MAXIMISING VALUE FOR MONEY SUBJECT TO COST CONTAINMENT OZIAS NCUBE Senior Lecturer - Supply Chain Management Graduate School Of Business Leadership (SBL) ncubeo@unisa.ac.za

Satisfying customers (resource the project) OBJECTIVES OF SUPPLY CHAIN MANAGEMENT Satisfying customers (resource the project) Capture and retain customers (create belief and credibility in process and systems used for delivery) Manage chain effectively and efficient (be cost effective (leverage spend) and ensure compliance with supply chain policy and regulations)

SUPPLY CHAIN PERFORMANCE SUPPLY CHAIN MANAGEMENT GOVERNMENT’S POLICIES INFRASTRUCTURE (SYSTEMS) DEMAND ACQUISITION LOGISTICS DISPOSAL SUPPLY CHAIN PERFORMANCE RISK MANAGEMENT SOURCE: (SCM Policy Framework Model): Source (Policy Strategy to Guide Uniformity in Procurement Reform Processes in Government 2003)

GENERIC FUNCTIONAL STRUCTURE

COST CONTAINMENT FOCUS Demand Management Demand planning Category identification Supply market intelligence Budget considerations Acquisition Custodian of the procurement process Implementation of the procurement strategy Key decision: cost focus or value focus Cost focus – Total cost of ownership (TCO) based on life cycle costing Value focus – emphasis on desired outcome

Buyer-perceived value pricing PRICING MECHANISMS Cost plus pricing Target profit pricing Buyer-perceived value pricing Competitors’ pricing Tender-based pricing

WHAT IS “VALUE” ? BENEFIT – expectations met within time frame, subject to acceptable quality! (Hard target) OUTPUT – supplier performed to expectations, transformational targets complied with in the selection and execution (Hard + soft targets) OUTCOME – supplier performs to expected standards, transformational targets complied with in a selection and execution, visible “growth” of transformational partner after contract seen by access to other opportunities within the value- chain (hard+ higher order soft targets)

Effectiveness Efficiency WHAT IS REQUIRED? Right supplier, right products, right time Cost a secondary factor Efficiency Cost containment Ensuring effectiveness within acceptable cost Focus on process and other performance objectives

NEW BREED OF SCM PROFESSIONAL A new skills set is required IMPLICATIONS FOR COMPETENCY AND CAPABILITY PROFILE NEW BREED OF SCM PROFESSIONAL A new skills set is required Commercial acumen SCM technology Research and analytics Supply chain analysis Value chain analysis Sourcing Source: National Treasury

WHAT IS THE CURRENT STATE? Non-compliance to SCM regulatory and policy frameworks Out-dated SCM systems and delegations Lack of demand management Inadequate procurement planning Lack of monitoring and evaluation Poor contract management Lack of standardisation Inadequate record keeping Inadequate SCM structures Source: National Treasury

WAY FORWARD??

ETHICS & GOVERNANCE - Conceptual Framework 1

Project Delays Treatment Stakeholder Support Project Manager Shareholder Contractors Management Governance Policies Communication Competency Culture Experience Professional Registration Attitude Responsibility Accountability Lesson Learnt Risk and Project Management Training Front End Loading Project Delays Treatment

CONCEPTUAL FRAMEWORK 3 Focus of Study is Sustainability Practices from a Risk Management Perspective

SCM CAPABILITY MATURITY Continuous learning and improvement Use of resources with effective results Measuring how resources are used Focus on compliance and control Proper internal control framework No proper internal control framework OPTIMISING MANAGED INFORMATION CONTROL DEVELOPMENT 6 5 4 3 2 1 START-UP DESCRIPTION LEVEL 2.8 This slide reflects the SCM maturity of national and provincial departments. Some municipalities are at a similar maturity level. The results indicate that departments are operating at a compliance and control level – average of 2.8. The challenge is to move to higher levels of maturity where we move beyond compliance to economic, efficient and effective use of resources, performance optimisation, and continuous improvement. 3 - An internal control framework and approved policies and procedures are adequately implemented and adhered to 4 - Economic use and performance of resources are managed, measured, monitored, reviewed and reported through application of reliable and consistent service standards, delivery objectives and performance indicators 5 - Economic, efficient and effective use of resources is managed, ensuring value for money and results 6 - On-going assessment of processes, improvements and measurements results in continuous learning and performance improvement 15 1

FUTURE STATE Current State Future State Compliance Conformance Tactical Current State Strategy Heavy processes to ensure control Governance structures Focus on technical and tactical skills to get it right Authoritative guidance Risk averse culture Blame and ‘us versus them’ causing frustration and tension for all Low overall accountability for end-to-end results SCM seen as a back-office function Compliance Conformance Corruption-free Level of process commensurate to the level of risk to the organisation Commodity focus Balance of strategic and technical skills Overall capacitation for the SCM function Processes, guidance and governance that ensures objectivity Collaborative relationships and structures Performance measures and regular reporting SCM seen as a value creator Future State Value for Money Efficiency and Effectiveness Shared Accountability Compliance balanced with performance

THANK YOU ANY QUESTIONS?