Determinants of
Date
2011-06-23
Authors
van Breda, Dave
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Abstract
The aim of the research was to discover the determinants of Procurement
Service Provider (PSP) design and utilisation within a South African
context. The first stage was to identify these constructs from both the
literature and from a panel of experts utilising the Delphi technique, and
then to build a model that took all of the inter-relationships of these
constructs into account.
Whilst the majority of the constructs unearthed could be applied universally,
the one key area of differentiation within the South African procurement
environment is Broad-Based Black Economic Empowerment (BBBEE), and
the proposed Preferential Procurement (PP) legislation in particular. The
experts were questioned on their perception of the impact of the proposed
legislation on procurement, with the aim of determining whether or not the
design of a South African PSP would need to differ substantially from those
in the United States and Europe.
The feedback from the experts painted a rather pessimistic view of the
effects of Preferential Procurement legislation on companies attempting to
develop world-class procurement operations. They overwhelmingly agreed
in Round One that costs would increase as would procurement and
sourcing cycle times, and that there would be a reduction in control over
cost, quality and delivery. With further analysis and clarity, Round Two’s
results showed that the experts largely agreed on several other effects of
the proposed BBBEE legislation. They felt that sustainable cost control,
speed to market, risk reduction and reduced administrative and
transactional costs would all be negatively affected.
However, other results emerged from the Delphi panel that considerably
affected the overall impact of the legislation. The experts agreed that the
legislation was complex to understand and implement, and that due to the
III
importance of compliance, companies would be encouraged to centralise
their procurement decision making. Top management would have to
become aware of the increasing commercial impact of procurement and
elevate the strategic status of the function to not only attain compliance to
the BBBEE legislation, but to derive competitive advantage out of it.
Having populated the Fuzzy Cognitive Mapping (FCM) model with all the
constructs from the literature as well as the BBBEE legislation construct,
with all of their inter-relationships drawn from the literature and the panel of
experts, the researcher ran the model. In many cases the results were
opposite to what the experts had stated. The strength of the model is that it
has the ability to take all of the inter-relationships of every construct in the
model with every other construct into account. The experts were viewing
the impact of the proposed BBBEE legislation on each construct
individually. What this did was ignore the spiralling affect that is created by
the myriad of factors other than BBBEE legislation that impact
procurement.
Having seen the outcome of the model 85 percent of the expert panel
accepted that they had underestimated the impact of the increased
strategic focus on procurement by top management and the powerful chain
reaction it creates within procurement and the business. They agreed that
BBBEE legislation was the catalyst that initiated this transformation of
procurement from back-office function to strategic player and that it needed
to be embraced.
Rather than constraining procurement in South Africa, the legislation may
be the spark that will force top management to elevate the strategic status
of procurement. By doing this they will allocate adequate resources and
funding for the tools required to implement world-class principles. What is
required to achieve competitive advantage locally is an understanding and
embracing of the new legislation in conjunction with universal world-class
procurement principles.
IV
“This legislation may well prove to be the best thing that every
happened to procurement in South Africa…” (van Niekerk, 2006,
personal conversation)
So what are the determinants of PSP design and utilisation in South Africa?
They are almost exactly the same as they are anywhere else in the world,
as detailed in the literature. The determinants are not altered or made
redundant when applied locally, even in response to the challenges and
opportunities imposed by the proposed BBBEE legislation
Description
MBA - WBS
Keywords
Procurement service providers, Black Economic Empowerment