Csdp Sean

Competitive Supplier Development Programme (CSDP) 25 August 2008

The need for a competitive supplier development programme for SOE
Potential to leverage the SOE infrastructure investment programme to:
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
For the past thirty years, the capacity of the local SOE supply base for capital goods has declined along with their capital investment.
However, SOE are now investing strongly in infrastructure again. Eskom is likely to be engaging in large-scale capital expenditure for the next twenty years.
The planned SOE investment programmes provide an opportunity to reinvigorate and develop the local supply base for SOE, and to optimise the contribution of SOE to industrial development.

Advantages of competitive supplier development to SOE In the current 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. The CSDP focuses on those areas of supply where there is a coincidence or overlap between national economic development interests and the commercial interests of the SOE and their first tier multinational suppliers to lower total costs and secure supply. The focus must be on items where there is potential for globally competitive local manufacturing.
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

Participation in the programme
Cabinet approval for the CSDP in January 2007 :
allows any SOE to choose to utilise CSDP as an alternative means of achieving the goals of the National Industrial Participation Programme (NIPP)
participating SOE must submit an SDP within a year
specifies minimum content of SDPs, including targets and KPIs
requires Shareholder Ministry to include CSDP KPIs in shareholder compact
specifies governance arrangements for the CSDP, including engagements with industry and relevant government departments
SOE must revert to NIPP if substantive progress is not made within three years
Three of DPE’s SOE, i.e. Eskom (March 2007), Transnet (February 2007) and PBMR (July 2007) have formally committed to implementing the CSDP and to producing SDPs within a year. Transnet submitted its SDP at the end of February 2008, and it has been approved. Eskom submitted its SDP at the end of May 2008, and PBMR at the end of July 2008.

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 Identify 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
Identify interventions
provide long-term demand information
increase or decrease size of contracts
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 (DST and dti support programmes)
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 SOE 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 against shareholder compact 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 will be assessed by DPE and the dti. We are just moving into the implementation phase

The importance of procurement
Why is procurement so important?
The more coherent the customer, the more coherent the supplier
Investment decisions are based on assessment of future demand -> short-term planning by the customer will lead to short-term planning by suppliers
Better long-term planning and standardisation can create the economies of scale required for investment in supply industries
The quality of supply industries depends significantly on the quality of major buyers’ demand planning and the quality of major buyers’ management of procurement processes and supplier relationships
The development of internationally competitive exporting capital equipment industries associated with the mining industry provides an example of the potential effect of long-term collaborative relationships between buyers and suppliers
The essence of the CSDP is to procure in such a way as to create a conducive environment for investment in supplier industries.

Procurement capacity building in the SOE
The Institutes of Southern African Procurement Academy (ISAPA)
Collaboration between the Institute of Procurement and Supply South Africa and the international Chartered Institute for Procurement and Supply
ISAPA now being implemented in Transnet:
involves ‘professionalisation’ of procurement within Transnet
procurement staff offered training leading to internationally recognised qualifications
procurement qualifications being linked to procurement career paths
includes on-the-job training and mentoring
includes socio-economic context (CSDP and BBBEE)
Establishment of Supply Chain Association
Thank you
A major focus of the CSDP has therefore been to put in place a procurement capacity building programme for participating SOE.

Csdp Sean

by Railways and Harbours on Sep 01, 2008

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