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PRESENTATION TO THE PORTFOLIO ON PUBLIC ENTERPRISES Broad-Based BEE 31 AUGUST 2005

PRESENTATION TO THE PORTFOLIO ON PUBLIC ENTERPRISES Broad-Based BEE 31 AUGUST 2005. Table of Contents. Overview Actual/Plan Preferential Procurement Challenges Summary and way forward Questions. Overview. Denel (Pty) Ltd - Global supplier of world-class Aerospace and Defense Systems

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PRESENTATION TO THE PORTFOLIO ON PUBLIC ENTERPRISES Broad-Based BEE 31 AUGUST 2005

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  1. PRESENTATION TO THE PORTFOLIO ON PUBLIC ENTERPRISES Broad-Based BEE 31 AUGUST 2005

  2. Table of Contents • Overview • Actual/Plan • Preferential Procurement • Challenges • Summary and way forward • Questions

  3. Overview Denel (Pty) Ltd - Global supplier of world-class Aerospace and Defense Systems Turnover 2003/4 R4,4b with a procurement budget of R2,4b

  4. Overview - Abbreviations BEE - Black Economic Empowerment BBBEE - Broad Based Black Economic Empowerment DIP – Defence Industrial Participation NIP – National Industrial Participation PPPFA - Preferential Procurement Policy Framework Act R&D – Research And Development SOEPF – State Owned Enterprise Procurement Forum

  5. Actual / Plan

  6. Actual / Plan • Discretionary spend represents Total Procurement less the following: Imports, Capex (OEM), Intergroup Procurement , Telkom & Municipal Services • Total BEE Spend in Financial year 2004/2005 represented more than 10% (R138m) of the discretionary spend • The target is to achieve the BEE spend on direct materials of 15% (R138m) and then 20% (R210m) for the 2005/2006 and 2006/2007 respectively • The target is to achieve the BEE spend on indirect materials of 70% (R236m) and 90% (R326m) for the 2005/2006 and 2006/2007 respectively

  7. Actual / Plan

  8. Actual / Plan • “Direct Materials spend” relates to materials used in Denel’s core products. • Of the total 2004/2005 direct spend (R765m), Denel awarded 13,8% (R105m) to BEE suppliers

  9. Actual / Plan

  10. Actual / Plan • “Indirect Materials spend” relates to materials/services used in Denel to support production of core products. • Of the total 2004/2005 indirect spend (R435m), Denel awarded 7,68% (R33m) to BEE suppliers

  11. Actual / Plan

  12. Actual / Plan • The previous slide displays the spread of the BEE spend among the Black Enterprises, Black Empowered and Black Influenced suppliers • The majority of total BEE spend is awarded to black empowered suppliers

  13. Actual / Plan • The status of all the suppliers that claim to be BEE is in the process of being verified • The verification process was conducted by Denel’s own resources as well as external verification agencies • Currently 5% (418) of the total supplier base of 7845 is BEE and has been verified

  14. Actual / Plan

  15. Actual / Plan

  16. Actual / Plan

  17. Actual / Plan • In the year 2004/2005 women spend represented 3% (R40m) of total discretionary spend. • The plan is to achieve spend 6% (R75m) and 9% (R127m) for the years 2005/2006 and 2006/2007 respectively

  18. Actual / Plan

  19. Actual / Plan • 72% (R29m) of total spend on women was awarded to white women while black women were awarded 28% (R11m) • With the focus on indirect materials allocated to BEE companies, women owned companies will be the major beneficiaries • It is noted that the majority of “white woman” owned companies are controlled by white males previously employed by Denel

  20. Preferential Procurement • The target is to achieve the BEE spend on indirect materials of 70% (R236m) and 90% (R326m) for the 2005/2006 and 2006/2007 respectively • Set aside opportunities for all employees who are facing retrenchments in accordance with the Denel Development Agency’s objectives

  21. Challenges • Common Information Technology system in Denel • Changing mindset towards BEE suppliers • Reaching BEE suppliers in the direct material spend • Spreading Denel’s spend to rural suppliers. Currently Denel business are mainly in Gauteng and Western Cape and North West. • Limited financial resources for supplier development activities • Denel’s cash flow and timeous payment of BEE suppliers

  22. Challenges • International Companies dictate suppliers from overseas Airbus (Hexcel, UTi, etc.) SAAB (Customer furnished materials etc.) Local Agents appointed by our clients • Decentralization / Centralization Pre April 2004 – Resistance to change Post April 2005 -Instability in Denel • Lag of DIP and NIP by international companies • Lack of awareness/support for the Denel Social Office

  23. Summary and way forward • To improve the Broad Based BEE performance, the following is envisaged: • Supplier development activities will be resourced adequately • Involve BEE suppliers in the supplier day forums • Involve BEE suppliers in the conceptual stages of different programmes/products, R&D • Continue with verification to remove fronting • Roll out of BBBEE scorecard approach and PPPFA in the tender adjudication process in the various business units of Denel • Networking via other SOE’s to share information and best practices - SOEPF • Defense Related Industries Charter underway

  24. Thank You

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