Csdp Sean


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  • Csdp Sean

    1. 1. Competitive Supplier Development Programme (CSDP) 25 August 2008
    2. 2. The need for a competitive supplier development programme for SOE <ul><li>Potential to leverage the SOE infrastructure investment programme to: </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>For the past thirty years, the capacity of the local SOE supply base for capital goods has declined along with their capital investment. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul>
    3. 3. 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. <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>
    4. 4. 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
    5. 5. Participation in the programme <ul><li>Cabinet approval for the CSDP in January 2007 : </li></ul><ul><ul><li>allows any SOE to choose to utilise CSDP as an alternative means of achieving the goals of the National Industrial Participation Programme (NIPP) </li></ul></ul><ul><ul><li>participating SOE must submit an SDP within a year </li></ul></ul><ul><ul><li>specifies minimum content of SDPs, including targets and KPIs </li></ul></ul><ul><ul><li>requires Shareholder Ministry to include CSDP KPIs in shareholder compact </li></ul></ul><ul><ul><li>specifies governance arrangements for the CSDP, including engagements with industry and relevant government departments </li></ul></ul><ul><ul><li>SOE must revert to NIPP if substantive progress is not made within three years </li></ul></ul>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.
    6. 6. 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 Identify 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>Identify interventions <ul><li>provide long-term demand information </li></ul><ul><li>increase or decrease size of contracts </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 (DST and dti support programmes) </li></ul><ul><li>other government support (eg access to finance, skills development) </li></ul>Targets KPIs spend and supply analysis across value chain
    7. 7. Process flow chart for CSDP (2) Finalisation of SDP SOE 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 against shareholder compact 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 will be assessed by DPE and the dti. We are just moving into the implementation phase
    8. 8. 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>Investment decisions are based on assessment of future demand -> short-term planning by the customer will lead to short-term planning by suppliers </li></ul></ul><ul><ul><li>Better long-term planning and standardisation can create the economies of scale required for investment in supply industries </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>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 </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.
    9. 9. Procurement capacity building in the SOE <ul><li>The Institutes of Southern African Procurement Academy (ISAPA) </li></ul><ul><ul><li>Collaboration between the Institute of Procurement and Supply South Africa and the international Chartered Institute for Procurement and Supply </li></ul></ul><ul><ul><li>ISAPA now being implemented in Transnet: </li></ul></ul><ul><ul><ul><li>involves ‘professionalisation’ of procurement within Transnet </li></ul></ul></ul><ul><ul><ul><li>procurement staff offered training leading to internationally recognised qualifications </li></ul></ul></ul><ul><ul><ul><li>procurement qualifications being linked to procurement career paths </li></ul></ul></ul><ul><ul><ul><li>includes on-the-job training and mentoring </li></ul></ul></ul><ul><ul><ul><li>includes socio-economic context (CSDP and BBBEE) </li></ul></ul></ul><ul><ul><li>Establishment of Supply Chain Association </li></ul></ul><ul><ul><li>Thank you </li></ul></ul>A major focus of the CSDP has therefore been to put in place a procurement capacity building programme for participating SOE.