Supply Chain Management

www.pwc.com/za/en/consulting Supply Chain Management “Realities in the public sector.” Advisory Draft 30 March 2012

Table of Contents Section Overview Page

Section 1 AG’s Report 2009/10 Workshop: Supply Chain Management - “Realities in the public sector.” 1

1.1 Terms and DefinitionsSection 1 AG’s Report 2009/10 Workshop: Supply Chain Management - “Realities in the public sector.”

Section 1.2 Current realities (All Provinces) Workshop: Supply Chain Management - “Realities in the public sector.” 6

1.2 Current Realities (All Provinces)Section 1 AG’s Report 2009/10 * From the Auditor General’s Consolidated General Report on the local government audit outcomes 2009-10 Workshop: Supply Chain Management - “Realities in the public sector.”

1.2 Current Realities (All Provinces)Section 1 AG’s Report 2009/10 * * From the Auditor General’s Consolidated General Report on the local government audit outcomes 2009-10 Workshop: Supply Chain Management - “Realities in the public sector.”

Section 1.3 Current realities (Western Cape) Workshop: Supply Chain Management - “Realities in the public sector.” 6

1.3 Current Realities (Western Cape)Section 1 AG’s Report 2009/10 * * From the Auditor General’s Western Cape MFMA 2009-10 General Report Workshop: Supply Chain Management - “Realities in the public sector.”

Section 1.4 Common Challenges Workshop: Supply Chain Management - “Realities in the public sector.” 6

1.4 Common ChallengesSection 1 AG’s Report 2009/10 • Irregularities: • Awards to persons in the service of the state • Awards to family members of persons in service of the state • Uncompetitive or unfair procurement processes • Three price quotations not invited • Competitive bids not invited • Deviations from procurement processes not justifiable • Incomplete disclosure of deviation from procurement processes • Preference points not applied • Inadequate contract management • No written contract • Performance of contractors not monitored on a monthly basis • Unfair or non-compliant contract amendment, extension or renewal Workshop: Supply Chain Management - “Realities in the public sector.”

1.4 Common ChallengesSection 1 AG’s Report 2009/10 • Irregularities: • Inadequate fundamental SCM controls • SCM officials not adequately trained • Lack of effective internal monitoring • No risk assessment performed • Internal audit did not evaluate SCM processes • Inadequate fraud prevention plan • Poor Quality/Performance: • Wrong commodotity/service procured (nonconformity) • Wrong quantities/volumes procured (nonconformity) • High costs (other than due to irregularities.e.g. Errors and omissions) • Too long to complete the process (inefficiency) Workshop: Supply Chain Management - “Realities in the public sector.”

1.4 Common ChallengesSection 1 AG’s Report 2009/10 • Root causes identified in the Report relates to controls not being adequately implemented and monitored by the leadership to prevent and detect instances of non-compliance and failure. Most prevalent due to a lack of oversight responsibility regarding compliance with SCM regulations: • Lack of SCM policies/ procedures were in conflict with legislation • Inadequate segregation of duties in procurement • SCM officials were not adequately trained • Risk assessments did not address procurement and contract management risks • Fraud prevention plans did not include specific measures for procurement • Internal audit units did not perform an evaluation of SCM compliance. Workshop: Supply Chain Management - “Realities in the public sector.”

Section 2 How do we go about in addressing this? Workshop: Supply Chain Management - “Realities in the public sector.” 1

2.1 SCM Model as “Best Practice” objectiveSection 2 How do we go about in addressing this? Workshop: Supply Chain Management - “Realities in the public sector.”

2.3 Fundamental SCM ProcessesSection 2 How do we go about in addressing this? • Demand management • Acquisition Management • Logistics Management • Disposal Management • Risk Management • Performance Management • Records Management Workshop: Supply Chain Management - “Realities in the public sector.”

2.3 Fundamental SCM ProcessesSection 2 How do we go about in addressing this? • Demand management • User department needs analysis • Creation of user department demand plans • Planning for demand smoothing • Demand monitoring • Conducting value for money analysis • Deciding on procurement strategies • Sourcing alternative suppliers and commodities • Conditions arising without proper demand management • Too much stock (excess) • Too little stock (stock outs) • Wrong stock • Higher cost of procurement (units & admin costs) • Over loading buyers (no smoothing) • Failure of originators to take responsibility for demand • Longer procurement lead times Workshop: Supply Chain Management - “Realities in the public sector.”

2.3 Fundamental SCM ProcessesSection 2 How do we go about in addressing this? • Acquisition Management • Procurement (levels) • Supplier database • Bids: • Initiation • Specification • Advertising • Receiving Evaluating • Awarding • Conditions arising without proper acquisition management • Nonconformity due to requirements inadequately defined • Irregularities and/or nonconformity due to review processes not rigorous (BSC & BEC) • Process repetition due to irregularities or noncompliance with SCM Policy • Irregularities could lead to costly External legal action • Long acquisition lead times • Lack of transparency leading to mistrust of the process • Inability to spend funds to budget requirements Workshop: Supply Chain Management - “Realities in the public sector.”

2.3 Fundamental SCM ProcessesSection 2 How do we go about in addressing this? • Logistics management • Procurement • Contract Management • Vendor Management • Conditions arising without proper logistics management • Incorrect procurement processes applied • Contract irregularities • Vendors not performance managed (no corrective action applied) • Stock re-ordering not applied • Stock receiving irregularities • Stored materials deteriorating • Poor issuing records • Stock inaccuracies • Stores Management • Stock levels • Receiving of stock • Storage • Stock issuing • Stock taking Workshop: Supply Chain Management - “Realities in the public sector.”

2.3 Fundamental SCM ProcessesSection 2 How do we go about in addressing this? • Disposal management • Disposal asset definitions • Disposal planning • Disposal methods • Conditions arising without proper disposal management • Improper disposal definitions applied • Irregularities (Fraud, contraventions of MFMA) • Municipality not receiving proper value for disposed assets • Lack of transparency • Wasting assets Workshop: Supply Chain Management - “Realities in the public sector.”

2.3 Fundamental SCM ProcessesSection 2 How do we go about in addressing this? • Risk management • Risk Identification • Risk assessment • Risk response • Communicate and reporting • Monitoring & control • Conditions arising without proper risk management • No awareness of potential hazards and their risk potential • Poor response to risks • No risk strategies Workshop: Supply Chain Management - “Realities in the public sector.”

2.3 Fundamental SCM ProcessesSection 2 How do we go about in addressing this? • Performance management • Customer satisfaction • Processes • Products • Internal and external audits • Suppliers of goods & services • Conditions arising without proper performance management • If you don’t measure, you can’t manage • Irregularities in terms of Legislation and the SCM Policy - who is checking this? • Poor implementation/application of processes - who is checking this? • Objectives are not met or not met in timeframes required - who is monitoring this? • Dissatisfied customers slip through the cracks - who monitors customers satisfaction? Workshop: Supply Chain Management - “Realities in the public sector.”

2.3 Fundamental SCM ProcessesSection 2 How do we go about in addressing this? • Records management • Policy • Procedures • Classification systems • Records control & disposal • Conditions arising without proper records management • No records, hasn’t happened • No proof of occurrences • Records cannot be located • Records deteriorate • Records disposed of prematurely Workshop: Supply Chain Management - “Realities in the public sector.”

Section 3 Using ISO 9001 to achieve Objective Workshop: Supply Chain Management - “Realities in the public sector.” 1

The QMS ModelSection 3 Using ISO 9001 to achieve Objective Workshop: Supply Chain Management - “Realities in the public sector.”

How Will a QMS address the common challengesSection 3 Using ISO 9001 to achieve Objective • develops structure for internal operations (will support the establishment of the SCM business model in the organisation) • formalises best practices to ensure consistency over time (ensure compliance with legislation and fundamental SCM controls are entrenched in every procedure) • establishes clear communication channels at all levels • defines clear roles and responsibilities • includes controls to handle non-conforming products and services, and continuously improve the way things are done (such as performance management leading to process improvements) • focuses on achieving Customer Satisfaction and statutory compliance Workshop: Supply Chain Management - “Realities in the public sector.”

Implementing ISO 9001 (Our Approach)Section 3 Using ISO 9001 to achieve Objective • 20 Step Plan • manages implementation of the QMS as a project with tasks having dependencies and specific timeframes • 20 Steps detail all the tasks required for an effective and efficient development and implementation process • each task has specific deliverables and responsibilities • Skills transfer is an integral component with 3 formal training interventions and a number of other “workshopped” activities. Workshop: Supply Chain Management - “Realities in the public sector.”

20 StepsSection 3 Using ISO 9001 to achieve Objective Workshop: Supply Chain Management - “Realities in the public sector.”

Section 4 What to do? Workshop: Supply Chain Management - “Realities in the public sector.” 1

The Way ForwardSection 4 What to do? • Review and align SCM Policy with Legislation (MFMA) • Identify and formalise (document) all processes required to comply with the Policy • Fully implement the SCM model and supporting processes • Consider ISO 9001 as the vehicle to reach the SCM goals (compliance) • Obtain commitment from key role-players Workshop: Supply Chain Management - “Realities in the public sector.” 34

Thank you for the opportunity to presentto you! Workshop: Supply Chain Management - “Realities in the public sector.” 1

Supply Chain Management