Eskom Procurement Book 2015

SUPPLIER RELATIONSHIP MANAGEMENT

Supplier development also promotes continuous improvement as buyers work with key suppliers to improve the supplier’s performance and define a roadmap with actions leading to improved processes and outcomes. Despite the fact that supplier development requires a substantial injection of funds, it should have a direct financial benefit once it is put in place. Building leading practices and indicators into the supply base helps to unlock substantial value and cost reduction. In the retail industry, for example, a typical Return on Investment (ROI) of up to five times within one year can be achieved by investing in supplier development programmes. Furthermore, these savings can be sustained on an ongoing basis [20]. Supplier development schemes can facilitate a reduction in the supplier’s operational and financial risks, especially those related to the buyer’s increasing dependence on its key suppliers, supplier quality issues, supply shortage issues and unanticipated price volatility. Increased responsiveness to customer needs and market dynamics should also be a direct outcome from supplier development. Supplier development facilitates the entrenchment of a quality culture in the supplier organisation, making sure that quality is factored into the process, and helping buying organisations to move towards supplier independence. In some cases, buying organisations can typically achieve 1 015% of First Pass Yield (FPY) improvements in retail, and 30-40% improvement in first pass part approval rate in the industrial equipment industry [20]. Supplier development initiatives should also result in improved collaboration between clients and their suppliers as well as efficient and effective use of resources by adopting lean practices. Removing waste across the whole supply chain helps to make it ‘lean’ and ‘green’. In the global fashion retail industry, for example, marker utilisation can typically be improved by 3-4% by making appropriate adjustments in width and length, end losses, etc. This will save a significant amount of fabric that would otherwise have gone to waste [20]. Understanding the risks/barriers and benefits of supplier development is useful to supply management practitioners as it enables them to measure the effectiveness of supplier development programmes by assessing the benefits against the risks. Black Business Supplier Development (BBSDP) is a programme that was initiated by the SouthAfrican Government under the auspices of the World Bank and taken over by the Department of Trade and Industry in 2002. An offshoot of the Black Economic Empowerment Programme (BEE), BBSDP is a financial incentive scheme meant to assist small enterprises that are owned by black people in the country [21].

5.6.4 BLACK BUSINESS SUPPLIER DEVELOPMENT (BBSDP)

113 CHAPTER 5