Supplier selection practices in South African state-owned enterprises : an exploratory study

Abstract

Background: Procurement in an organisation is the process of acquiring goods and services required by the organisation to service its customers. These goods and services are often sourced from the external market. The procurement activities of South African State-Owned Enterprises (SOEs) are conducted according to a legislative framework, which is based on competitive bidding, however the framework does not specify the decision making techniques and structures that are applied in the selection of suppliers. Objective: While the public procurement legislative framework exists, there is a gap in knowledge of the specific techniques applied in the selection of its suppliers. This study seeks to explore the supplier selection practices in South African State-Owned Enterprises. Method: A qualitative study was conducted, involving ten supply chain practitioners from five State-Owned Enterprises. The study was conducted using semi-structured interviews that resulted in a written narrative. Interview transcripts were then analysed individually to form themes. Data analysis was performed using content analysis, coding, thematic analysis and conclusion drawing. Results: The findings suggest that as required by regulation, State-Owned Enterprises utilise competitive bidding to seek suppliers from the external market. However, there is a recent and on-going transformation to adopt centralised sourcing or seeking long-term partners to collaborate with the various State-Owned Enterprises’ strategies. Various inquiry tools like Request for Information (RFI), Request for Quotation (RFQ) and Request for Proposal (RFP) are used to interrogate the market for information about a commodity and candidate supplier companies. The information that is received is evaluated according to set criteria and is evaluated by cross-functional sourcing teams from within the organisation. There is evidence that, although not digitised, the supplier selection practices in State-Owned Enterprises utilise the Multi-Attribute Utility Theory methodology to evaluate the 2 information received from suppliers. There is no evidence of the adoption of academic theories like Data Envelopment Analysis, Fuzzy Logic and Technique for Order of Preference by Similarity to Ideal Solution; in their decision making. Conclusion: The research found that State-Owned Enterprises in South Africa select their suppliers by first allowing the business unit in the SOEs to send their request for a service or a product to their procurement unit. The cross-functional sourcing team (CFST) is then employed to evaluate the transaction cost of the requirement. An enquiry method is utilised to solicit information about the candidate supplier and the commodity so that this information can be weighed against set criteria. Also, the research found that both qualitative and quantitative processes are utilised by SOEs in supplier selection. Lastly, the research established that both calculated output and decision makers are often considered in the selection of a supplier.