FORWARD THINKING

COMPLIANCE SOLUTIONS

Preferential Procurement in SA – The New Challenge

Presentation by:

Brad Green

B1SA

APRIL 2015

American Chamber of Commerce in South Africa

• PP Overview – The Challenge

• Baseline Data and Reports

• New Code Impact – Target Adjustment

• New Code Impact – Adjusted Ratings

• Target Shortfall

• Future Procurement Practices

All analysis based on actual “benchmark” client data for the period. Our benchmark client is the aggregate of 10 Large B1SA clients.

AGENDA

Top 80% Bottom 20%

5.47%

94.53%

% Vendors

FY14

Rand Spend

All Spend (70% - 12)QSE & EME (15% - 3)

BO (12% - 3)

BWO (8% - 2)

COGPProcurement Points (Old)

All Spend (80% - 5)EME

(15% - 4)BO (40% - 9)

BWO (12% - 4)

COGPProcurement Points (New)

QSE (15% - 3)

BONUS(2% - 2)

Plus 11 Points for

Supplier

Development

BENCHMARK CLIENT PREFERENTIAL PROCUREMENT – FY14

- Baseline Data - Actual COGP

BASELINE DATA AND REPORTS

BASELINE DATA FY14

Actual Spend Percentage

Spend Number Records

Percentage by number

Average Spend Average

BEE Status

Total 9 113 688 153.98 100% 7 918 100% 1 401 459.04

Excluded 3 393 626 452.29 37% 1 626 22.5% 2 322 810.71 N/A

Included Spend 5 720 061 701.69 63% 6 292 77.5% 1 134 482.69 5.94

Included Spend 5 720 061 701.69 100% 6 292 100% 1 134 482.69 5.94

EME 271 552 114.39 5% 1 087 18% 249 817.95 3.86

Generic 4 181 749 694.67 73% 2 140 28% 1 954 088.64 4.45

QSE 688 442 475.56 12% 1 069 17% 644 006.06 3.45

Non Compliant Inclusions 578 317 417.07 10% 1 996 37% 289 738.18 10.00

BASELINE REPORT – 2007 CODES FY14

BENCHMARK CLIENT PREFERENTIAL PROCUREMENT – FY14

- Same spend- Same thresholds for EME, QSE, Generic- Same exclusions- Same underlying supplier ratings- New Code Targets assuming all suppliers are “empowering”- New Code Targets assuming only VAS suppliers are “empowering”

NEW CODE IMPACT – TARGET ADJUSTMENT

2013 CODES REPORT – FY14

BENCHMARK CLIENT PREFERENTIAL PROCUREMENT – FY14

- Same spend- Same thresholds for EME, QSE, Generic- Same exclusions- Assuming all suppliers are “empowering” - New Code Targets- Adjusting 100% BO EME’s and QSE’s to level 1 - Adjusting 51%>100% BO EME’s and QSE’s to level 2- Adjusting QSE’s <51% BO and Generics by:

- 1 Level- 2 Levels- 3 Levels- 4 Levels

NEW CODE IMPACT – ADJUSTING RATINGS

• Data and Baseline

• All clients been chasing compliance on 100% of included suppliers for over 3 years

• Average rating for compliant suppliers 3.92

• Percentage included spend value on compliant suppliers average 90%

• Non-compliant inclusions by number average 37%

• COGP average (out of 20) - 19.42

• New Code Targets and underlying ratings adjusted

• Target only adjustment New Code average (out of 25) – 13.60

• Target only adjustment New Code average VAS Only (out of 25) – 6.04

• 1 level - Average (out of 25) 11.92

• 2 levels - Average (out of 25) 10.03

• 3 levels - Average (out of 25) 8.18

• 4 levels - Average (out of 25) 6.50

SUMMARY INFORMATION

Assumptions

• Thresholds stay the same

• All suppliers are “Empowering”

• Same exclusions

• level drop for QSEs below 51% BO and Generics

• QSE and EME greater than 51% BO but less than 100% to level 2

• 100% BO EME’s and QSE’s to level 1

• No VAS or new SD enhancements

Target Shortfall

1. Note that non-compliant suppliers may change this baseline data (but not drastically based on spend)2. Strategic procurement KPI vs transformation KPI3. Supply Chain efficiencies must be introduced 4. Need to be sourcing compliance (EME, BO and BWO)5. Need to managing supplier risk

Broadening the Supplier Base (Non exclusions) - Actual Spend

Target Actual Spend ShortfallNumber of Unique

SuppliersAverage B-BBEE Adjusted Spend

Number required based on current average spend

Spend required per Point

EME (4 Points) 858 009 255.25 271 552 114.39 586 457 140.86 1

087 249 817.95 2 348 214 502 313.81

QSE (3 Points) 858 009 255.25 688 442 475.56 169 566 779.69 1

069 644 006.06 263 286 003 085.08

Black Owned (9 Points) 2 288 024 680.68 974 321 702.75 1 313 702 977.93 488 1 996 560.87 658 254 224 964.52 Black Women Owned (4

Points) 686 407 404.20 274 529 750.24 411 877 653.96 178 1 542 301.97 267 171 601 851.05

REGULATION DRIVES PRACTICE

Status 2010 2011 2012 2013 Total

1 0.9% 1.2% 1.2% 1.2% 1.1% 2 4.1% 6.4% 10.8% 9.7% 7.9% 3 11.9% 18.2% 19.3% 19.5% 17.4% 4 19.6% 22.8% 22.5% 26.5% 22.8% 5 8.4% 7.9% 9.7% 7.1% 8.4% 6 10.9% 10.1% 8.1% 6.2% 8.8% 7 2.1% 2.0% 2.2% 3.6% 2.4% 8 4.0% 5.4% 5.1% 6.9% 5.3% 9 2.1% 2.5% 3.0% 2.6% 2.6%

10 36.0% 23.6% 18.0% 16.6% 23.2% Total 100.0% 100.0% 100.0% 100.0% 100.0%

Table 8: Percentage of Procurement Spending by Year and Status with Heat Map

Year

Classification 2010 2011 2012 2013

1 0.078 0.080 0.073 0.098

2 0.178 0.151 0.166 0.178

3 0.744 0.769 0.760 0.724

Table 5c: Percent of Spending by Year and Classification (size)

FUTURE PROCUREMENT PRACTICES

1) Procurement and sourcing policies and practices will need to be aligned to the target compliance objectives. This implies a clear, documented, implemented and monitored strategy and supporting tools for:

• Targeted procurement of new suppliers that meet procurement standards supporting compliance.

• Increased spend from current suppliers that meet procurement standards supporting compliance.

• Development (SD) of suppliers to meet compliance requirements, or to meet procurement standards where they don’t currently.

2) Supplier compliance monitoring, reporting and communication strategy and tools for:

• Ensuring supplier master data and information collation requirements inform procurement and supplier development initiatives.

• Monitoring and reporting on B-BBEE preferential procurement compliance.

• Monitoring and reporting on supplier risk indicators

• Ensuring suppliers understand the transformation imperative and educating suppliers on compliance requirements.

3) Strategic Supplier Development within a robust planning and execution strategy to enhance future supply chain management, pricing preference, quality and service. Where possible, Supplier Development should also meet commercial and/or strategic imperatives.

• Integrated Procurement Solutions (sourcing, onboarding, compliance, reporting)

• Supplier information requirements outside ERP

• More efficient onboarding processes

• Centralized sources of compliant suppliers

• Detailed, accurate, and timely reporting;

• A need for uniform standards and classification of commodities;

• Standardize and validate supplier take-on , approval and management processes;

• Leverage better price and quality across businesses;

• Cost containment and efficiencies;

• Better value management;

Cost effective efficient solutions to assist and standardize to enhance the strategic objectives, introduce

efficiencies, manage risk, support transformation, but not impact on the running of business

FUTURE PROCUREMENT PRACTICES

FORWARD THINKING

COMPLIANCE SOLUTIONS

`

Thank You!

Contact: Brad Green

Tel: (011) 455 0033Fax: (011) 455 2067

Mobile: +27 82 699 1475E-mail: brad@B1SA.co.za

RECOMMENDATIONS

Supply Chain Management

Supplier Registration Network, Custom

Sourcing

Own Suppliers (set asides)

Business Directory

Tender Management

RFP

Motivation to Purchase

OnboardingBack Office

B-BBEE Validation

Procurement Checks (CIPC, VAT, Bank, Credit, Judgements, PEPS,other)

ERP/AP Integration

TransformationOwnership SED ESD Management Control Skills

Compliance Supplier Master Data

B-BBEE Compliance

ProcureCheck Supplier Risk Management

Supplier EngagementDemand Tools

Contract Management

Supplier Capability Profiling / Performance review

Gap Analysis (Business, Technical, Personal)

MIS Data StoreData Analytics

Procurement Reporting