Crafting an effective enterprise and supplier development (ESD) strategy is a multi-dimensional process where each formulation stage informs the other.
A driving thought of developing the right strategy for a chosen supplier is finding the areas where strategic sourcing and economic development can create opportunities for inclusion. Designing a strategy can occur in three distinct phases.
Analysing the supply chain
The first phase of strategy design will focus on analysing the supply chain. This phase can be broken down into two elements, being evaluating the broader supplier market and bench-marking the supplier’s organisational procurement capability with respect to ESD demands.
This analysis will colour the lay of the land and assists in adjudicating resource allocation.
Analyse procurement spend
The next phase is analysing procurement spend through a detailed analysis. This analysis can cover three areas, particularly:
- Evaluate category strategies
- Determine dominant market incumbents
- Assess market conditions
Again, this information will feed into the overall shape of the supplier strategy, informing upon market barriers, competitors and where possible commercial opportunities lie.
Strategic sourcing plan
The third phase of ESD strategy development is a strategic sourcing plan. The strategic sourcing plan seeks to address three areas:
- Sourcing category strategy
- Potential savings
- Opportunities for inclusion
Inclusion opportunities can take the form of a ‘champion/challenger’ process, repeated several times. When identifying procurement categories, they can be done so in two ways:
- Dominant supplier risk; where single supplier reliance creates concentration risk, transferring pricing power away from buyer
- Fragmented supply risk; where many suppliers lead to large variations in quality and higher prices due to lower volumes.
In each case, a small set of promising suppliers are chosen to compete with the dominant supplier and are provided with business support to build competitiveness. Successful challengers are given an increasingly larger share of spend.
The information gathered during this process can then be used to identify a conservative range of savings, increase productivity where possible and opportunities for inclusion that would most benefit the supplier.
A point should be arrived at where each sourcing category should have applicable estimated savings and inclusion opportunities. Here, a plan can then be developed which aims to sequence the different available or identified opportunities into phases.
The approach discussed here, it should be noted, is not a pure strategic approach but one that focuses on assisting selected suppliers through financial and non-financial means. While more resource intensive, it leads to an approach that is better tailored to the business’s actual needs, nascent suppliers are given the best opportunity to compete with established incumbents on a near to equal footing and for supportive buyers to avoid making concessions on price or quality of service.
This process is also fairer on incumbents, since they are given the opportunity to compete for business as opposed to simply being replaced by a black-owned supplier.
ESD requires a long-term view
A key focus of supplier development is to assist small, medium and micro enterprises to begin participating in higher value, higher complexity functions, compared to the low value, low complexity reality they current play in.
However, it is critical to emphasise once more that fostering such change requires a long-term approach because picking suitable beneficiaries and establishing effective pathways for knowledge and resource sharing takes time.
The long-term positive impact of these initiatives beyond direct benefit of the buyer and assisted supplier can also far outweigh the effective, short term impact if the foundation laid for the supplier enables it to sustainably grow, absorb workers and create new opportunities of social mobility for directly and indirectly connected stakeholders.
Such a sea change, if expedited across a broad front and where the intentions of all parties are aligned, will help South Africa to address the structural and economic challenges being faced by large parts of the population.
To find out more about how to devise a successful ESD strategy for your organisation, contact our Economic Development team here.