act (PPPFA) (No. 5 of 2000). 5. PPPFA and its Regulations. 6. Procurement Guidelines. 7. Policy to Guide Uniformity in Procurement Reform Processes In Government. 8. Broad-Based Black Economic Empowerment Act (BBBEE) (Act 53 of 2003). 9. Municipal Systems Act (MSA) (Act No32 of 2000). 10. South Africa: Competition Law (Act No 89 of 1998). 11. South Africa: National Small Business Act (Ac No 102 of 1996). 12. Anti-Corruption Measures and Practices. 13. South African Local Government Association (SAL- GA). 14. Trade Policy. 15. Labour Issues. 16. Occupational Health and Safe Environment. 17. Public/Private/Partnerships. 18. New Partnership for Africa s Development (NEPAD). The South African National Treasury provides guidelines for implementation of the SCM policy. The SCM process is guided by policies and legislations. The framework for the SCM system constitutes demand management, acquisition management, logistics management, disposal management, risk and performance management. The framework is guided by the preference point system to achieve re-distribution of wealth (ensuring equal opportunities). The components of the supply chain constitute the elements of the SCM. The supply chain is build upon ensuring value for money, open and effective competition, ethics and fair dealings; accountability and reporting and equity. Ensuring these will achieve the ultimate goal of uniformity in procurement processes, good governance and economic development (NT, 2005). Six elements of the SA government SCM and their activities are stated as follows: Demand management: The first element of SCM. Fulfil the needs identified during the strategic planning process; total needs assessment should be undertaken; Resources required must be analysed and assessed; Key elements in the demand management process should be considered; Bring the SCM practitioner closer to the end users; Bid specification committee; Procurement methods etc. Acquisition management: The management of procurement; Evaluate bids (comprise of bid committees; Consult register for defaulters; Range of procurement systems; Establishment of total cost of ownership of assets; Bid adjudication; Appointment of consultants etc. Logistics management: Strategically manage acquisition, movement and storage of materials; Cost fulfilment of orders; Ensure effective flow of goods, services and related information from the point of origin to the point of consumption etc. Disposal management: Management of assets that are no longer needed; Gives consideration to obsolescence planning; create a data-base of redundant materials; Inspect materials for re-use; Determine disposal strategy and methods of execution etc. Risk management: Management unintended or unexpected outcome of a decision; Make provision for identifying, considering and avoiding risk as well as provision for adequate cover for residual risks etc.
430 Educ. Res. Rev. Table 1. Key role players of the SA government SCM and their functions. Key role players National Treasury Provincial Treasuries Accounting Officer/ Chief executive Officers Chief Financial Officer/ SCM Units Functions Introduce and oversee the implementation of SCM; Develop treasury regulations; Issue guidelines, general conditions of contract and bid documents to Accounting Officer; Setting minimum reporting standards; Monitor policy outcomes. Assist departments with the implementation of SCM; Support departments by providing advice and build capacity; Co-ordinate training in the province; Monitor policy outcomes. Establish a SCM unit under the direct supervision of the Chief Financial Officer; Compile and implement a SCM policy; Adhere to guidelines supporting documents for the implementation issued by the National Treasury; Develop internal procedures and processes; Ensure that officials are trained and adequately skilled; Report to National Treasury; Comply with ethical standards. Recruiting, selecting, developing and managing skills to build and maintain an effective SCMU; Training skills and resources to develop managers and supervisors to operate and manage varieties of SCM activities, facilities and networks. Table 2. Bid Committees, Constituent and roles. Bid committee Bid specification committee Bid evaluation committee Bid adjudication committee Constituent of the committee and functions May comprise one or more official, preferably manager responsible for function including external specialist advisors (cross functional principle); Accounting Officer or delegated official to appoint chair person ROLES: Compile technical specifications; terms of reference; requirements; conditions of contract; evaluation criteria; determine goals; and indicate method of procurement. Comprises of a SCM practitioner; technical expert from department requiring the good/service. ROLES: Accounting officer must appoint the chair person and members; evaluate bids accordance with the criteria (PPPFA); Evaluate bidders tax matters; Submit a report for recommendation regarding the award; check list for restricted bidders; consult the register for tender defaulters. Comprises of at least 4 senior managers which include: the CFO; at least one senior SCM practitioner to ensure compliance and a technical expert who is an official to ensure compliance to the specification. ROLES: Accounting officer must appoint the chairperson and members; A member of the bid evaluation committee may presents its case to the bid adjudication committee; neither a member of or a person assisting the bid evaluation committee, nor any advisor may be a member of this committee Supply chain performance: Management unintended or unexpected outcome of a decision; Make provision for identifying, considering and avoiding risk as well as provision for adequate cover for residual risks etc. Supply chain performance: Monitor progress undertaken a retrospective analysis to determine whether the processes have been followed and if the desired objectives were achieved. Usage of the National Treasury template for measuring performance. Based on the SCM policy, each government unit was to adopt the SCM policy to suit its needs. The structures for management of supply chain activities within the Country are unique. The document SCM guide for Municipalities/Municipal Entities prescribed the actors of SCM, their roles and duties. The SCM policy requires the creation of bid committees. The various committees to be created include: the bid specification committee, bid evaluation committee and the adjudication committee. The document SCM guide for Municipalities/Municipal Entities prescribed the actors of SCM, their roles and duties. Table 1 shows the actors of the government SCM, their roles and duties. The SCM policy requires the creation of bid committees. The various committees to be created include: the bid specification committee, bid evaluation committee and the adjudication committee. Table 2 shows the bid
Ambe 431 committees, their constituent and roles. RESEARCH METHOD AND ANALYSIS The study was based on a case study conducted in the Central District Municipality and its five affiliated local municipalities in the North West Province, South Africa. These local municipalities were: Mafikeng, Ditsobotla, Ramotshere Moiloa, Tshwaing and Ratlou. The municipalities were chosen based on proximity and available resources. Primary and secondary data collection methods were employed. Secondary data were based on existing literature on SCM legislation, while primary data were collected through face to face interviews. Theoretical sampling was used through which thirty (30) respondents were identified and interviewed within the six municipalities. Table 3 shows the distribution of the respondents. Eligibility for participation in the interview process was based on an employee being a manager in the SCM unit or an employee in the SCM directorate. The face to face interviews were analysed using grounded theory approach. This was to gather, contextualised and analysed information on SCM practices to depict the state of its implementation in the municipalities. The questions were design in an unstructured manner. The grounded theory analysis started after the point of saturation (30 interviews) where no new ideas were emerging. The interviews were transcribed by listening to the recorded interviews through the windows media player sentence-by-sentence. After transcription, 190 codes were developed from the transcript data. The researcher went through the process of open coding, axial coding and selective coding to develop phenomena, concepts and categories. It is important to note that the whole grounded theory is too complex to discuss in detail in one paper. Samples of the grounded theory process are illustrated. Open coding consisting of labelling emergent phenomena, discovering and developing categories from the concepts with their properties and dimensions as shown in Table 4. For each phenomenon (incident, idea or event), a name was given. The name captured its essence in a more general way and generated concepts as shown in Table 5. The categories were broken into sub-categories during axial coding as shown in Chart 1. Table 6 was used to test the development of the memos/storyline during axial coding. This is because grounded theory focuses on focuses on action and integration. Core categories were selected around which the final analysis was based. It was related to other categories explicating the storyline that includes analytic description of the core category validating the storyline. Categories were prioritised over one another, relating to the storyline, outlining the core properties, dimension, conditions, context, strategies and their consequences as shown in the Chart 2. The Tables 7 and 8 shows how the variables in the interviews were contextualised to develop condense meaning. These were later developed into categories, sub-categories and themes about the practice of SCM in the Central District Municipality as shown above. DISCUSSION OF THE RESULTS According to the SCM policy, the elements of SCM are made up of demand management, acquisition management, logistics management, disposal management, risk and performance management. The storyline developed from the grounded theory indicates that most of the inter- Table 3. Distribution of respondents based on interviews. Municipality Number of persons Interviewed Central District Municipality 7 Mafikeng Local Municipality 4 Ditsobotla local Municipality 6 Ramotshere moiloa Local Municipality 6 Tshwaing Local Municipality 2 Ratlou Local municipality 5 Total 30 Table 4. Sample template for open coding: -Identification of phenomena. Code Phenomena Code Type 1 Planning supply chain Open Label 2 Management of Open Label 3 Specifications Open Label 4 Sourcing Open Label 5 Monitoring Open Label 6 Contracts Open Label 7 Training Open Label 8 Workshops Open Label Sub-Category Strategic Sourcing Category Sub-Category Bid Committees Chart 1. Sample template for axial coding - showing the breakdown of Acquisition management. viewees were aware of demand management as an element of SCM, but did not have a demand management team (Table 7). This had an effect on the level planning and execution of management processes. Despite the fact that most of the respondents held executive positions within the municipalities, they did not carry adequate research and analysis to meet up and upgrade services within their municipalities (Tables 6 and 8). With respect to acquisition management, the Central District municipality and its local municipalities tried to benchmark their activities with other municipalities. They
432 Educ. Res. Rev. Table 5. Sample template for open coding - Discovering categories from concepts. Category 1: Demand management Concepts Dimensions Properties Incidents Consequences Detail of concepts (1) Still to develop three committees; (2) Links demand and procurement practices; (3) Department and consultants do specifications; (4) Gives considerations to supply chain management (5)... Still to be implemented, Not fully in place Needs assessment, planning, specifications, equipment (1)Treasury guidelines and regulations; (2) Service delivery; (3) Procurement; (4)... Inefficient practices, non compliance to treasury regulations Table 6. Sample template for axial coding. Category: Acquisition management Conditions Why When Where Action/Interaction By Whom How Consequences Duration Visibility Impact Predictability Scope Memo Detail of category: Sourcing, industry analysis, bid committees, procurement etc. Paradigm Causal, intervening, contextual Delivery services, Need assessment, Research, Procurement When need arises, Available fund, During projects of the community Municipality, Municipal entity Routine or strategic Municipality, Members of the various bid committees. Tenders, Negotiations, Quotations Intended or unintended Depends on Project, do not have a timetable for promulgation Very visible, Project execution by consultants and contractors. Job creation, Rendering municipal services, Inefficient management, Still to put system in place, Lack of skills and capacity, Still at infancy stage in implementing policy Municipalities are still to develop the various bid committees; They lack the skills and capacity to carry appropriate industry analysis and research They took advantage of the total cost of ownership principle, but there was little as far as sourcing strategies is concern. Most of the adverts for bids for the municipalities are done within local newspapers except for contracts of high amounts. The rate of compiling bid specifications is high and the conditions for bids are stated clearly. Bids are invited for tendering when there is the need for a project to be executed as determined in the IDP document. In two of the municipalities, consultants evaluated bids (Chart 1). In this case the bid committee serves as an adjudication committee and it is the committee that makes the final award of a contract. Also, the municipalities had a predetermined range of procurement practices. Implementation is based on the National Treasury regulations and circulars. However, none of the municipalities had records of cases of bidders who have contravened SCM regulations and cases of fraud and corruption that have occurred within their municipalities
Ambe 433 Table 7. Sample interview text. Code Meaning of measurement variable(unit) Condense meaning 1 2 3 4 No demand management team; Bid specifications are being done by the individual department; There is low level of planning and execution of management processes; There is very low level of industry analysis and research etc Trying to bench mark with other municipalities; still to develop a SCM bid committee; Take advantage of the cost of ownership; Highly utilised the services of consultants; use local news papers for bids; Have predetermine range of procurement processes; No records of bidders on abuse against SCM; No records on cases on fraud, corruption and defaulters on SCM Striving to a high level of monitoring spending patterns on the types of goods and services; Undefined lead times for inventory to put goods in stock; low rate of internal monitoring systems; Checking of assets is done yearly; Disposal of assets is common by selling through auction sales; Low rate of risk identification and monitoring systems etc Links IDP to SCM through procurement; Have municipal service delivery budget implementation plan; low level of public-private partnerships Improper planning; No bid committees Source to contractors Use consultants No record of bid committees Strive for high Performance; Undefined lead times; Sells assets through auction sales; low rate of risk identification Procurement through IDP, No SDBIP Table 8. Sub-categories and categories of themes. Codes Sub-category Category Theme 1 2 3 4 Strategic planning; specification; sourcing Sue of consultants; bid committees; range of procurement; training and workshops Delivery lead times; Action; monitoring and performance; types of risk Demand management Acquisition management Logistics, Disposal, risk and performance Management Inefficient planning and no proper specification Have attempted training but cannot fully implement No define lead time for deliveries and sales through auction Use IDP for procurement SCM links to IDP All procurement items are from the IDP document (Table 7). Furthermore, there was high level of monitoring and spending patterns on different types of goods and services. According to the respondents, they are effectively putting systems in place to monitor the patterns, types and classes of goods. But there is undefined lead times for inventory to put goods in stock. Acquisitions are done manually. Contractors comply with the necessary documentations including SARS before payment. This ensured that services rendered are in accordance with the SCM policy and the general conditions of contract and the specifications. Despite the grounds on inventory, there is low rate of monitoring. There is no efficient control system in terms of personnel in the stores to secure the goods procured. Assets are check yearly. This is been done by the auditors (Tables 5 and 7, Chart 2). The major form of disposal of assets within the municipalities is done by means of auction sales after consultation with the council. Redundant assets are sold averagely once a year. Individual departments within the municipalities do identify their risks and manage them at departmental level. But the system is not at its best. However, the system is low because of lack of ability, skills and knowledge of the personnel. Internal auditors check on municipal performances. The purpose of the auditors is to ensure that there is no variance between intended and actual performance. For the execution of construction projects, the municipalities provide adequate cover
434 Educ. Res. Rev. Central Category Category Sub- Category ' $ Storyline! "! develop an effective SCM system # $!% $! & Chart 2. Sample template for selective coding process. for residual risks and make sure contractors take insurance to cover their projects for unforeseen circumstances. Moreover, regarding performances, the progresses of projects are monitored. Most of the interviewees indicated that their municipality does have project managers that check on the progress on projects that are executed by the municipality (Table 7). Conclusion SCM currently occupies the centre stage in the financial management reform process in the South African public sector management. The South African government adopted SCM in its public sector management to ensure value for money, open and effective competition, ethics and fair dealings; accountability and reporting; and equity. Thus creating uniformity in procurement practices, good governance and to enhance economic development. SCM aims to add value at each stage of the process from demand of goods or services to their acquisition, managing the logistics process and finally, after use, to their disposal. The main objective of the paper was to explore the SCM practices in the Central District Municipality in the North West province, South Africa. The findings of the study revealed the following assumptions about SCM practices in the Central District: 1. The Central District Municipality and its local municipalities have successfully implemented SCM. However, it is far from satisfactory. 2. The municipalities do not have a fully functional established SCM framework (SCM Units). 3. There is no difference in the implementation of SCM practices between the different municipalities in the Central District of the North West Province. 4. There is a lack of personnel s with the necessary knowledge, skills and capacity to effectively implement supply chain management as required by the SCM policy in the municipalities. From the conclusions above, it is obvious that municipalities need to train people who are already part of the SCM processes. In addition, the implementation of SCM is impossible without appropriate information and communication systems. The need exists for the different stages in the chain to be integrated. Furthermore, appropriate organisational structures must be developed, including the skill/knowledge profiles of the different positions. The municipalities must then actively recruit appropriate skilled and knowledgeable personnel. REFERENCES Christopher M (2005). Logistics and Supply Chain Management- Creating Value-Adding Networks, Prentice Hall/ Financial Times. Dumond EJ (1996). Applying value-based management to procurement. Int. J. Phys. Distrib. logistics manage. 2(1). Gansler C, Luby RE Jr., Kornberg B (2004). Supply Chain Management in Government and Business, in Transforming Government in
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