The importance of supply chain management
With the South African economy growing at levels lower than anticipated, the fiscus continues to shrink, yet organisations are required to ensure that they continue to deliver at their current levels or higher. Institutions in the higher education sector are no exception ‑ The National Development Plan requires the higher education sector to increase enrolment levels annually from 950 000 in 2010 to 1.6 million by 2030. State contributions continues to fall, which means that higher educational institutions need to continuously look at ways of increasing enrolment while managing their direct and indirect spend.
The procurement of goods and services via supply chain management (SCM) will become increasingly vital in ensuring higher education institutions achieve their mandate in this challenging environment. In doing so, it becomes incumbent upon them to ensure the framework they subscribe to not only ensures compliance with policies, but is effective, efficient and drives value for money.
In our opinion, the regulatory framework of the Public Finance Management Act (PFMA), National Treasury SCM regulations and the Preferential Procurement Policy Framework Act, and its revised 2011 Regulations, offer one of the most robust frameworks in the world. The only flaw we have seen with this framework is the lack of effective implementation. Although higher education institutions are not required to comply with the PFMA, we believe adoption of the PFMA SCM framework would go a long way in helping them achieve their long-terms goals while also ensuring external auditor findings are reduced.
Across the globe, organisations are starting to recognise the strategic importance of SCM. More and more organisations in both the public and private sectors are realising the value SCM plays in ensuring they can deliver on all aspects of their value chain. The core value proposition of any University is to attract students, support them, provide them with the best education and ensure they become productive members of society.
SCM has a vital role in creating and maintaining the value chain within institutions of higher learning and act as a mechanism to facilitate more effective appropriation of funds and governance. This factor is being underscored by many organisations that are now elevating SCM to the point where reporting lines are directly to the board or in the case of universities, directly to the council.
The higher education sector needs to follow suit in this regard by initiating the process of elevating their SCM units, where they move from a procurement function to a strategic asset. They must of course be supported by robust policies, procedures, processes, systems and capabilities. This is becoming increasingly fundamental in the South African context where funding for the higher education sector needs to cater to the increase in student enrolment figures.
Common challenges in supply chain management
At the 2015 Higher Education Conference hosted by PwC in Cape Town, participants were engaged in a breakaway session on the challenges they faced in SCM. They rated the challenges they experienced, with the results showing a common thread:
The major challenges encountered by universities related to ineffective planning for annual procurement. This generally results in a surge in emergency and urgent procurement, which often did not necessarily meet the true definition of emergency and urgent procurement.
A procurement plan would provide the mechanism to ensure annual procurement is adequately planned, but in addition the plan could be used to identify those goods/services required on an ongoing basis throughout the year. Information like this could be used to leverage economies of scale by buying in bulk.
The need for a robust SCM Policy, Process, Procedure and Delegation of Authority (DOA) Framework came in very high. Higher education institutions see this as one of the areas that need specific attention. While most of them have some of this documented, and are at different stages of maturity, there is a need to revisit them to ensure they are achieving the desired outcome while serving as a tool to allow sustainable implementation of an effective SCM framework. Closely linked to this was the need to assess their enterprise resource planning (ERP) systems to ensure they are being used to their maximum potential to support both strategic and operational SCM processes.
The next challenge pinpointed by universities was the lack of data analysis. Data analysis is being seen as a very powerful tool in most organisations. Within SCM, analysing spending patterns could help institutions:
The management of bid committees was also identified as an important area. With most universities having one tender committee that manages the process from specification and evaluation to award, there was a clear need to look at ways of enhancing the effectiveness of the tender process. The lack of segregation of duties was discussed and the possibility of introducing an independent committee to approve the specification was considered.
Having reviewed all these challenges, it become clear that SCM plays a critically strategic role and addressing its hurdles is a priority for many institutions of higher learning.
We believe that as the higher education sector in South Africa continues to evolve, SCM will become a significant tool in driving transformation by assisting institutions become leaner while also staying true to their core mission and values.
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