The role of procurement in developing local communities | by Molebatsi Moagi

MN Moagi PortraitThe traditional role of the procurement department – of obtaining goods and services to meet the internal demands of the organisation – is rapidly evolving towards one of balancing the needs and requirements of an organisation with those of the communities within which the organisation operates. “Operates” in this context refers to either location, or the communities on which the organisation relies for meeting their operational requirements, such as the supply of labour and / or other resources such as water, raw materials etc.

The reasons for this evolution vary, and include pressure that is brought to bear by compliance and contractual requirements such as B-BBEE, social and labour plans targets, or specific contractual terms and obligation entered between an organisation and its major customers (such as with government or other organs of state). There is also a growing trend of companies that treat local community development as a strategic imperative or those that have embraced the concept of leveraging the benefits of a shared-value approach – aimed at promoting community development, based on the application of business strategies that not only deliver commercial and/or operational benefits to the company, but also deliver benefits to their host or local communities at the same time.

Companies, such as mining giant Gold Fields, are consciously strengthening their local community procurement activities with the aim of increasing their annual procurement spend from their host communities. The strategic intent is to leave a legacy of shared value with its host communities, its people and host governments, while measuring both its impact and stakeholder perception as illustrated below.Procurement in Community Image“The local supplier development strategy was designed to increase the competitiveness of existing local suppliers and identify opportunities to develop a regional mining supply cluster. This would be a catalyst for sustainable local economic development and enhance the competitiveness of the company’s supply chain through increased quality, reliability, and reduced costs.” Source: http://www.fsg.org/projects/gold-fields-finds-solutions-shared-value-strategy

Sustainable development

The days when local community development was confined to the corporate social investment or sustainable development departments are over. Trading with local community enterprises is, in fact, the most sustainable form of community development. A company can only build a finite number of schools, community centres or infrastructure such as access roads, water reservoirs etc. Procurement spend, on the other hand, is part and parcel of the ongoing life and operations of a company.

By developing and incorporating local community suppliers into your company’s value chain, you elevate them to become your strategic business partners, capable of generating sustainable jobs and livelihoods in their own right, and thereby becoming self-sustaining in the long run. The multiplier effect of this approach goes beyond the money paid for the goods or services procured.

5 tips: Leveraging procurement for development

Whether a company is pursuing local community procurement from a strategic outlook or not the procurement department plays a pivotal role in ensuring that this is done in a socially acceptable and sustainable manner.

The following are five simple tips on how to leverage procurement to develop your local communities:

1. Develop a clearly defined strategic intent with clearly defined benefits to both the company and the targeted community. This calls for the initiative to be supported and championed at the highest level of the organisation.

2. Develop a local community procurement programme aimed at engaging with the community as your social and business partners. This provides an opportunity and platform to engage constructively, state the company’s strategic intent to the community, and thereby mitigate any discontent or conflict which may likely ensue if the initiative is construed as patently flawed or “dodgy”.

3. Develop a comprehensive database of local community enterprises which covers their core service or product offerings, as well as their respective developmental needs and requirements. This helps the company to select the right enterprises or potential suppliers who can be developed to meet your company’s procurement standards and expectations, such as quality and value for money etc.

4. Match the prospective suppliers with specific or distinctive procurement opportunities which can be set aside or targeted for procurement from the targeted communities. This improves the likelihood of the procurement spend going to the designated local communities, by confining the competitive processes to the local communities. This is undoubtedly the best approach to the much-vaunted concept of localisation.

5. It is important to create a supportive environment within your company to embrace and support the new entrants into your supply chain. This calls for a customised supplier on-boarding and mentorship programme which appreciates the strategic importance of such suppliers. Ideally the company should assign internal mentors who will not only help the new suppliers to navigate the corporate maze, but also to provide practical advice that can prevent them from committing avoidable errors which would result in loss of the contract by the local community enterprise.

Finally it is important to take a long-term view on local community procurement by investing in a supplier development programme and infrastructure, to ensure access to the company’s procurement opportunities (such as a business development centre), which can provide business development services (including technical support and compliance monitoring) to all local community.

Molebatsi Moagi (MBA) Is the CEO of the Centre for Supplier Development (http://www.cfsd.co.za/)