Strategic Sourcing and Industrialisation insights with Prof Douglas Boateng
Public and private sector organisations are increasingly beginning to adopt strategic sourcing practices as a means to move towards value chain sourcing and improvements in productivity, competitiveness and service delivery quality.
Yet, despite increased recognition of the power that strategic sourcing can have for overall business success, in Africa, a general focus on price rather than a holistic total acquisition cost of ownership view of sourcing and long-term economic development remains. For strategic industrial and consumer sourcing to be the real agent of change in Africa, policy makers and C- Suite executives need to consider the benefits, and positively address the challenges, currently facing their approaches to sourcing in Africa.
Some of the key areas that policy makers and private sector executives need to consider include:
- Strategic sourcing is often perceived as a tactical, operational activity instead of being a strategic activity.
In instances where strategic sourcing has been successfully applied for both organisational and national development, the supply chain management function is fully recognised as being on a strategic professional parity with finance, IT, marketing or legal, where the functional custodian is a fully fledged EXCO member reporting directly to the Chief Executive Officer (CEO).
- There is a lack of real SMME support and local long-term job creation
Across the entire continent there is generally more politically motivated pontificating from business executives and policy makers than there are real actionable policies for SMME development. Success stories from the automotive, chemical, financial services and other industries in other regions have clearly proven that strategic sourcing can support SMME and enterprise development, the long-term creation of new industries and the empowerment of local suppliers with real jobs. With the successful support of SMMEs, (through strategically sourcing from them), the genuine long-term spread of wealth and economic activity is realised.
- Supplier selection relationship development and management that is not ‘win-win’
Buyer-supplier relationships on the continent are still adversarial and driven by short-term price gain. In contrast, strategic sourcing tends to lead to the rationalisation of the supplier base, leading to a more co-operative relationship between buyer and critical suppliers.
- Government buying power is not harnessed
Creative but legitimate ways are needed to address chronic unemployment levels on the continent. From a long-term developmental perspective, there is nothing wrong in governments setting aside a portion of the procurement budget to strategically source from local suppliers. In the short-term, smaller local suppliers (owing to a lack of economies of scale) may not be able to compete on total acquisition cost. However, in the long-term, with volume growth, it may be possible to compete.
Unfortunately, such initiatives continue to be hijacked by politically-driven empowerment initiatives and short-term self-interests. As a result, these actions stifle government efforts to create and support a new generation of local and indigenous suppliers, who are the undoubted engine for sustainable long-term growth and job creation.
- There tends to be a focus on short-term organisational interests and not on national, industry and supplier development
Unlike current ‘quick fix’ and often self-interested practices, strategic sourcing encourages the buying organisation to work with suppliers to improve long-term performance. In some cases, it has resulted in higher short-term acquisition costs. Most supply chain-driven organisations work with suppliers to develop problem solving techniques, improve quality and implement financial management, especially among emerging suppliers. Collaborations of this nature result in ‘win-win’ value chain competitiveness, lower long-term acquisition costs and an increase in shareholder value.
- Procurement is not aligned to national supply and value chain development and overall business strategy
Unlike current practices in Africa, strategic sourcing compels product and service sourcing decisions to be linked more closely with strategic and national developmental planning processes by connecting the type of product or service with the requirements of the value chain.
- Structural anomaly between finance and procurement is hampering long-term developmental goals
Sticking to the same modus operandi that creates ongoing accountability and governance challenges and expecting a different result is a sure sign of calculated negligence and possibly cowardliness. When it comes to issues of procurement, C-suite leaders and decision makers continue to stick to the same relatively failed formula and hope for a different outcome.
In these economies, governments – mainly through the Finance Ministry – have tried to manage and control the acquisition process through the implementation of internationally recommended integrated public financial management systems. The resulting procedural quagmire, coupled with accountability and governance issues, continue to leave a lot to be desired in almost all African Union affiliated countries.
It is widely agreed that under finance, acquisition decisions tend to be reduced to box-ticking processes and numbers games – which often have no direct correlation to the long-term developmental agendas of developing economies. Moreover, such financially driven systems generally fail to generate real value for money. This is largely because the systems and processes designed to oversee procurement under finance are outdated vis-a-vis current emerging world developmental objectives.
In fact, in the last five years, supervisory institutions such as the World Bank, and other forward-thinking and inclusive growth driven developmental institutions, have begun to seriously consider the structural relationship between finance and procurement and the associated conflict of interests that continue to emerge. The conflict of interest between finance and procurement cannot continue to be ignored.
Trying to balance the books, while at the same time aiming to achieve value for money, inclusive developmental objectives and short-term driven profits, all within one functional area will never work. Unless this fundamental organisational discrepancy is tackled head on by governmental decision makers and C-suite executives, hundreds of millions of USD dollar equivalents will continue to be spent on procurement related sub-systems which will not yield the desired socio-economic developmental objectives.
- Companies and governments are not leveraging the potential of bulk procurement
With information comes the opportunity to leverage total acquisition spending across locations. With volume comes strength in negotiating total acquisition cost of ownership. There is clear evidence that bulking can lead to best price, quality delivery schedules and inventory management. In some cases, savings of up to 30% can be generated over a three to five-year time frame. Agglomeration of requirements can lead to the establishment of local factories by international companies to meet local and regional demand.
- Price rather than total acquisition costs of ownership is the focus
From initial acquisition to ongoing usage and ultimate disposal there are costs associated with a product. For example, a printer may be priced at hundreds of Rands less than the competition, but may cost more if the price of consumables for the device is taken into account. Reliability issues, energy consumption, warranties, disposal issues should all come into the total acquisition cost of ownership analysis.
- Too much focus placed on the role of information systems
Although an information system plays a strategic role in sourcing decisions, most organisations see the implementation of such systems as the ultimate solution, as opposed to it being simply an implementation enabler. To date, the return on investment from enterprise-wide systems continues to be marginal or vague, especially within the public sector. Ironically, organisations and governments continue to invest in more systems without undertaking a real analysis to understand why the existing and previous systems failed to produce the desired outcome.
- Limited regional wide teamwork
With fact-based sourcing comes detailed knowledge about a product, its supplier, markets and more. Cross-functional teams are mostly employed in strategic sourcing. This eliminates ‘silo thinking’ and creates an open and collaborative culture within organisations and with external partners. Current practices on the continent generally point to the contrary with limited teamwork and collaboration.
These and other issues need to be acknowledged, understood and prioratised if public and private sector executives across Africa are to harness the power of strategic sourcing to create real change on the continent.
Douglas Boateng, Africa’s first ever appointed Professor Extraordinaire for supply and value chain management (SBL UNISA), is an International Professional certified Chartered Director and an adjunct academic. Independently recognised as one of the vertical specific global strategic thinkers on industrialization, supply and value chain governance and development, he continues to play leading academic and industrial roles in sectorial reforms both in Africa, and around the world.
He has received independent recognitions and numerous lifetime achievement awards for his extraordinary contribution to the academic and industrial advancement of supply chain management from various international organisations including the Chartered Institute of Procurement and Supply, the Commonwealth Business Council and American multi-national Hewlett Packard (HP). For more information visit www.douglasboateng.com and www.panavest.com