Sunday, October 25, 2009

Poor procurement policies leading to 
losses of R25bn yearly in South Africa

The bad news keeps on coming for the besieged South African taxpayer. The ANC regime couldn't manage its way out of a paper bag. Hopeless, bloody hopeless, R25 billion squandered each year!

Information technology can help improve visibility, but a lot has to do with the integrity of the individuals involved.

Poor procurement policies, strategies and systems are causing losses amounting to more than R25-billion each year for the South African private sector and government.

Finance Minister Pravin Gordhan revealed recently in Parliament
that government, for example, pays more than private business for everything it buys. Some estimates indicate as much as 10% to 30% more, 
despite its size and resources and, therefore, its potential bargaining power. Gordhan gave the example of a loaf of bread costing government R26 instead of about R7. In terms of the annual government procurement bill of R100-billion, as much as R10-billion or more is lost or wasted each year

Founder of and editor of SmartProcurement Bernie van Niekerk says that world-class procurement prac
tices, such as strategic sourcing, supplier management, and effective contract management, can help reduce purchasing spend by an average of 6%, according to international benchmarks performed by the Centre for Advanced Purchasing Studies.

“For some companies, depending on their procurement maturity, 
the opportunity for recouping the loss can be significantly higher. Simple strategies, such as reducing maverick spend through forcing contract compliance, can go a long way towards achieving such savings. More complex interventions, such as strategic sourcing, can lead to sustainable competitive advantage for organisations,” notes Van Niekerk.

He adds that avoiding poor 
procurement policies and strategies for some organisations could be as simple as developing a proper procurement policy in the first place, as some do not even have this.

Van Niekerk points out that it is becoming best practice for the purchasing function to be mandated by the executive committee to implement these policies as well as potential interventions to save money.

“The prevalence of corruption and fraud in procurement depends on the organisation. Some organisations might appear to be clamping down on small purchases and seem above board when, in 
reality, the real fraud happens at a multimillion-rand level. Certainly in some areas of government, and especially municipalities, this is a major problem,” cautions Van Niekerk.

Information technology can help improve visibility, but a lot has to do with the integrity of the individuals involved.

Seven key strategies have 
recently been mapped out in a study of 260 leading organisations. 
The strategies include advanced category management; designing and operating multiple supply chains; focused talent management interventions; collaboration with key suppliers; and fully using enabling technology.

The research focused on the 
external factors which would have the greatest effect on business over the next ten years; how business models will change as a result of these forces; and how the mission, goals and performance expectations and strategies for supply management will change to support these new business models. - Engineering News

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