I was recently asked by one of my JSE listed clients to conduct some research on Enterprise Supplier Development (ESD) strategies. My client, like many other big businesses in South Africa is currently endeavouring to initiate this strategy within their supplier base in order to comply with the revised B-BBEE Act and Codes of good practice.
Having spent a few days with me in ESD workshops the company now knows that Black-owned suppliers of critical goods and services can provide major competitive benefits in the form of lower costs, improved quality, on-time delivery, technological innovation and customer service. And as the company seeks to expand its business activities, they have realised the importance of bringing with them a capable and diverse supplier base that can support these expansion initiatives into new markets and businesses, as well as drive costs out of the supply chain.
Though mostly desktop, my research results indicate that:
- Enterprise Supplier Development strategies can result in significant improvements in supplier performance, including reducing product defects by 5 – 90%, improving on-time delivery by 6 -15%, reducing order fulfilment cycle time by 30 – 80% and improving product performance by 10 – 30%;
- Not all Enterprise Supplier Development initiatives are successful – in fact, as many as 50% are not successful, due to poor implementation and follow-up;
- Most companies engage in reactive Enterprise Supplier Development approaches which address sporadic problems, as opposed to strategic Enterprise Supplier Development approaches which address continuous improvement of the entire supply base;
- Approaches to Enterprise Supplier Development include rewarding performance (“The Carrot”), penalising poor performance (“The Stick”), on-going detailed assessment and feedback (“Measurement”) and direct involvement in suppliers’ operations (“Hands-On Approach”);
- As to which approach is most effective, my research suggests that a combination of approaches may be appropriate under different circumstances, depending on the nature of the supplier, the type of commodity and the management team at the supplier.
Based on the research data and the complexity of the Enterprise Supplier Development process, a partnership that follows a formalised, but customisable approach and implementation model to positively impact the long-term improvement of a specific industry cluster supply chains is fundamental.
For Expert assistance in Developing, activating, implementing and reporting on customised ESD strategies contact me on 073 880 2947.