CSDP Policy


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Presented by: Sean Philips at the 2009 Railways and Harbours Conference in Cape Town.

Published in: Business, Technology
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CSDP Policy

  1. 1. Competitive Supplier Development Policy 04 March 2009
  2. 2. Background There are fundamental differences in approach between the NIPP and CSDP.
  3. 3. Rationale for a competitive supplier development programme for SOE <ul><li>Policy response: </li></ul><ul><ul><li>stimulate local industries to exploit the opportunities arising from global shortages of certain items </li></ul></ul><ul><ul><li>develop new local industries </li></ul></ul><ul><ul><li>increase the capacity and capabilities of existing local industries </li></ul></ul><ul><ul><li>increase the competitiveness of local industries </li></ul></ul><ul><ul><li>develop export capabilities and export opportunities for local industries </li></ul></ul><ul><li>Problem statement: </li></ul><ul><ul><li>massive capital investment programme </li></ul></ul><ul><ul><li>capacity of local supply base for capital goods has declined </li></ul></ul><ul><ul><li>global supply shortages for some items </li></ul></ul><ul><ul><li>need for economic growth and job creation </li></ul></ul>The objective of the CSDP is to leverage SOE expenditure for sustainable industry development.
  4. 4. 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. <ul><li>Other potential advantages to SOE of securing local supply: </li></ul><ul><ul><li>decreased forex related risks or premiums </li></ul></ul><ul><ul><li>proximity of suppliers (particularly for services and fast moving items): </li></ul></ul><ul><ul><ul><li>speed of delivery </li></ul></ul></ul><ul><ul><ul><li>lower inventory requirements </li></ul></ul></ul><ul><ul><ul><li>improved access to skills </li></ul></ul></ul><ul><ul><ul><li>cluster advantages, eg collaboration, innovation around local requirements </li></ul></ul></ul><ul><ul><ul><li>greater responsiveness </li></ul></ul></ul>
  5. 5. 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
  6. 6. The importance of procurement <ul><li>Why is procurement so important? </li></ul><ul><ul><li>The more coherent the customer, the more coherent the supplier </li></ul></ul><ul><ul><li>Short-term planning by the customer leads to short-term planning by suppliers </li></ul></ul><ul><ul><li>Better long-term planning and standardisation create economies of scale </li></ul></ul><ul><ul><li>Quality of supply chain depends on quality of major buyers’ demand planning and procurement processes </li></ul></ul><ul><ul><li>Example of internationally competitive exporting capital equipment industries associated with the mining industry </li></ul></ul>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.
  7. 7. Process flow chart for CSDP (1) Industry consultation Revise SDP <ul><ul><li>consult with industry associations and relevant government departments regarding contents of plans </li></ul></ul>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 <ul><li>- items currently being imported </li></ul><ul><li>- high spend items </li></ul><ul><li>- items with repetitive, stable, sufficient demand </li></ul><ul><li>items with potentially globally competitive cost structure for local manufacture </li></ul><ul><li>items with potential for interventions to make local supply more viable </li></ul><ul><li>- increase security of supply (global shortages) </li></ul><ul><li>items with potential for exports </li></ul><ul><li>items which are also used by other growing industries </li></ul><ul><li>- need to increase competitiveness </li></ul><ul><li>- items with advantages of local supply </li></ul>ID interventions <ul><li>- provide long-term demand information </li></ul><ul><li>standardisation </li></ul><ul><li>smooth demand </li></ul><ul><li>collaboration with suppliers </li></ul><ul><li>negotiate with OEM for local participation in supply chain (export opp’s) </li></ul><ul><li>increase competition </li></ul><ul><li>link competitiveness improvement to renewal of contracts </li></ul><ul><li>obtain FDI with tech transfer </li></ul><ul><li>development of marginal suppliers </li></ul><ul><li>increase or decrease size of contracts </li></ul><ul><li>other government support (eg access to finance, skills development) </li></ul>Targets KPIs spend and supply analysis across value chain
  8. 8. Process flow chart for CSDP (2) Finalisation of SDP Execution through procurement process Monitoring <ul><ul><ul><ul><ul><li>Revise SDP </li></ul></ul></ul></ul></ul><ul><ul><li>SOE submits SDP to shareholder Minister </li></ul></ul><ul><ul><li>shareholder Minister submits SDP to dti for assessment and input </li></ul></ul><ul><ul><li>shareholder Minister engages with SOE regarding dti inputs </li></ul></ul><ul><ul><li>shareholder Minister approves revised SDP </li></ul></ul><ul><ul><li>SDP KPIs and targets incorporated into the shareholder compact </li></ul></ul><ul><ul><li>make changes to demand planning and specifications where necessary </li></ul></ul><ul><ul><li>develop specific procurement strategies </li></ul></ul><ul><ul><li>investment, capability development, competitiveness improvement, and skills development requirements written into normal contracts between SOEs and suppliers, with penalty clauses </li></ul></ul><ul><li>SOEs submit quarterly reports to DPE </li></ul><ul><li>DPE submits quarterly reports to dti for assessment and inputs </li></ul><ul><li>SOEs evaluate impact of deals and incorporate lessons into future sourcing strategies </li></ul><ul><li>cycle of producing SDP is repeated </li></ul><ul><li>incremental approach </li></ul><ul><li>first SDPs will focus on items with most obvious potential </li></ul><ul><li>scope and depth of SDPs will increase over time </li></ul>Once finalised, the plan is assessed by DPE and the dti. We are currently in the execution phase
  9. 9. 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
  10. 10. Supply-side interventions <ul><ul><li>Supplier development: </li></ul></ul><ul><ul><ul><li>UNIDO, DPE, dti, DST, Eskom and Transnet implementing supplier benchmarking and supplier development programme </li></ul></ul></ul><ul><ul><li>Skills development: </li></ul></ul><ul><ul><ul><li>DPE, DoE and DOL implementing artisan development programmes </li></ul></ul></ul>Government’s role in the CSDP is to provide support to industry in the focus areas identified in the SDPs.
  11. 11. Progress to date <ul><li>Challenges: </li></ul><ul><ul><li>Tensions between CSDP goals and competitive bidding processes </li></ul></ul><ul><ul><ul><li>Difficult to talk to suppliers during procurement process </li></ul></ul></ul><ul><ul><ul><li>Sensitivity about giving out long-term demand information </li></ul></ul></ul><ul><li>Opportunities </li></ul><ul><ul><li>Economic down-turn </li></ul></ul><ul><ul><li>SOE experimenting with ways of collaborating with supply industries for CSDP: </li></ul></ul><ul><ul><ul><li>Eskom’s supplier hubs </li></ul></ul></ul><ul><ul><ul><li>This Rail and Harbour Association </li></ul></ul></ul><ul><li>SOE and suppliers trying to find ways to collaborate - programme in early stages of learning curve </li></ul>Supplier Development Plans have been finalised and Transnet and Eskom are now attempting to implement the programme in their procurements.
  12. 12. <ul><li>Thank you </li></ul>