The non-financial benefits of developing local suppliers for a large South African company
Date
2014-01-08
Authors
Erasmus, Willem
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Abstract
This study demonstrated that a large South African company was able to obtain
operational benefits from its supplier development programme aimed at its
disadvantaged suppliers. This is despite the fact that these supplier development
efforts appeared to be undertaken to further social responsibility business
objectives rather than to secure competitive advantage through supply chain The study demonstrated that the process used to identify projects for these
initiatives and the scope of supplier development programmes played a significant
role in determining the outcomes of these initiatives. It was found that most of the
assisted businesses were small suppliers of non-essential goods and services.
The majority were referred either by business units within the company, or the
procurement department for the purpose of addressing poor performance and
non-compliance to the company’s safety and quality standards.
The supplier development function provided a wide range of services, ranging
from training programmes and assistance aimed at struggling businesses, to
providing more substantial resources and funding to growing and expanding
suppliers that provide important services to the company. A special effort was
made to increase the long-term sustainability of the supplier businesses by
providing additional measures such as essential management and skills training.
Although the programme was not specifically aimed at businesses with high BEE
scorecard recognition levels, a significant component of the supplier development
effort went into gaining or improving the BEE recognition levels of the supplier
businesses.
A very interesting finding of this study is that these benefits were derived, even
when the company did not appear to have a clear intention to derive operational
benefits from their supplier development programmes. Gaining recognition for its
BEE scorecard appeared to be a strong driver for these initiatives. In contrast, the
personnel of the supplier development function appeared to provide the main
drive for the operational benefits that were obtained. Several noted that the
company should, and did to some extent, have consideration for deriving benefits
from these initiatives. Furthermore, the view was expressed that the most
beneficial approach is to align the supplier development strategy with both the
company’s preferential procurement targets and its supply chain imperatives.
A few exemplary projects were encountered where specific needs and
opportunities for products/services that addressed essential operational issues
were identified. Collaborative development between the company and the
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suppliers resulted in significant improvements in the quality and availability of
these products. It is recommended that the supplier development function
proactively identifies similar projects for suppliers that are closer to the operations
of the company and where clear benefits for the company can be obtained.
The significance of this study is that it demonstrates that supplier development
initiatives for disadvantaged supplier businesses, which are sometimes perceived
as corporate social responsibility imperatives or compliance to the BEE Act, can
add value to the buying company. It further provides insight into aspects of the
implementation of a supplier development programme and indicates improvement
areas. It also encourages long-term sustainability of these projects in order to
have a lasting effect on the socio-economic transformation of the South African
economy.
excellence. The most significant benefit derived from the supplier development
programme was ensuring compliance from suppliers with company requirements,
for example for quality or safety. In addition, the large firm achieved improvements
in quality, cost and reliability of products and services. However, the study also
found that there were significant unrealised opportunities that the company did not
appear to reap, such as improvement in supplier flexibility, securing environmental
benefits, and the delivery of innovation inputs. One of the recommendations of this
study is, therefore, that the company should attempt to strengthen its efforts in
these directions.
A mixed-method case study approach was followed to investigate the supplier
development programme of a typical large South African company. Primary
(qualitative) information was collected through semi-structured interviews with a
core group of individuals that were involved in the supplier development
programmes of the company, selected external persons that were either involved
or knowledgeable in the areas of supplier development and/or BEE, and owners
of businesses that participated in the supplier development programme.
Secondary (quantitative) data were obtained from internal documents from the
supplier development function, which outline the nature and scope of each of the
102 projects that were undertaken. Four aspects were explored: 1) The selection
of participating supplier businesses, 2) assistance provided to these businesses,
3) the operational benefits obtained from these projects, and 4) the intention of the
company to obtain operational benefits from this programme.
Description
MBA thesis
Keywords
Supplier development programme, Social responsibility