Strategic Supply Chain Management Presentation

Welcome to

Supply Chain Strategies

Module 3

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Chapter Objectives

Learners will be able to:
• Explain the relationship between business strategies and functional strategies and the

difference between structural and infrastructural elements of the business.
• Describe the main operations and supply chain decision categories.
• Explain the concept of customer value and calculate a value index score.
• Differentiate between order winners and qualifiers and explain why this difference is

important to developing the operations and supply chain strategy for a firm.
• Discuss the concept of trade-offs and give an example.
• Define core competencies and give an example of how core competencies in the

operations and supply chain areas can be used for competitive advantage.
• Explain the importance of strategic alignment and describe the four stages of

alignment between the operations and supply chain strategy and the business strategy.

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SUPPLY CHAIN MANAGEMENT ISSUES:

ACHIEVEMENTS, CHALLENGES AND
REMEDIES

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Procurement Issues

Achievements

• In an effort to address the challenges faced by the department
implementing level where there is non-compliance to prescripts when
implementing projects, the department has to develop strategies which
includes the SCM business process in order to lead projects.

• The benefits of this will improve the compliance to prescripts and
document management for audit purposes.

• the Accounting Officer has to establish and appoint committee members
in writing to ensure governance of the structures in the form of SCM
committees).

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Achievements

• With new and improved business processes it becomes
necessary that a Memorandum of Understanding (MOU)
be signed by the department and to be reviewed in line
with any revised templates for all active contracts.

• The established committees are responsible for the
procurement of goods and services in the department.

• National Treasury conducted training for the committees
members to ensure common understanding of legislation,
technicality and empower members to be able to make
informed decisions.

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Achievement continue..

• Procurement Departments have to review the Sourcing Strategy
in order to comply with the implementation of the new
Preferential Procurement Regulations 2017, which has created a
platform and added advantage by introducing the pre-
qualification criteria which focuses on the QSE and EME
(designated groups):
Ø 44% procurement budget was spent on the qualifying small
enterprises (QSE) against the target of 15%.
Ø 31% procurement budget was spent on the emerging micro
enterprise (EME) against the target of 15%

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Procurement Issues . . .

Challenges

• Several mis-used expenditures have increased in the past years
due to the irregular contracts that continuing into the future,
until disciplinary action is taken.

• Condoning of irregular expenditure must be investigated and
brought to book immediately.

• Auditors are mainly struggling to access documents for projects
implemented due to poor record-keeping.

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Procurement Issues . . .

Remedies

• SCM Policy is to be reviewed to incorporate the new Preferential
Procurement Regulations.

• Implementation processes include conducting workshops with relevant
stakeholders (project managers, IA’s, SCM officials and Bid
Committees) to ensure uniformity in implementation of the business
process.

• The pre-qualification criteria is utilised in tenders to advance
designated groups on the basis of B-BBEE Status Level of contributor,
EME or QSE, or on the basis of sub-contracting with EMEs or QSEs
which will assist in the achievement of set targets.

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The state of Supply Chain Strategies

• Conflict of interest • Poor / non service
• Fraud delivery
• Corruption
• Dishonesty • Political profiteering
• Unethical behaviour • Plundering of state
• Lack of values
• Greedy resources
• Robbing the poor
• Poor governance

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Corruption and Procurement

• Corruption did not start in 1994 in South Africa!
• We are just living in an aggressively more

transparent and democratic country
• There is corruption in the private sector
• Not all SCM practitioners are corrupt – but those

who are impact negatively on the profession

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The Constitution & Procurement…

• … S217(1)“When an organ of state in the
national, provincial or local sphere of
government, or any other institution
identified in the national legislation,
contracts for goods or services, it must do
so in accordance with a system which is fair,
equitable, transparent, competitive and
cost-effective.”

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The Basics of Supply Chain Strategy

“SCM can be defined as an integral part of Financial
Management that seeks to introduce internationally
accepted best practice. It bridges the gap between
traditional methods of procuring goods and services
and the balance of the supply chain whilst addressing
procurement related matters that are of strategic
importance”.

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Elements of Supply Chain Management

• DEMAND MANAGEMENT ( Planning, specifying, analysis,
research)

• ACQUISITION MANAGEMENT (Management, compliance,
bid documents, criteria for evaluation and adj.)

• LOGISTICS (Stock/ inventory management, warehousing,
transport, supplier payment, vendor, performance

• DISPOSAL ( Obsolescence planning, disposal strategy)

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High level guidelines and principles for SCM

• National Treasury issued “General Procurement
Guidelines” – basis for transformation of procurement
practices within public sector –
• Enhance government’s commitment to preferential
procurement
• Assist in transformation process
• Broader understanding by all stakeholders

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High level guidelines and principles for SCM

“…These guidelines are issued by the Government,
not only as a prescription of standards of behaviour,
ethics and accountability which it requires of its public
service, but also as a statement of the Government’s
commitment to a procurement system which enables
the emergence of sustainable small, medium and
micro businesses which will add to the common
wealth of our country and the achievement of
enhanced economic and social well-being of all South
Africans” (National Treasury)

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5 Pillars of Procurement

• Proper and successful government procurement rests
upon the five pillars of procurement

• One of the pillars broken – entire system fails

PROCUREMENT PROCESS

1. 2. 3. 4. 5.
VALUE-FOR-MONEY OPEN AND ETHICS AND ACCOUNTABILITY EQUITY
EFFECTIVE FAIR DEALING
COMPETITION AND
REPORTING

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5 Pillars of Procurement

• Initial general guidelines – further supplemented by
National Treasury

• “Supply Chain Management Guidelines for
Accounting Officers/Accounting Authorities” –
February 2004 for national and provincial
departments, issued under general authority of the
PFMA

• “Supply Chain Management Guidelines for
Accounting Officers of Municipalities and Municipal
Entities” – October 2005, in line with MFMA

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Legislative Framework

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Financial Management Legislation

Constitution

S217(1)“When an organ of state in the national, provincial or local
sphere of government, or any other institution identified in the
national legislation, contracts for goods or services, it must do so
in accordance with a system which is fair, equitable,
transparent, competitive and cost-effective.”

S217(3) issues national legislation with the requirement to
prescribe a framework which provides for preferential
procurement to address social and economic imbalances of the
past.

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Financial Management Legislation

MFMA

S112(1) “The supply chain management policy of a
municipality or municipal entity must be fair, equitable,
transparent, competitive and cost-effective and
must comply with a prescribed regulatory framework
for municipal supply chain management…”

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Enabling legislation for the preferential
procurement system (PPPFA)

• PPPFA gives effect to S 217 (3) of the
Constitution

• Provides framework for implementation of
procurement policy contemplated in S
217(2) of the Constitution

• Provide for matters connected therewith

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Enabling legislation for the preferential
procurement system (PPPFA)

• Promulgation and implementation of PPPFA and regulations
were followed by the publication of a “Broad Based Black
Economic Empowerment Bill” and supporting strategy

• Basis on which amendments to the Preferential Procurement
Regulations were to be undertaken.

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The 4 BBBEE principles

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Role-players, functions and support
structures in SCM

• The points below reflect the high level responsibilities of
some of the key-role players in SCM

• NATIONAL TREASURY

– Monitor implementation of SCM in all spheres of government
– Develop policies, procedures and practice notes/circulars to assist

the three spheres of government in achieving the broader policy
objectives as set out in the PFMA/MFMA and further legislation

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Role-players, functions and support
structures in SCM

• PROVINCIAL TREASURY

– Promote co-operative government among role-players
– Assist NT by monitoring delegated municipalities in terms of

compliance to National and Provincial Treasury norms and
standards
– Measure improvements in supply chain performance
– Set complementary standards
– Monitor and publish reports by municipalities and share
information
– Take intervention measures for breach of the act by a municipality

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Role-players, functions and support
structures in SCM

• MUNICIPAL COUNCIL AND COUNCILLORS

– Provide political leadership and direction to a municipality’s
operation through policy and oversight responsibilities

– Oversee financial management and service delivery of a
municipality

– Approve the SCM policy for a municipality
– Monitor and evaluate SCM implementation process through regular

reporting to political structures.

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Role-players, functions and support
structures in SCM

• ACCOUNTING OFFICER
– Implementation of SCM system
– Establish a SCM unit within the CFO’s structure with the necessary
delegations.
– Develop SCM policies and procedures in accordance with national and
provincial guidelines and directives
– Establish the necessary SCM Committees with clear delegations and
responsibilities
– Ensure that adequate controls are in place to prevent over- or
under-expenditure
– Ensure efficient anti-corruption and anti-fraud mechanisms are
implemented
– Contribute towards local economic development, SMME development and
BBBEE through targeted procurement spending
– Report to National Treasury/Provincial Treasury on SCM implementation

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Financial Governance Framework

Council Responsible for: Oversight Accountable
over: to:
Approving policy, budget
and budget-related plans Mayor Community

Mayor Policy, budgets, Municipal Manager Council
outcomes, policy and
Municipal management oversight Administration Mayor; council
Manager (MM) over MM Financial Municipal
Chief Financial Outputs and Management Manager
Officer (CFO) implementation

Outputs

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Supply Chain Management Units

• SCM Units required to be established within
all organisations

• Where possible, units must operate under
Chief Financial Officer or an official to
whom this duty has been delegated in
terms of S79, 82 and 106 of the MFMA

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Committee System for Competitive Bids

• The following committees are required to
be established in terms of the SCM
guidelines:

– Bid Specification Committee
– Bid Evaluation Committee
– Bid Adjudication Committee

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Committee System for Competitive Bids

BID EVALUATION COMMITTEE (BEC)

COMMITTEE ROLE KEY CONSIDERATIONS

•Evaluate bids received in accordance In addition to the specifications and
with specifications and the points the points scoring, the BEC must
system (Preferential Procurement assess:
Regulations)
•Each bidder’s ability to execute the
contract;
•Whether municipal rates and taxes and
municipal service charges are not in arrears;
•Consult National Treasury’s Register for
tender/bid defaulters before making any
recommendations.

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Committee System for Competitive Bids

BID EVALUATION COMMITTEE (BEC) cont.

COMMITTEE COMPOSITION KEY CONSIDERATIONS

•Cross-functional team comprising •Check with NT’s database that the
at least one SCM practitioner and recommended bidder is not prohibited/
officials from the department restricted from doing business with the
requiring the goods and/or services. public sector. (Verification will be sent
within 2 days of forwarding the details of
the contractor to
[email protected].)

•Submit a report with
recommendations regarding the
awarding of the bid or any other related
matter to the Bid Adjudication
Committee.

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Committee System for Competitive Bids

BID EVALUATION COMMITTEE (BEC) cont.
PANEL
•A panel comprised of experts will
evaluate the functionality portion of
bids for the appointment of
consultants.

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Committee System for Competitive Bids

BID ADJUDICATION COMMITTEE (BAC)

COMMITTEE ROLE KEY CONSIDERATIONS

•Must consider the The BAC must ensure that:
recommendations and reports from •All necessary bid documentation has
the Bid Evaluation Committee and been submitted;
either (depending on the official •Disqualifications are justified and valid
written delegations): and accountable reasons/motivations
were furnished for passing over of bids;
•make the final award; •Scoring has been fair, consistent and
correctly calculated and applied;
•make a recommendation to the AO •Bidders’ declarations of interest have
to make the final award; or been taken into account;
•Any other relevant facts which could
•make another recommendation to affect the awarding of a contract.
the AO on how to proceed with the
relevant procurement

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Committee System for Competitive Bids

PLEASE NOTE:

• Neither a member of a Bid Evaluation committee,
nor an advisor or person assisting the Evaluation
Committee may be a member of a Bid adjudication
Committee may, at any stage of the bidding process,
refer any recommendation made by the BEC or the
BAC back to that committee for reconsideration of the
recommendation.

• No municipal councillor or public sector official should
be allowed to do business with the State.

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Supply Chain Management Policy

S111 of the MFMA is very specific in the requirements of a
Supply Chain Management Policy (SCMP) within a
municipality and gives Effect to S217 of the Constitution. The
SCMP must”

• be fair, equitable, transparent, competitive and cost-effective;
• comply with the regulatory framework for municipal supply chain

management;
• be consistent with other applicable legislation and with the

national economic policy concerning the promotion of
investments and doing business in the public sector;
• not undermine the objective of uniformity in SCM systems
between organs of state in other spheres;

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Delegation of Supply Chain Management
Powers & Duties

CONTRACT AMOUNT(VAT SUB-DELEGATIONS ALLOWED
INCLUDED)

Above R10 million May not be sub-delegated by an Accounting Officer

Above R2 million, but not May be sub-delegated but only to:
exceeding R10 million •Chief Financial Officer (CFO)
Not exceeding R2 million •A senior manager; or
•A Bid Adjudication Committee (BAC) of which the CFO or
senior manager is a member.

May be sub-delegated but only to:
•Chief Financial Officer (CFO)
•A senior manager; or
•A manager directly accountable to the CFO or senior manager;
or
•A BAC not including the CFO or senior manager.

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Ethics & Code of Conduct in SCM

“Corruption and maladministration are inconsistent with
the rule of law and the fundamental values of our
Constitution. They undermine the constitutional
commitment to human dignity, the achievement of
equality and the advancement of human rights and
freedoms. They are the antithesis of the open,

accountable, democratic government required by the
Constitution. If allowed to go unchecked and unpunished
they will pose a serious threat to our democratic state".

Former President of the SA Constitutional Court (Judge Arthur
Chaskalson), 2000

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Combating Abuse of the SCM System

It is the responsibility of the AO, through the SCMP to
provide measures:

• To take reasonable steps to prevent abuse of the SCM
system;

• To investigate all allegations against an official or other role-
player of fraud, corruption, favouritism, unfair or irregular
practices or failure to comply with the SCMP and where
justified
– Take appropriate steps against such official or role-player;
– Report any alleged criminal conduct to SAPS;

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Improving the Supply Chain

• Capacity building • National “clean SCM
• Whistleblowing campaign”
• Recognition of honest SCM
• Special VUNA award
staff • Professional body of SCM
• More management
practitioners
vigilance • Web-based forums
• Street-wise internal audit • Resource centre
• More visible public • Benchmarking
• Share best practices
protector • Political will
• Create a culture of pride

and professionalism

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Business Elements

Structural Infrastructural
(Tangible) (Intangible)

– Buildings § People
– Equipment § Policies
– Computer systems § Decision rules
– Other capital assets § Organizational

structure

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Definitions

• Strategies - The mechanisms by which businesses

coordinate their decisions regarding their structural and
infrastructural elements.

• Mission Statement - Explains why an organization

exists and what is important to the organization (its core
values) and identifies the organization’s domain.

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Definitions

• Business Strategy - The strategy that identifies a

firm’s targeted customers and sets time frames and
performance objectives for the business.

• Functional Strategy - A strategy that translates a

business strategy into specific functional areas.

• Core Competency - An organizational strength or

ability that customers find valuable and competitors find
difficult or impossible to copy.

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A Top-Down Model of Strategy

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Operations and Supply Chain Strategies

The operations and supply chain strategy is a functional
strategy that indicates how the structural and
infrastructural elements within the operations and supply
chain areas will be acquired and developed to support the
overall business strategy.

– What mix of structural and infrastructural elements ?
– Is the mix aligned with the business strategy?
– Does it support the development of core competencies?

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Functional Strategy

• Translates the business strategy into
functional terms.

• Assures coordination with other areas.
• Provides direction and guidance for

operations and supply chain decisions.

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Finance Key Interactions Human
Resources
Budgeting. MIS
Analysis. Skills? Training?
Funds. What IT solutions # of employees?
to make it all work
together? Marketing

Design Supply Chain and What products?
Operations What volumes?
Sustainability. Costs? Quality?
Quality. Delivery?
Manufacturability.

Accounting

Performance measurement systems.
Planning and control.

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Decisions Guided by the Structural Strategy

Capacity

– Amount, Type, Timing

Facilities

– Services/Manufacturing, Warehouses, Distribution hubs
– Size, location, degree of specialization

Technology

– Services/Manufacturing, Material handling equipment,
Transportation equipment, Information systems

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Decisions Guided by the Infrastructural Strategy

Organization
– Structure, Control/reward systems, Workforce decisions

Sourcing/Purchasing
– Sourcing strategies, Supplier selection, Supplier performance
measurement

Planning and Control
– Forecasting, Tactical planning, Inventory management, Production
planning and control

Business Processes and Quality Management
– Six Sigma, Continuous improvement, Statistical process control

Product and service development
– The developmental process, Organizational and supplier roles

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Customer Value

• Value Analysis - A process for assessing the value of

a product or service.

• Value Index - A measure that uses the performance

and importance scores for various dimensions of
performance for an item or a service to calculate a score
that indicates the overall value of an item or a service to a
customer.

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