CSDP Policy

Competitive Supplier Development Policy 04 March 2009

Background There are fundamental differences in approach between the NIPP and CSDP.

Rationale for a competitive supplier development programme for SOE
Policy response:
stimulate local industries to exploit the opportunities arising from global shortages of certain items
develop new local industries
increase the capacity and capabilities of existing local industries
increase the competitiveness of local industries
develop export capabilities and export opportunities for local industries
Problem statement:
massive capital investment programme
capacity of local supply base for capital goods has declined
global supply shortages for some items
need for economic growth and job creation
The objective of the CSDP is to leverage SOE expenditure for sustainable industry development.

Advantages of competitive supplier development to SOE In the context of huge global demand for infrastructure and shortages of certain items, SOE have a commercial interest in the development of internationally competitive local supply industries, in order to secure supply and reduce costs.
Other potential advantages to SOE of securing local supply:
decreased forex related risks or premiums
proximity of suppliers (particularly for services and fast moving items):
speed of delivery
lower inventory requirements
improved access to skills
cluster advantages, eg collaboration, innovation around local requirements
greater responsiveness

A key caveat - price premiums Price premiums could crowd-out investment amongst SOE’s customers while encouraging unsustainable investment amongst SOE suppliers. The objective must be to build the competitiveness (in terms of quality, cost and responsiveness) of local supply industries, not to pursue local content at all costs. Price premiums paid to suppliers for local content Increase in prices charged by SOEs for services Crowding out of investment in customer industries – negates goal of increasing growth and job creation increased costs

The importance of procurement
Why is procurement so important?
The more coherent the customer, the more coherent the supplier
Short-term planning by the customer leads to short-term planning by suppliers
Better long-term planning and standardisation create economies of scale
Quality of supply chain depends on quality of major buyers’ demand planning and procurement processes
Example of internationally competitive exporting capital equipment industries associated with the mining industry
The essence of the CSDP is to procure in such a way as to create a conducive environment for investment in supplier industries. Transnet and Eskom are building their procurement capacity as part of the CSDP.

Process flow chart for CSDP (1) Industry consultation Revise SDP
consult with industry associations and relevant government departments regarding contents of plans
An SOE draws up a Supplier Development Plan in consultation with industry and relevant government departments. Draft Supplier Development Plan (SDP) Analysis ID Focus areas
- items currently being imported
- high spend items
- items with repetitive, stable, sufficient demand
items with potentially globally competitive cost structure for local manufacture
items with potential for interventions to make local supply more viable
- increase security of supply (global shortages)
items with potential for exports
items which are also used by other growing industries
- need to increase competitiveness
- items with advantages of local supply
ID interventions
- provide long-term demand information
standardisation
smooth demand
collaboration with suppliers
negotiate with OEM for local participation in supply chain (export opp’s)
increase competition
link competitiveness improvement to renewal of contracts
obtain FDI with tech transfer
development of marginal suppliers
increase or decrease size of contracts
other government support (eg access to finance, skills development)
Targets KPIs spend and supply analysis across value chain

Process flow chart for CSDP (2) Finalisation of SDP Execution through procurement process Monitoring
Revise SDP
SOE submits SDP to shareholder Minister
shareholder Minister submits SDP to dti for assessment and input
shareholder Minister engages with SOE regarding dti inputs
shareholder Minister approves revised SDP
SDP KPIs and targets incorporated into the shareholder compact
make changes to demand planning and specifications where necessary
develop specific procurement strategies
investment, capability development, competitiveness improvement, and skills development requirements written into normal contracts between SOEs and suppliers, with penalty clauses
SOEs submit quarterly reports to DPE
DPE submits quarterly reports to dti for assessment and inputs
SOEs evaluate impact of deals and incorporate lessons into future sourcing strategies
cycle of producing SDP is repeated
incremental approach
first SDPs will focus on items with most obvious potential
scope and depth of SDPs will increase over time
Once finalised, the plan is assessed by DPE and the dti. We are currently in the execution phase

SDPs and procurement strategies SDP Procurement Strategies Whole expenditure programme Scope Project / commodity specific Level of detail of supply market and industry analysis Medium High Level of certainty of choice of interventions Low High Purpose Provide long-term view of development of supply industries Provide strategy for sourcing and procuring specific items The SDP provides a long-term vision for the development of the SOE’s local supply base, and an over-arching framework for specific procurement strategies. Nature of process Confidential commercial Public

Supply-side interventions
Supplier development:
UNIDO, DPE, dti, DST, Eskom and Transnet implementing supplier benchmarking and supplier development programme
Skills development:
DPE, DoE and DOL implementing artisan development programmes
Government’s role in the CSDP is to provide support to industry in the focus areas identified in the SDPs.

Progress to date
Challenges:
Tensions between CSDP goals and competitive bidding processes
Difficult to talk to suppliers during procurement process
Sensitivity about giving out long-term demand information
Opportunities
Economic down-turn
SOE experimenting with ways of collaborating with supply industries for CSDP:
Eskom’s supplier hubs
This Rail and Harbour Association
SOE and suppliers trying to find ways to collaborate - programme in early stages of learning curve
Supplier Development Plans have been finalised and Transnet and Eskom are now attempting to implement the programme in their procurements.

Thank you

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CSDP Policy

by Railways and Harbours on Mar 10, 2009

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