Gary Joseph – CEO, South African Supplier Diversity Council (SASDC)
Gary Joseph, CEO of the South African Supplier Diversity Council (SASDC), charts the development of the organization over the past five years, their mandate to promote sustainable supplier diversity through targeted procurement reforms, and their initiatives geared at educating the corporate sector on the business case for supplier diversity, as well as linking small businesses with corporate customers.
Gary, having been with SASDC since its establishment in 2012, could you give us an introduction to SASDC’s mandate?
“The corporate culture here still tends to be steeped in short-termism. Transformation is a long-term journey, not a short-term project.”
In South Africa, the sector transformation legislation hit the mining and liquid fuels sectors first with the promulgation of the Mineral and Petroleum Resources Development Act (MPRDA), and subsequently the Mining and Liquid Fuels Charters, with private sector players committing to driving the transformation of profitable business. The intent of transformation is to redress past inequalities through the philosophy of the Broad-Based Black Economic Empowerment (BBBEE) act. My background is in mining and I had previously worked at De Beers to transform our procurement spend where we leveraged conventional supply chain strategies to drive transformation as part of our decision-making.
SASDC was actually an initiative spun out of the National Business Initiative (NBI) because the organization realized that corporate procurement activities were effectively driving targeted and preferential procurement, but insufficient investment was being made in terms of actually changing fundamental business strategies with the inclusion of competitive supplier development. In joining SASDC, I wanted to see how I could play a role in establishing an organization that can drive the changes in behavior and business strategies necessary for successful transformation – moving transformation from being a peripheral business activity to being an integral part of company strategy.
With funding from the US Agency for International Development (USAID) and the technical assistance of the US-based National Minority Supplier Development Council (NMSDC), we established SASDC as a corporate-led organization with a focus on supporting the private sector in proactively driving the transformation agenda through supplier diversity as part and parcel of a sound business model.
Fundamentally, supplier diversity needs to be grounded on a robust business case. The task for us is to understand what that is to each individual company – and to support our members in changing their procurement systems and philosophies accordingly. For instance, if your skillsets and resources and systems are not adapted to buying from small businesses, no matter how hard you try, you will not make the impact that you could.
What are the issues associated with supplier diversity – and how is it relevant to the South African context?
The concept of supplier diversity as a supply chain strategy makes a lot of sense within the context of South Africa, which has seen significant change within its economy since apartheid-era sanctions were lifted in the 1990s. South African companies found themselves needing to adopt best practices and compete with international players, and one way was to leverage their buying power through the aggregation of procurement spend, and optimizing that spend through a consolidated supplier base of strategic partners that represent the bulk of their supply chain requirements. This trend conflicts with the transformation environment.
Local community economies face structural challenges associated with economies of scale, even if we disregard transformation legacy issues. Smaller economies mean lower buying power, restricted skill sets, limited market access, and so on. Supplier development is a key element of helping those businesses overcome these constraints and to compete against other players, perhaps larger international companies with more established processes and appropriate scale to meet demand.
The concept of supplier diversity made sense as an applicable strategy for supply chain strategy itself in the context of South Africa. Compliance-based interventions are minimalistic – compliance prescribes minimal requirements, so why would you drive anything beyond that – unless there is a business case for it?
Globally, looking at good corporate governance and how decisions are made, companies now need to communicate their social conscience through concrete reforms of their governance processes and business strategies. If we want to compete as a country, we cannot implement country-specific solutions. If South Africa is to play a role to support Africa’s development, we need to be driving socio-economic transformation strategies that are part of the DNA of our organizations.
How do these topics play out with the oil and gas sector?
These issues are particularly relevant to the extractive industries – not only because mineral resources are usually found in isolated, rural communities, but also because of their technology- and capital-intensive nature, which is inherently not conducive to the growth of small businesses. At the same time, the South African sector cannot lower standards when the global industry is continuing to push standards higher, and when margins are already so low within the regulated liquid fuels environment here. Notwithstanding these exogenous issues, local communities have the reasonable expectations that they should directly benefit from the economic activity and natural resources on their doorstep.
Through our strategic partnership with NMSDC in the US, we have seen that the majority of the best practice reforms in the US have been driven by the energy sector – and in fact, one of the most successful NMSDC regional councils is in Houston, Texas, the hub of the US energy sector. A key reason is that the energy sector recognizes the changing US demographics. Today’s minority groups are going to become the major consumer groups of the future – and the consumer at the end of the value chain is what ultimately drives businesses. Leveraging your supply chain to support the economic well-being of the future majority consumer – thereby ensuring a growing consumer base – is essential.
This is something that South Africa needs to be cognizant of. The current tax base is small because a major demographic group does not yet have the economic capabilities to participate fully within the marketplace. To take one example, the majority of first-time car buyers today are black people, as a result of the emerging black middle class. They have different consumption patterns and expectations.
How advanced would you say is the current understanding of the business case for supplier diversity within South Africa?
Not enough! The corporate culture here still tends to be steeped in short-termism. Transformation is a long-term journey, not a short-term project. The business case may be obvious but because it requires a long-term view, it is not treated as urgent. The current transformation culture here is still very compliance-base and political, with a lack of adequate foresight and inclusion at the corporate strategy level.
We have however seen such compliance pressures generate results because industry leaders have put pressure on their Tier One suppliers to demonstrate concrete support of the transformation agenda. This then cascades down through the entire supply chain. However, with recent political developments, there have been some negative associations attached to transformation, resulting in some people questioning the integrity of the legislation, as it is seen to have advanced the selfish agenda of a few individuals. In addition, the recent political uncertainty has exacerbated the issue of short-term thinking. Many companies are undertaking a significant amount of scenario planning in anticipation of the ANC Elective Conference in December.
Part of SASDC’s role is also to work on the supply side to develop local businesses. What are some programs or initiatives you can highlight here?
Some of the other supplier diversity councils globally are focused on the verification of the beneficiaries-status of small businesses, but our legislation already provides for Verification Agents, approved and mandated by the South African National Accreditation System, to do these verifications and issue B-BBEE certificates. Our value proposition is to go a step further and build a gateway for these businesses to access corporate procurement opportunities.
The biggest cost of business in South Africa is compliance; so much assurance is undertaken here. Therefore, we conduct the due diligence required within the corporate procurement space before they engage with suppliers – this goes beyond simply verifying that our beneficiaries are black-owned, black-managed and black-controlled businesses, but evaluating the maturity, capabilities and risk profile of these companies. We do this through a proprietary methodology approved by our corporate members.
There seems to be a prevalent attitude that entrepreneurship can be a substitute for employment. You have many people starting businesses because they cannot find a job, even if they do not understand business principles or have the right skills. When we certify our suppliers, we differentiate them. The assurance is that we have verified their credentials, not just on paper, but physically: we do a physical on-site verification, interview the decision-makers and the owners and do a walkabout on the premises to evaluate the capabilities and maturity of those businesses. We then present the evidence gathered and observations to our Board-mandated Certification Committee, comprised of representatives from our corporate member base.
We also help corporates identify suitable opportunities for small businesses. Large value contracts could be divided into smaller contract opportunities and ring-fenced in a way that makes sense to both parties. Such activities also drive increased competition as major suppliers are now being tested on the commercial astuteness of their products and pricing through the offerings of new potential partners! This is another benefit as evergreen contracts are rather prevalent here, and so trap a lot of potential commercial value. Corporate members also need to better understand the small businesses that exist out there! If you are looking to find black-owned supplier like BP in South Africa for instance, you will not find them – they do not exist.
Innovation and out-of-the-box thinking is required to match demand with supplier in the transformation space. Gratifyingly, we are starting to see increasing success in terms of matching buyers with suppliers. Every opportunity is different so everything needs to be tailored to a company’s needs.
We create opportunities for small businesses to meet corporate buyers, and start building those relationships that will form the trust base for a future commercial relationship. We also discuss how they can leverage their buying power as smaller players.
Looking ahead, what are your strategic priorities for the future?
We need to disrupt the transformation space because the status quo is not driving the socio-economic improvements that we need. As a non-profit, we are also mission-based and the majority of players within this space are privately-owned so we have to be disruptive not just for our own sustainability but to drive higher standards of service within this space.
Our focus in the future will be on growth – growth that will help to bridge the divide between government objectives and government procurement, for better collaboration with the private sector. Governments are typically restricted from being able to invest in the development of their own suppliers because of the need for transparency and open procurement processes. Supplier development then depends on the private sector, who needs to create the strong and inclusive value chains that the public sector procurement (and therefore service delivery) can benefit from.
Another priority is greater visibility. Supplier diversity – and supplier development – is still not well-understood concepts. Many people mistake it for being a transformation issue but it is in fact a critical success factor for any supply chain strategy within an organization.