With the Department of Trade and Industry’s (DTI’s) revised broad-based black economic-empowerment (BBBEE) codes deadline drawing closer, entities need to proactively prepare their supply chains by defining strategies to integrate the BBBEE requirements into their supplier selection and management processes, says consulting firm Deloitte supply chain management senior manager Khutso Sekgota.
In October 2013, the DTI disseminated the revised BBBEE codes. The objective of the codes is to advance economic transformation and promote the economic participation of black people in the South African economy. Entities impacted on by these codes were given a period of 18 months to prepare and put strategies in place as a proactive response to the revised code.
“In our experience in dealing with a number of clients across various industries, we have realised that many established entities that have been operating under the old codes are aware of the implications of the new codes and understand what is needed to address their requirements. However, the area of enterprise and supplier development (ESD) still remains a challenge,” states Sekgota.
He adds that, with the revised codes, two of the old BBBEE measurement elements – preferential procurement and enterprise developent – have been merged to form the ESD element, which sets out the requirements for increased promotion of black-owned and black-women-owned suppliers, increased local procurement, job creation, raw material benefication and skills development outside the measured entity.
As a result, the codes define ‘black-owned’ as 51% ownership under the control of black people and ‘black-women-owned’ as 30% ownership held by black women.
Moreover, the new codes have a preferential procurement component of the ESD element making up 25 points, plus two additional points where designated groups are being developed, while 13 of the 25 points are dedicated to procurement with black-owned and black-women-owned entities.
“The fundamental reason why many entities will find it difficult to comply with ESD is due to the entity’s dependence on their suppliers’ BBBEE rating and black ownership patterns. The codes encourage preference to be given to suppliers who are compliant on both the BBBEE rating and black ownership. Entities that procure from non-black-owned and poorly rated suppliers will score poorly in ESD, which will, in turn, negatively impact on the entity’s overall BBBEE rating,” explains Sekgota.
He also notes that entities risk further downgrades if they do not achieve 40% or more of the ESD compliance targets – that is, equal to or more than 10 of 25 points.
However, Sekgota explains that if organisations that integrate their ESD strategies with global supply chain management best practices, such as strategic sourcing and supplier relationship management practices, they will be able to yield the best value while achieving BBBEE compliance.
“The process of developing a sound ESD strategy requires that entities apply an analytics-based assessment of their readiness to comply with the ESD requirements as set out in the revised BBBEE codes. Coupled with the analytics-based assessment, entities should review the frameworks used in evaluating and adjudicating suppliers,” he highlights.
He further notes that integrating BBBEE into the standardised supplier evaluation framework means that the entities can harmonise and standardise not just the BBBEE response within their organisation, but will also be enabled to realise increased value from suppliers in all crucial dimensions of the organisation. This approach will ensure that organisations integrate sustainable development practices into their supply chain environment.