What Does Enterprise Supplier Development (ESD) For BBBEE Involve?

Enterprise Development (ED) is and has been an area of activity where many large companies wish to effect great transformation in their supply chains for a genuine win-win. This approach and shift in thinking has seen Enterprise Development mature from a compliance issue (tick box) to one of genuine transformation among medium to large South Africa companies. The end product is called Enterprise Supplier Development (ESD), a merger between Enterprise Development and Preferential Procurement. It is described in statement 400 of the new BBBEE codes and it forms one of the three priority elements with a 40% minimum threshold. Check financing help on usfinancer.com

As 01 May 2015 draws closer and closer the number of companies seeking to get clarity on ESD in order to proactively prepare for measurement under the new BBBEE codes thereafter is increasing dramatically. Hardly, a week goes by when I do not get asked “so what exactly does BBBEE Enterprise Supplier Development involve?” It is a simple question, but the answer is anything but simple. For ESD to be strategic, sustainable, cost-effective and efficient it must involve more than just writing a cheque to a 3rd party intermediary e.g. Fund Manager or Incubator.

Personally, I recommend an upstream and downstream approach that is a combination of Customer (enterprise) Development and Supplier Development supported by access-to-funding and pinned down by a programme management plan.

However, there is no single approach to Enterprise Supplier Development (ESD). The BBBEE codes of good practice list the following as qualifying contributions that are can be recognized towards a company’s BBBEE scorecard under the ESD element:

  • Grants
  • Direct costs
  • Discounts
  • Credit facilities
  • Overhead costs
  • Preferential terms
  • Interest free loans
  • Standard loans
  • Guarantees
  • Minority investments
  • Early payments
  • Professional services
  • Time of employees
  • Etc.

The codes also apply a benefit factor matrix that ranges from 3% to 100% and require certain criterion to be satisfied for the above to count towards a company’s BBBEE scorecard i.e. 2/3/5% of NPAT or 0.75% of leviable amount.

Therefore Enterprise Supplier Development Practitioners and Empowerment Professionals must select the most appropriate approach or combination to suit their company’s BBBEE strategy and their relationship with the ESD beneficiaries that they have selected for development.There are different types of and approaches to Enterprise Supplier Development that are suitable for different sectors, areas and purposes. It is important to understand that there is no “one size fits all” and ESD projects/programmes must be tailored for relevance.

For the most part, Enterprise Supplier Development involves embracing the beneficiaries’ expertise/core offerings and aligning it to the buying/sponsoring company’s business needs and vice versa. The objectives for development can vary from relatively minor things such as slight adjustments in staffing levels to very substantial things such as the appraisal and re-launch of an entire range of critical products/services on both sides.

An Enterprise Supplier Development project might involve developing beneficiaries’ businesses such as helping them to evaluate and redesign their strategy through professional Services and an interested free loan. The purpose of this might be to align the beneficiaries closely to and on a long-term basis with the buying/sponsoring company in a strategic alliance or joint venture to access new markets for mutual benefit. Equally, there may be circumstances where it is more appropriate for the buying/sponsoring organisation to align its corporate strategy to that of the beneficiaries to better compete for certain contracts aimed at smaller companies e.g. government set asides or targeted contracts. Whatever the form of the alignment, this process may be a highly resource intensive exercise and involve for example, a steering group and various action teams each with action plans for allocated projects and formal reporting procedures against time-scales. This type of ESD is common in the construction sector.

Whether it is bolstering areas of strength or improving weak links all parties to ESD projects must share a mutual understanding, appreciation and desire to achieve the objectives of the enterprise supplier development programme.

Such programmes normally involve the principles of change management and require visible commitment from all parties’ top management teams with identifiable sponsors and champions of change. It is critical to involve people with vision, imagination and commitment to keep those involved focused and to ensure the programme is not derailed by a change in personnel, anti-transformation attitudes or passive resistance. It is also important to ensure that there is a smooth decision-making process and that, where appropriate, those involved in the enterprise supplier development projects from all organisations are empowered to make decisions.

Value management, in particular value analysis, is a key part of enterprise supplier development. It can be used to reduce the cost of a product or service without diminishing the operational value; other objectives of value analysis might include reducing time to market, improving environmental performance or improving quality. Value engineering is another aspect of enterprise supplier development used in ESD projects. It is similar to value analysis, but it takes place before a new product is finalised.

Another approach to enterprise supplier development is ‘Reverse Marketing’; one example of which is where a buying organisation encourages a supplier(s) to enter a new market. This might, for instance, involve the supplier developing its operation or introducing a new range of products competitive to the sponsoring company’s rivals.

As is evident there is more than one way to do ESD and whatever way your company chooses, it is essential to make sure it is rooted in business benefits for all parties involved and it is aligned to the spirit and letter of BBBEE codes.

For Expert ESD advice based a proven track record, extensive experience and successful case studies, contact me Nelson Sebati, Pr. EAd.

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