Kevin Jacoby Chief Financial Officer City of Cape Town South Africa Enhancing Sustainability and Profitability for Utility Businesses through Effective & Efficient Supply Chain Management Kevin Jacoby Chief Financial Officer City of Cape Town South Africa

Overview Supply Chain Management (SCM) vs Procurement SCM as a tool for utility businesses Future developments in the SCM field Enhancing profitability through SCM Enhancing sustainability through SCM

SCM vs Procurement SCM: the planning and management of all activities involved in sourcing, procurement, conversion, logistics and disposal management Integrating activities that procure materials and services, transform them into intermediate goods and the final product, and deliver them to customers  The key goal: to respond to uncertainty in customer demand without creating costly excess inventory Although some people use supply chain, procurement and sourcing interchangeably, they actually refer to different aspects of the same part of business. SCM takes procurement outside the usual buyer role to a role that expands to include the management of functions that were separate in the past. These functions could be internal logistics, inventory management, warehousing and other functions that are related to pre-production side of the supply chain. This expended role leads to the term Supply Chain Management (where the whole chain of functions become integrated and managed together). SCM encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management. In essence, Supply-chain management is the integration of the activities that procure materials and services, transform them into intermediate goods and the final product, and deliver them to customers. The key goal of SCM is to respond to uncertainty in customer demand without creating costly excess inventory.

SCM vs Procurement (2) Procurement: managing all aspects related to inputs to an organization i.e. procuring goods, materials and services Procurement is a sub-set of SCM SCM includes: Planning, Vendor Management, Tenders And Contract Administration, Orders/Acquisition, Inventory And Stores Management, Disposal Management Procurement is subset of Supply Chain Management. Procurement deals with managing all aspects related to inputs to an organization i.e. procuring goods, materials and services. SCM draws heavily from the areas of operations management, logistics, procurement and information technology and strives for an integrated approach. In South Africa, the SCM function at local government level and within any State Owned Company (or service utility) is strictly legislated. This legislation identifies Demand Management, Acquisition Management, Logistics Management and even goes as far as the DISPOSAL of goods too – so when an obsolete or broken item is found during a stock-take, or if goods are no longer useful or have reached the end of their productive life, the disposal is also managed by SCM.

SCM as a tool for utility businesses SCM Policy aligned to applicable legislation – Authorised process (approved by Board or relevant higher authority) Gives clear direction - can be supported by SOP Must be reviewed regularly – taking into account: changes in legislation, outcome of court cases, new developments, etc Delegations support the Policy, clearly allocating responsibility from the accountable party 1. SCM Policy A Board or Council approved SCM Policy that is written and understood by all parties gives authority or weight to the procedures followed It allows for all parties to know and understand the procedures that should be followed (which could be further described in a Standard Operating Procedures Manual) It is a LIVING document that needs to be updated regularly taking into consideration any supporting information 2. Delegations Delegations must support the policy and align with the roles and responsibilities outlined in the Policy and the SOP Overall there must be someone who is accountable Delegations only transfer RESPONSIBILITY

SCM as a tool for utility businesses (2) Can extract Value-for-Money: transparent competitive processes implemented with due care can result in cost savings Only do business with those who do not owe any money to the utility Clear and understandable specifications that do not “prescribe” a single product Conducting a due diligence on the financial affairs of a company can identify cash flow weaknesses or capacity problems which can be taken into consideration when awarding tenders

While not being specifically relevant to the entities being spoken to, these examples show how bad tender specifications can lead to unwanted outcomes – at huge expense!

SCM as a tool for utility businesses (3) 4. Minimise Abuse: Preventative controls built in to: Combat fraud, corruption, favouritism and unfair and irregular practices; Blacklist vendors or implement other sanctions; Report on the performance of contractors/vendors 5. Ethical Standards set for SCM officials & stakeholders 6. Minimum Competency Standards/Skills sets

SCM as a tool for utility businesses (4) Data: SCM is data-rich dependent Vendor database can be established to enhance market coverage Tenderer’s information can be compared to current service provision information Limitations of trade (such as trade with an employee of the State) can be compared against database of employees Employees declarations of interest can be verified against vendor information – etc

SCM as a tool for utility businesses (5) Oversight Responsibilities Accounting Officer / CEO overall accountable for SCM Independent party for handling disputes – e.g. Company Secretary, Legal Advisor

Current and future developments in SCM Facilitate social or economic imperatives E.g. Green Economy; BBBEE; encourage joint ventures with SMME’s; enhance employment through labour-rich processes, etc Demand management Ensures resources required to support strategic operational commitments are delivered at the correct time, at the right price, at the right location, in the right quantity and at a pre-determined or specified quality Determines quantities and timing of demands on tenders & orders

Current and future developments in SCM (2) E-procurement To manage tender submission volumes Improve SCM compliance Aid transparency Promote accuracy of information Speed up tender evaluations and awards

Enhancing profitability through SCM Competitive processes: Tenders; quotations, auctions and other competitive bidding processes Promotes competitive behaviour and enhances value for money Minimizes single sources and getting locked into a single supplier product Cost-effective: Significant data commonality and versatility enhancing all revenue collection actions Comply with legislation/prescribed regulatory framework

Enhancing sustainability through SCM Fair: open and transparent procedures including pre-qualification processes Equitable: clearly identify when an entity may or must use a particular process Flexible: when value is below a prescribed amount, use simpler processes Transparent: procedures and mechanisms set out for each particular process including opening, registering and recording bids

Thank you Dankie Enkosi Any Questions?