PARLIAMENTARY BRIEFING SUPPLY CHAIN MANAGEMENT 17 August 2016

The Mandate Supply Chain Management derives its mandate from Section 217 of The Constitution of the Republic of South Africa. It is further directed by Section 76 (4) (c) of the Public Finance Management Act. Supply Chain Management System must be effective and efficient for the acquisition of goods and services. The system must be fair, equitable, transparent, competitive and cost effective.

Regulatory Framework In an attempt to use procurement as a tool for development and transformation. The department complies with other prescripts guiding Supply Chain Management processes in Public Sector. In the main: Treasury Regulation 16A Framework for SCM Preferential Procurement Policy Framework Act No 5: of 2000 Preferential Policy Framework Regulations of 2011 Broad Based Black Economic Empowerment Act,53 of 2003 Construction and Industry Development Board Act, 38 of 2000 National Treasury Practices Notes and Circulars SITA Act 88 0f 1998 and Act 38 of 2002

Regulatory Framework The department is obliged to comply with the Black Economic Empowerment Regulations through the procurement processes. The Preferential Procurement Policy Framework Act enables the economic empowerment privileges to black owned businesses. Preference points are awarded inline with the BBBEE status level of contribution to companies that are compliant.

Application of the PPPFA and Regulations The Department apply Preferential Procurement Regulations of 2011, to all the transactions from R30 000 The 80/20 and 90/10 Preferential Points Systems is applied and 10 and 20 points are used to promote broad-based black economic empowerment policy and to maintain cost effectiveness. The bidders with the highest B-BBEE level of contributors are allocated the maximum points. Through the application of this principle, the department has succeeded to secure competitive prices.

Application of B-BBEE Codes The objective is to advance economic transformation and enhance the economic participation of black people in the economy. The department applies the B-BBEE Codes of Good Practice, and has successfully promoted Emerging Micro Enterprises and the Qualifying Small Enterprises by implementing the B-BBEE levels as indicated below: An Emerging Micro Enterprise automatically qualifies as a level 4 contributor with B-BBEE recognition level of 100% in terms of the Codes of Good Practice. The Emerging Micro Enterprises with at least 51% black ownership qualifies as a level 2 contributor with B-BBEE level of 125% in terms of the Codes of Good Practice An EME with 100% black ownership qualifies as a level 1 contributor with B-BBEE level of 135% in terms of the Codes of Good Practice.

Application of B-BBEE Codes A Qualifying Small Enterprise with at least 51% black ownership qualifies as a level 2 contributor A Qualifying Small Enterprise with 100% black ownership qualifies as a level 1 contributor A QSE that is regarded as a specialised enterprise with at least 75% black beneficiaries qualifies as a level 1 contributor with B-BBEE level of 135% in terms of the Codes of Good Practice. A QSE that is regarded as a specialised enterprise with at least 51% black beneficiaries qualifies as a level 2 contributor with B-BBEE level of 135% in terms of the Codes of Good Practice. The categories (EME’s and QSE’s) are only required to submit sworn affidavit confirming their turnover and level of black ownership or B-BBEE level verification certificate to claim points as prescribed in the Preferential Procurement Regulation, 2011

Procurement as a tool for development and transformation The department is determined to comply to the Black Economic Empowerment Regulations through its procurement processes. The department mostly procures highly specialized commodities, however, commodities were identified where at least 70% of their budget is spent to advance and promote the develop of black businesses and for economic transformation. Among others, the department has successfully awarded 95% of contracts to businesses who are B-BBEE Complaint.

The SCM System The primary objective of system is to fulfil the needs of cost centres through the most effective and efficient use of resources Effective and efficient supply chain delivers the right product at the right price in the right quantity of the right quality at the right place at the right time “ Just-in-Time” principle is crucial to be adhered to at all times

Imperfections within the system Poor planning and ineffective implementation of procurement plan. Prolonged turnaround time in procurement of goods, services and works. Cost effectiveness and value for money not realised. Ineffective contract management. Shortage of human resource hinders the flow of work.

Systems put in place to address SCM imperfections The department has established a unit in SCM to evaluate the SCM performance of every institution relating procurement processes that are not supporting service delivery. An evaluation tool used mainly measures compliance to five pillars of SCM but not compromising service delivery. The department developed standard process flow charts with timeline. Adherence is monitored and reported monthly. There has been an improvement in the turnaround time for acquisition of goods, services and works which has reduced after the implementation of the flow chart with timelines. The department also performs market analysis and price check on wider selection of competitors to get competitive and acceptable prices.

Systems put in place to address SCM imperfections Leverage economies of scale cost advantage is key considering limited financial resources cost effectiveness and value for money are the most critical pillars of procurement that are adhered to the procurement plan is used to identify similar needs and quantities are consolidated contracts are arranged based on that information this process will be undertaken continuously and will also be informed by the most procured goods and services

SCM systems efficiency The demand plans are compiled and utilized to plan the procurement of goods and services. The envisaged time to procure is used to prepare prior the acquisition. All required documents to support procurement are prepared timely and supply chain processes are finalized within the timeframe planned. The demand plans are also consolidated to assist in identifying common goods and services with are transversal throughout the department. Contracts are arranged for such goods and services. The contracts concluded improve the system efficiencies at institutions as orders are immediately placed with the contracted suppliers.

Issues hindering SCM to perform as expected The Supply Chain Management units across the department have a high rate of vacancies which hampers effectiveness and efficiencies. Officials are overworked due to the latter challenge. The capacity gap among supply chain management officials is of concern. The department together with Provincial Treasury organize workshops and training sessions to provide the latest information on compliance with SCM Framework.

Good Governance within SCM Annually, the officials in SCM sign the SCM Code of Conduct. Furthermore, all role players in the supply chain management processes and SCM committee members sign the declaration forms as well as confidentiality forms. Should the department suspect non compliance to the SCM Code of Conduct, false declarations and non confidentiality, the matter is reported to Fraud and Corruption Unit for further handling.

SCM System for Infrastructure Delivery and Maintenance The department has completed the following SCM processes with regard to the Infrastructure Delivery and Maintenance ; Appointment of the Project Managers: Three Projects Managers were appointed on 06 April 2016 for a period 3 years. The scope of the Projects Managers amongst others include performance of feasibility study and quantification of the work in all the facilities i.e. Hospitals, Clinics, Mortuaries, Laundries and Residence.

SCM System for Infrastructure Delivery and Maintenance The Department has currently advertised bids for the appointment of contractors The intention is to appoint twenty five contractors per District. The scope of work for the contractors will include; Renovations and refurbishment Auxiliary building works. Repair and maintenance.