Supplier Development (SD) is often regarded as a compliance element born out of the     B-BBEE Codes of Good Practice, with some businesses considering it a “grudge-purchase” that disturbs their daily operations. However, many companies run SD initiatives and get very clear Returns On Investment.

“SD programmes can be an effective strategy to improve a company’s service to their clients, and to save or make money by investing in their value chain and in companies that complement their own,” states Petra Rees, Managing Director of Lean Enterprise Acceleration Programmes (LEAP), specialists in ESD strategies and implementation, and a subsidiary of the PLP Group. “This is why it is imperative that companies in South Africa start viewing SD through world’s best practice glasses and not just B-BBEE spectacles.”

A good way to start reaping benefits from SD is by using localisation strategies when designing and implementing a specific initiative. But when it comes to establishing what is “local” enough in terms of suppliers, is being South African enough, or do suppliers need to be within a certain radius of the location of the factory or business? While there is no clear rule, the decision should be based on what makes business sense. There are a number of industries where localisation, as part of the company’s SD strategy, is more critical than in others, such as the manufacturing, mining, ICT, food retailers and tourism industries.

“Take the example of a factory, where it makes perfect sense to find suppliers within a 50km radius because of the cost savings that can be achieved in transport or holding stock. For other businesses, however, working with a South African supplier may result in hedging costs in terms of foreign exchange exposure if dealing with suppliers locally and not overseas,” explains Rees. “The reason for addressing localisation may be different from one organisation to the next, but the business case for doing so is often compelling.” An organisation may choose to invest time, money and other resources to develop new and better suppliers for their local operations, or it may develop franchises to sell their products in new markets. Ultimately, the investment should be made to either optimise the business operations or to grow the business with suppliers that complement a sales strategy.

According to Rees, “At this point one needs to add the B-BBEE parameters to an SD strategy to ensure it is aligned with the B-BBEE Codes of Good Practise. The key to achieving meaningful impact in localisation SD strategies, is to set clear objectives and targets and to align those to the Codes.”

Local value chains have a strong basis in sustainable business practices, as they encourage a circular economy and a more resilient business ecosystem. “Because ESD is a requirement of the B-BBEE Codes in South Africa, it is also a great testing ground to refine localisation strategies that can be implemented elsewhere,” concludes Rees.