South Africa’s Apartheid laws employed various means of preventing non-White citizens from participating in society.
A significant area of these laws was the restrictions placed on Blacks, Indians and Coloureds from participating in the economy. By restricting the employment and entrepreneurship avenues available to these groups, the government of the time diminished their capacity to cultivate wealth and thereby power.
It is for this reason that the department of trade and industry (DTI) included ‘preferential procurement” in its broad-based BEE codes of good practice. This has led to a conscious effort by the private and public sectors to procure goods and services from companies that meet BEE requirements.
Standard Bank, a signatory of the Financial Sector Charter, says it is committed to redressing the imbalances of the past. It has established a preferential procurement policy which aims to open opportunities to individuals disadvantaged by the apartheid regime, particularly those involved in small and medium enterprises.
“By embarking on the affirmative procurement programme, Standard Bank does not only positively contribute on the support of growth and development in this country, but also progressively implements one of the important elements of the Financial Sector Charter,” the company said.
Due to the rate of transformation within its supplier base, Standard Bank has increased its procurement spend from BEE suppliers to R7.1-billion in 2009 from R4,8-billion in the previous year. In line with the Financial Sector Charter, Standard Bank intends to have 70% of controllable purchases provided by BEE suppliers by 2014.
Scoring contributions
At the beginning of 2009 Standard Bank migrated from narrow-based BEE reporting — which considered equity and management control only — to broad-based reporting to meet the requirements of the DTI generic codes. The preferential procurement pillar of the DTI generic codes sets specific targets for procurement from BEE suppliers, to ensure that BEE businesses in South Africa have access to markets. It also seeks to provide incentives for purchasing from qualifying small enterprises, exempted micro enterprises, black-owned enterprises and enterprises owned by black women.
Qualifying small enterprises that are 50% owned by black people or 30% owned by black women are automatically elevated to a higher BEE contributor level at Standard Bank. “For example, exempt micro enterprises automatically qualify as level four BEE contributors. Where these enterprises are 50% owned by black people or 30% owned by black women, their status is elevated to the next higher BEE contributor level,” the financial institution said.
Those suppliers with a BEE contribution level of five are required to provide transformation plans on how they intend to improve their BEE contribution to level four. In these instances, Standard Bank reserves the right to terminate a contract should a supplier fail to improve its BEE contribution level within the agreed timeframe. The procurement division continues to engage with non-BEE suppliers with regard to transformation, the bank says.
Not too small
The greatest improvement in Standard Bank’s procurement spend has come from its large BEE suppliers, whereas spend with qualifying black SMEs (BSMEs) has seen only marginal increases. As a result, the group has turned its focus over the past few years to increasing procurement from BSMEs. This focus has extended beyond seeking new suppliers to assisting enterprises with financing and capacity challenges to tender for contracts from large organisations such as Standard Bank.
The procurement and logistics division identifies prospective BSMEs and encourages business units to utilise their services. This initiative is aided by various business units which have adopted their own BEE procurement scorecards, which include targets to increase spending with BSMEs. A portion of their procurement budget is reserved for BEE and BSME suppliers.
Balancing the base
Another initiative within the procurement department is the decentralization of procurement. This is aimed at ensuring that provincial suppliers benefit from Standard Bank’s procurement spending while guarding against an over-concentration of spending in one region. The main objective of this approach is to identify, develop and contract with black empowered organisations in every province.
To achieve its decentralised procurement objectives, provincial operations identify products and services that can be reserved for regional procurement. The bank has implemented decentralised procurement capabilities at its provincial head offices in all nine provinces in South Africa. The decentralised procurement strategy is reviewed annually to ensure continuous improvement and efficiency gains.
Aiding and abetting
Standard Bank has included an enterprise development aspect to its preferential procurement programme. Through this, the organization offers assistance to BEE accredited companies in the financial sector and other sectors of the economy by way of skills transfer, incensecondment of staff, infrastructure support, and giving technical and administrative support and assistance.
Using supplier summits and forums, Standard Bank encourages matchmaking of BEE and traditional suppliers of similar services. Where matchmaking has been initiated for joint ventures, consortium or partnerships for BEE, Standard Bank’s supplier management team ensures sustainability of the new BEE status, assisting with funding where required through the business development department. Commodity units ensure that skills are transferred to SME in the respective areas. While outsourcing opportunities are pro-actively identified to develop new enterprises where feasible.
Another aspect of its preferential procurement-based enterprise development programme sees an after-care service being given to BEE companies who fail to win tenders with Standard Bank. This aims to ensure better competitive strength for the partner’s future of tendering. The after-care service involves advice on tendering procedures, costing and pricing, proposal formats and document professionalism. If a company qualifies as a black SME, that is, a black company with a turnover ranging from R500 000 to R20-million per annum, it can qualify on application for developmental assistance from Standard Bank.This assistance involves one or more of the following:
- 15-day payment terms
- Providing advice on tender procedures
- Introduction to business banking for funding assistance
- Offering mentoring expertise and skills transfer
- Introduction to potential partners to enhance joint ventures or BEE structured companies through Supplier Development Forums.
Standard Bank would also support existing black SMEs by considering favourable payment arrangements like advance payment. For example: an SME being given a portion of payment in advance in order to allow them to deliver efficiently. The Supply Chain department makes these decisions on a case-bycase basis.
Extending experience
As a buyer of goods and services, Standard Bank’s operations play an important role in supporting local businesses, which provides employment and drives socioeconomic development in local communities.
“In South Africa, an objective of our procurement approach is to identify, develop and support qualifying small and micro enterprises, as well as black-owned and black women-owned enterprises in every province. We have implemented decentralised procurement capabilities at all our provincial head offices. This strategy has also been applied in our African operations, in line with our procurement optimisation initiative, which aims to establish a standard procurement framework across all countries, while taking into account countryspecific regulations and circumstances,” the bank says.
The procurement optimization initiative has been successfully launched in 15 African countries outside of South Africa. Specific countries identify opportunities to improve procurement processes and ensure that spending is cost effective, well-governed and transparent.