THE IMPACT OF SUPPLY CHAIN MANAGEMENT ON GOVERNMENT INSTITUTIONS

A Research Dissertation

by

GEORGE FREDERICK JACOBSON STUDENT NO. 94032512 B. TECH: PURCHASING MANAGEMENT

Submitted in partial fulfilment of the requirements for the degree

MBA

in the

Business School

Faculty of Management Sciences

TSHWANE UNIVERSITY OF TECHNOLOGY

Supervisor: Prof. J A Watkins

Pretoria 4 June 2007

PUBLICATION OF DISSERTATION

The attention of the reader is specifically drawn to the fact that the national Government departments, who sanctioned this research study, specifically requested that the work should not be published due to the sensitivity of ongoing remedial actions.

DECLARATION OF COPYRIGHT
I hereby declare that this dissertation submitted for the degree (Magister Technologia) at the Tshwane University of Technology, is my own original unaided work and has not previously been submitted to any other institution or higher education. I further declare that all sources cited are cited or quoted are indicated or acknowledged by means of a comprehensive list of references.

G.F. JACOBSON

Copyright Tshwane University of Technology (2007)

DEDICATION
This study is dedicated to my family and friends for their love and support through this process allowing me to grow as a person.

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ACKNOWLEDGEMENTS
I would like to express my sincere gratitude and appreciation to the following: My Lord and Saviour, Jesus Christ for His continued blessings. My parents, Brian and Elsa Jacobson, for their love, unwavering motivation and continuous encouragement. National Treasury for the opportunity and financial assistance. My supervisor, Prof. Dr. J.A. Watkins for his guidance and support. Mr J.A.N. Breytenbach for his intellectual support. Mr Dan Naidoo for his invaluable advice and support. Miss Theresa Massyn for her continuous support. National departments for participating in this research.

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ABSTRACT
Author: George Frederick Jacobson, Baccalaureus Technologiae: Purchasing Management. Title: The impact of supply chain management on Government organisations. University or Institution: Department/Faculty: Promoter or Supervisor: Date: Key words: Tshwane University of Technology Faculty of Management Sciences Prof. J A Watkins. 4 June 2007 Accounting authority, accounting officer, department, Treasury. institution and National

Immediately after taking office in 1994, Government initiated a series of budgetary and financial reforms in its attempt to modernise the management of the public sector to make it more people-friendly and sensitive to meeting the needs of the communities it serves. To this end, Cabinet resolved that the concept of supply chain management be introduced within the public sector to address the inefficiencies in governments current method of procurement, contract management, inventory/asset control and obsolescence planning.

Although most institutions have commenced with a phased supply chain management implementation strategy, a number of challenges are experienced in this domain namely, the lack of the development of a detailed supply chain management implementation plan, establishment of bid specification/evaluation/adjudication committees, infrastructure, training of personnel, mind shift from rule driven to decision making, just to name but a few.

The key research objective of this research study is to investigate the impact of supply chain management on Government institutions. This will be achieved by identifying possible deficiencies in existing supply chain management system, policies and procedures and making associated recommendations.

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The value of this research lies primarily in the fact that supply chain management is currently still in the process of being implemented by Government institutions. As a result, this research will identify the deficiencies in the existing supply chain management process of implementation that will form the basis for improving supply chain management practices to comply with international best practices that will not only benefit Government institutions, but ultimately the communities it serves.

TABLE OF CONTENTS
Page DECLARATION OF COPYRIGHT DEDICATION ACKNOWLEDGEMENTS ABSTRACT TABLE OF CONTENTS GLOSSARY OF TERMS i ii iii iv vi x

CHAPTER 1: SCOPE OF THE RESEARCH 1.1 1.2 1.3 INTRODUCTION AND BACKGROUND THE RESEARCH PROCESS BACKGROUND TO THE RESEARCH PROBLEM 1.3.1 Research problem statement 1.3.2 The research question 1.3.3 Investigative questions 1.4 1.5 1.6 THE RESEARCH DESIGN AND METHODOLOGY RESEARCH ASSUMPTIONS RESEARCH CONSTRAINTS 1.6.1 Limitation 1.6.2 De-limitation 1.7. 1.8 CHAPTER AND CONTENT ANALYSIS KEY RESEARCH OBJECTIVES 1.8.1 Primary objective 1.8.2 Secondary objectives 1.9 1.10 ETHICAL CONSIDERATIONS SIGNIFICANCE OF THE PROPOSED RESEARCH

1 1 2 4 5 5 5 6 8 8 9 9 9 11 11 11 11 13

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CHAPTER 2: HOLISTIC VIEW OF THE IMPLEMENTATION ENVIRONMENT 2.1 2.2 2.3 INTRODUCTION GOVERNMENT OF THE REPUBLIC OF SOUTH AFRICA ROLE OF NATIONAL TREASURY 2.3.1 Legislative Mandate 2.4 PROCUREMENT REFORM 2.4.1 Background 2.4.2 Process of implementation 2.4.3 Current implementation status 2.5 CONCLUSION

14 14 14 16 16 18 18 22 23 24

CHAPTER 3: SUPPLY CHAIN MANAGEMENT: A LITERATURE REVIEW 3.1 EVOLUTION OF PROCUREMENT AND LOGISTICS PERTAINING TO SUPPLY CHAIN MANAGEMENT 3.2 3.3 SUPPLY CHAIN MANAGEMENT DEFINED PREREQUISITES FOR THE IMPLEMENTATION OF SUPPLY CHAIN MANAGEMENT 3.3.1 Private Sector approach 3.3.2 Public Sector approach 3.4 OBJECTIVES FOR THE IMPLEMENTATION OF SUPPLY CHAIN MANAGEMENT 3.5 THE PILLARS OF PROCUREMENT AND SUPPLY CHAIN MANAGEMENT 3.6 SUPPLY CHAIN MANAGEMENT MODELS 3.6.1 Supply Chain Management Models 3.6.2 Government's Supply Chain Management Model 3.7 ELEMENTS OF SUPPLY CHAIN MANAGEMENT 3.7.1 Demand Management 3.7.2 Acquisition Management 3.7.3 Logistics Management 3.7.4 Disposal Management

25

25 28

30 30 33

34

34 37 37 40 43 43 44 47 50

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3.7.5 Supply Chain Performance 3.7.6 Risk Management 3.8 3.9 THE FUTURE OF SUPPLY CHAIN MANAGEMENT CONCLUSION

51 52 53 54

CHAPTER 4: SUPPLY CHAIN MANAGEMENT SURVEY DESIGN AND METHODOLOGY 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 INTRODUCTION TYPES OF RESEARCH ASPECTS IMPACTING ON THE SURVEY DATA COLLECTION THE TARGET POPULATION THE CHOICE OF SAMPLING METHOD MEASUREMENT SCALES SURVEY DESIGN SURVEY THE VALIDATION SURVEY QUESTIONS CONCLUSION

55 55 56 57 58 59 60 60 61 62 62 64

CHAPTER 5: DATA ANALYSIS AND INTERPRETATION OF RESULTS 5.1 5.2 5.3 5.4 INTRODUCTION AND BACKGROUND DESCRIPTIVE SURVEY ANALYSIS KEY SURVEY FINDINGS CONCLUSION

65 65 65 75 76

CHAPTER 6: CONCLUSION 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 INTRODUCTION THE RESEARCH PROCESS REVISITED THE RESEARCH PROBLEM REVISITED THE RESEARCH QUESTION REVISITED THE INVESTIGATIVE QUESTIONS REVISITED THE RESEARCH DESIGN AND METHODOLOGY KEY RESEARCH FINDINGS RECOMMENDATIONS

77 77 78 79 79 80 82 82 84

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6.9 6.10

PERSONAL REFLECTION CONCLUSION

85 86

BIBLIOGRAPHY LIST OF ANNEXURES Annexure A: Level 1 (Procurement by means of petty cash: Up to a value of R2 000,00) Annexure B: Level 2 (Procurement by means of quotations: Above the value of R2 000,00 but not exceeding R200 000,00) Annexure C: Level 3 (Procurement by means of bids: Above the value of R200 000,00)

87

92

93

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LIST OF FIGURES Figure 2.1: The three spheres of government Figure 3.1: Visual presentation of supply chain management Figure 3.2: The Supply Chain Figure 3.3: Government's Supply Chain Management Model Figure 3.4: The progression to World Class Supply Chain Management 15 37 40 41 53

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GLOSSARY OF TERMS
Accounting authority: Means a body or person mentioned in section 49 of the Public Finance Management Act, 1999 (Act no. 1 of 1999). Accounting officer: Means a body or person mentioned in section 36 of the Public Finance Management Act, 1999 (Act no. 1 of 1999). Department: Means a national or provincial department as defined in the Public Finance Management Act, 1999 (Act no. 1 of 1999). Institution: The term institution refers to all organs of state (Supply Chain Management A Guide for Accounting Officers/Authorities,

2004:3). Minister: Means Minister of Finance as defined in the Public Finance Management Act, 1999 (Act no. 1 of 1999). National Treasury: Means the National Treasury established by section 5 of the Public Finance Management Act, 1999 (Act no. 1 of 1999). Supply Chain Management: Supply chain management is an integral part of financial management that seeks to introduce internationally accepted best

practice principles, whilst at the same time addressing government's preferential procurement policy objectives (National

Treasury's Policy, 2003:4).

CHAPTER 1 SCOPE OF THE RESEARCH

1.1 INTRODUCTION AND BACKGROUND

Immediately after taking office in 1994, the new Government of South Africa initiated a series of budgetary and financial reforms in its attempt to modernise the management of the public sector to make it more people-friendly and sensitive to meeting the needs of the communities it serves. The Public Finance Management Act, (PFMA) Act 1 of 1999 aims to improve accountability by placing responsibility for decisions in the hands of each accounting officer/authority to enable them to manage their financial affairs within the parameters laid down by prescribed norms and standards. To this end, Cabinet resolved that the concept of supply chain management be introduced within the public sector to address the inefficiencies in Governments current method of procurement, contract management, inventory/asset control and obsolescence planning. During December 2003, the supply chain management system was introduced to national and provincial departments, trading entities, constitutional institutions, national and provincial public entities. The objective being to transform Governments outdated procurement and provisioning practices into an integrated supply chain management function, to introduce a systematic approach for the appointment of consultants to create a common understanding and interpretation of the preferential procurement policy, and to promote the consistent application of best practices throughout Governments supply chain.

A three-phase implementation strategy was devised which could be categorised as firstly pre-tender board abolition or preparation phase, secondly post-tender board abolition or full implementation phase, and lastly the monitoring phase. Subsequently, the Policy to Guide Uniformity in Procurement Reform Processes in Government, the Regulations in terms of section 76(4) (c) of the PFMA: Framework for Supply Chain Management, the Supply Chain Management guide for Accounting Officers / Authorities, supply chain management practice notes and other supporting documents were issued to assist institutions with the

implementation of the supply chain management processes. Currently, most tender boards have been abolished resulting in the transfer of accountability to accounting officers/authorities with the exemption of the State Tender Board of National Treasury. The majority of institutions have commenced with the implementing supply chain management and National Treasury is monitoring the progress made in this regard. The National Treasury has identified a number of challenges that institutions are experiencing in implementing supply chain management, namely the lack of the development of a detailed supply chain management implementation plan, establishment of bid specification/evaluation/adjudication committees, infrastructure, training of personnel, mind shift from rule driven to decision making, just to name but a few.

The purpose of this research is to investigate the impact of supply chain management on Government institutions. The value of this research lies primarily in the fact that supply chain management is currently still being implemented by Government institutions, and as a result, this research will identify the deficiencies in the existing supply chain management process of implementation that will form the basis for improving supply chain management practices to comply with international best practices that will not only benefit government institutions, but ultimately the communities it serves.

1.2

THE RESEARCH PROCESS

Remenyi, Williams, Money and Swartz (2002:64-65), explains the research process as consisting of eight specific phases, namely: Reviewing the literature. Formalising a research question. Establishing the methodology. Collecting evidence. Analysing the evidence. Developing conclusions. Understanding the limitations of the research. Producing management guidelines or recommendations.

According to Hussey, J. & Hussey, R. (1997:15), there are six fundamental stages in the research process, namely: The identification of the research topic. Definition of the research problem. Determining how the research is going to be conducted. Collection of the research data. Analysis and interpretation of the research data. Writing up of the dissertation or thesis.

In this research dissertation, the following research process will be followed: Determine the 'field of study' for the proposed research. Identify a specific complex problem within a researchable application area, which furthermore falls within the ambit of the identified field of study and of the niche area of the faculty in which the research study will be undertaken. Conduct a holistic survey of the functional area in which the complex problem exists, to determine the impact of the problem on the specific area of application and the value the proposed research may bring. Conduct an abbreviated literature review on the subject matter being investigated. The purpose being to not only provide insight into the

complexity of the problem, but also to provide insight into the literature pertaining to the field of study of the proposed research. Describe and formulate the research problem. Describe and formulate the research question, and associated investigative questions. Select an appropriate research design and methodology, which includes the data collection design and methodology. Determine the key research objectives for the proposed research. Document the research process, which will be followed for the proposed research and formulate an associated workplan. Identify the limitations, which may impact on the proposed research. Based on the above, formulate a formal research proposal and submit for approval. Establish a structured working relationship with the allocated supervisor.

Conduct an in-depth literature review on the subject being researched. Collect, analyse and interpret the research data. Write up the dissertation. Proofread the dissertation and submit for formal vetting.

1.3

BACKGROUND TO THE RESEARCH PROBLEM

The concept of Supply Chain Management was introduced within the public sector as part of the series of budgetary and financial reforms that were initiated by Government in 1994 in its attempt to modernise the management of the public sector. The National Treasury Policy Strategy, (2003:4) describes the concept supply chain management as follows: "Supply chain management is an integral part of financial management that seeks to introduce internationally accepted best practice principles, whilst at the same time addressing government's preferential procurement policy objectives". The majority of public sector institutions have commenced with a phased supply chain management implementation strategy focused at addressing the inefficiencies in Governments historic method of procurement, contract management, inventory/asset control and obsolescence planning. Numerous challenges are experienced in this regard due to a lack of the development of a detailed supply chain management implementation plan, establishment of bid specification/ evaluation/adjudication committees,

infrastructure, training of personnel, mind shift from rule driven to decision making, just to name but a few.

As a result, public sector institutions are not reaping the full rewards associated with an efficient and effective supply chain management system becoming a major concern as it directly impacts on Governments ability to generate savings that can be relocated to meet the needs of the communities it serves.

1.3.1

Research problem statement

Against the background to the research problem elaborated upon above, the research problem statement for this dissertation reads as follows: "The impact of inefficient supply chain management on Government institutions".

1.3.2

The research question

Against the background to the research problem elaborated upon above, the research question to be researched in this dissertation reads as follows: "How can the impact of inefficient supply chain management on Government institutions be mitigated?"

1.3.3

Investigative questions

The following investigative questions will be researched in support of the research question: Are Government's objectives for the introduction of supply chain management in government institutions being achieved? Have Government institutions adopted a supply chain management policy? Does the supply chain management system implemented by Government institutions make provision for the elements, demand management, acquisition management, logistics management, disposal management, supply chain performance and risk management? Do Government institutions have the necessary systems infrastructure to manage an effective and efficient supply chain management system? Has the implementation of supply chain management in Government institutions enhanced the turnaround time in procuring goods and services? Does the supply chain management system as prescribed by National Treasury promote the application of international best practices? Have supply chain management practitioners been trained in supply chain management programmes? Has the implementation of supply chain management yielded any savings for Government institutions?

1.4

THE RESEARCH DESIGN AND METHODOLOGY

The research to be conducted in this dissertation will be based on the research undertaken in the social world, will be theoretical in nature using the qualitative paradigm as basis. The research method that will be used is case study research.

Some of the more salient aspects of case study research described by Yin (1994), are listed below for ease of reference: A case study is an empirical enquiry that investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident. Case study research aims not only to explore certain phenomena, but also to understand them in a particular context. 'How' and 'why' questions are explanatory, and likely to be used in case study research. A case study illuminates a decision or set of decisions - why they were taken, how they were implemented, and with what result. The case study as a research strategy comprises an all-encompassing method - with the logic of design incorporating specific approaches to data collection and data analysis. In this sense, the case study is not either a data collection tactic or merely a design feature alone, but 'a comprehensive research strategy'. Case study research uses multiple methods for collecting data, which may be both qualitative and quantitative. A case study is typically used when contextual conditions are the subject of research. According to Hussey, J. and Hussey, R. (1997:66), case studies are often described as exploratory research used in areas where there are few theories or a deficient body of knowledge.

In addition, the following types of case studies can be identified: Descriptive case studies: Where the objective is restricted to describing current practice.

Illustrative case studies: Where the research attempts to illustrate new and possibly innovative practices adopted by particular companies. Experimental case studies: Where the research examines the difficulties in implementing new procedures and techniques in an organisation and evaluating the benefits. Explanatory case studies: Where existing theory is used to understand and explain what is happening.

Yin (1994:20-27), emphasises the following five components of a research design, which are especially important for case studies: Study questions: The case study strategy is most likely to be appropriate for 'how' and 'why' questions, which calls for the initial task being to clarify precisely the nature of the study questions. Study propositions: A study proposition directs the attention to

something that should be examined within the scope of the study. For greater clarity, the proposition points to the, 'reason for the study'. Unit of analysis: Should the case study involve a specific person being studied, say a person with a rare medical problem, the individual being studied is the primary unit of analysis. The tentative definition of the unit of analysis is related to the way in which the initial research questions were formulated. Linking data to propositions: A number of ways are open to students to link data to propositions. An approach suggested by Yin is that of 'pattern matching', whereby several pieces of information from the same case may be related to some theoretical proposition. Criteria for interpreting findings: If the different 'patterns' are

sufficiently contrasting, the findings can be interpreted in terms of comparing at least two rival propositions.

The unit of analysis for this research will be a Government department. The population consist of 34 national departments of which a sample of 30 national departments will be randomly drawn. The data collection method will be a gathering of qualitative data by means of questionnaires.

1.5

RESEARCH ASSUMPTIONS

Leedy & Ormrod (2001:62-63) provides the following (rather lengthy) explanation of assumptions which could not be improved upon and is thus cited verbatim: "Assumptions are what the researcher takes for granted. But taking things for granted may cause much misunderstanding. What we may tacitly assume, others may have never considered. If we act on our assumptions, and if in the final result, such actions make a big difference in the outcome, we may face a situation we are totally unprepared to accept. In research we try to leave nothing to chance in the hope of preventing any misunderstanding. All assumptions that have a material bearing on the problem should be openly and unreservedly set forth. If others know the assumptions a researcher makes, they are better prepared to evaluate the conclusions that result from such assumptions. To discover your own assumptions, ask yourself, what was I taking for granted with respect to the problem? The answer will bring your assumptions into clear view".

The research assumptions pertaining to this dissertation, the following: Government institutions participating in the research have implemented supply chain management. Respondents taking part in the research have extensive experience and knowledge of supply chain management. Respondents taking part in this research will not be biased.

1.6

RESEARCH CONSTRAINTS

According to Hussey, J and Hussey, R. (1997:129), 'limitations' identify weaknesses in the research, while 'de-limitations' explain how the scope of the study was focussed on only one particular area or entity, as opposed to say a wider or holistic approach. Research constraints pertaining to this dissertation, the following:

1.6.1

Limitation

The limitation of this dissertation relates to the fact that upon completion of the research, the research findings will be generalised to all Government institutions seeing that only national departments will be analysed.

1.6.2

De-limitation

The de-limitation of this dissertation relates to the fact that questionnaires will only be distributed to one specific geographical area namely, all national departments in the Gauteng Province.

1.7

CHAPTER AND CONTENT ANALYSIS

The dissertation represents a study into the impact of supply chain management on Government institutions. The chapters of the dissertation are as follows: Chapter 1. Scope of Research: In this chapter, a high level background will be provided of the scope of the research to be undertaken. Specific focus will be levelled at aspects such the research process, background to the research problem, (the research question & investigative questions), the research design and methodology, research assumptions, research constraints, an overview of the dissertation structure, chapter and content analysis, key research objectives, ethical considerations and the significance of the proposed research.

Chapter 2. Holistic View of the Implementation Environment: In this chapter, a holistic view of the implementation environment will be provided. Relevant aspects such as the various spheres of the Government of the Republic of South Africa, role of National Treasury (legislative mandate) and the procurement reform (background, process of implementation & current implementation status) will be addressed in terms of its relevance to the research topic.

Chapter 3.

Supply Chain Management: Abbreviated Literature

Review: In this chapter a literature review will be provided on the concept of supply chain management. Specific focus will be levelled on the

evolution of procurement and logistics pertaining to supply chain management, supply chain management defined, prerequisites for the implementation of supply chain management (private sector approach versus public sector approach), and the objectives for the implementation of supply chain management. Furthermore, the pillars of procurement and supply chain management, supply chain management models

(Governments supply chain model), elements of supply chain management (demand management, acquisition management, logistics management, disposal management, supply chain performance and risk management) and the future of supply chain management will also be addressed in terms of its relevance to the research topic.

Chapter 4. Supply Chain Management Survey Design and Methodology: In this chapter the supply chain management survey design and methodology will be addressed. Specific focus will be levelled at aspects such as types of research, aspects impacting on the survey, data collection, the target population, the choice of sampling method, measurement scales, survey design, the validation of survey questions and validation of survey results.

Chapter 5.

Data Analysis and Interpretation of Results:

In this

chapter, a data analysis and interpretation of results will be conducted on the data gleaned from the research survey to be conducted within the ambit of this research. Specific focus will be levelled at aspects such as descriptive survey analysis and key research findings.

Chapter 6. Conclusion: In this chapter the research will be concluded, recommendations will be made and final analogies of the research will be drawn.

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1.8

KEY RESEARCH OBJECTIVES

1.8.1

Primary objective

The primary objective of this dissertation is to research the impact of inefficient supply chain management on Government institutions.

1.8.2

Secondary objectives

The secondary objectives of this dissertation are to: Determine whether Governments objectives for the introduction of supply chain management are being achieved? Determine whether supply chain management followed a structured sequence of events in the implementation thereof in Government institutions. Determine how National Treasury's intervention affected the impact of supply chain management in Government institutions. Develop recommendations and strategies to enable National Treasury to improve the impact of supply chain management in Government institutions.

1.9

ETHICAL CONSIDERATIONS

In the context of research, according to Saunders, Lewis and Thornhill, (2000:130), ethics refers to the appropriateness of your behavior in relation to the rights of those who become the subject of your work, or are affected by it. Most ethical issues in research fall into one of four categories namely, protection from harm, informed consent, right to privacy, and honesty with professional colleagues (Leedy & Omrod, 2001:107-108): Protection from harm: In cases where the nature of a study involves creating a small amount of psychological discomfort, participants, should know about it ahead of time, and any necessary debriefing or counseling should follow immediately after their participation.

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Informed consent:

Participants should in advance be told about the

nature of the study to be conducted, and be given the choice of either the right to withdraw from the study at any time, as participation in a study should be strictly voluntary. It is suggested that an informed consent form that describes the nature of research as well the nature of the required participation be presented to participants in a research study. Such a form should according to Leedy & Ormrod (2001:108) contain the following information: A brief description of the nature of the study. A description of what participation will involve in terms of activities and duration. A statement indicating that participation is voluntary and can be terminated at any time without penalty. A list of potential risk and/or discomfort that participants may encounter. The guarantee that all responses will remain confidential and anonymous. The researchers name, plus information about how the researcher can be contacted. An individual or office that participants can contact, should they have questions or concerns about the study. An offer to provide detailed information about the study (e.g., a summary of findings) upon its completion. A place for participants to sign and date the consent form, indicating agreement to participate. Right to privacy: Any research study should respect participants right to privacy. In general, a researcher must keep the nature and quality of participants performance strictly confidential. Honesty with professional colleagues: Researchers must report their findings in a complete and honest fashion, without misrepresenting what they have done or intentionally misleading others as to the nature of their findings. Under no circumstances should a researcher fabricate data to support a particular conclusion, no matter how seemingly noble that conclusion may be.

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1.10

SIGNIFICANCE OF THE PROPOSED RESEARCH

The significance of the proposed research pertains to its uniqueness, relevance in terms of the time of occurrence. Furthermore, the fact that South Africa is the only country where tender boards have been demolished in the process of implementing supply chain management in government institutions whereby accounting officers/ authorities have been given full accountability to manage the funds of their respective institutions.

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CHAPTER 2 HOLISTIC VIEW OF THE IMPLEMENTATION ENVIRONMENT

2.1

INTRODUCTION

In this chapter, a holistic perspective of the research environment will be provided. Relevant issues such as the various spheres of the Government of the Republic of South Africa, role of National Treasury (legislative mandate) and the procurement reform (background, process of implementation and current implementation status) will be addressed in terms of its relevance to the research topic.

2.2

GOVERNMENT OF THE REPUBLIC OF SOUTH AFRICA

According to Section 40 (1) of Constitution (1996), In the Republic, Government is constituted as national, provincial and local spheres of Government which are distinctive, interdependent and interrelated. Although each spheres

responsibilities are addressed in the Constitution, a breakdown of the different spheres of Government addressing the composition and basic role is provided as follows:

National Sphere: National Government makes laws and sets policies for the whole country. It also provides certain services (e.g. issuing of ID documents) (Anonymous 1, 2007:1). In order to fulfil its mandate, the national sphere of Government consists of 34 national departments, 10 constitutional institutions, 30 national government business enterprises and 160 public entities.

Provincial Sphere:

Provincial Government can make and administer

provincial laws in its areas of jurisdiction (e.g. liquor licenses, provincial planning, cultural matters, recreation, roads and traffic). It shares certain areas with national government, such as health, education and social services (Anonymous 1, 2007:1). In order to fulfil its mandate, the

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provincial sphere of Government consists of 9 provincial treasuries, 98 provincial departments and 95 provincial public entities.

Local Sphere: Local Governments role includes local service delivery, promoting a safe and healthy environment, and promoting development (Anonymous 1, 2007:1). In order to fulfil its mandate, the local sphere of government consists of 283 municipalities and 91 municipal entities.

A representation of the three spheres of government is depicted in the Figure 2.1 for ease of reference.
LEGISLATURE

National Sphere

National Treasury

Provincial Sphere

National Departments

Provincial Treasuries

Local Sphere

National Public Entities

Provincial Departments

Municipalities

Constitutional Institutions

Provincial Public Entities

Municipal Entities

National Government Business Enterprises

Figure 2.1: The three spheres of government (Own Source)

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2.3

ROLE OF NATIONAL TREASURY

2.3.1

Legislative Mandate

National Treasury requires a legislative mandate in order to be empowered to facilitate the implementation and management of a supply chain management system in Government. In order to illustrate how National Treasurys legislative mandate is structured, the following legislation will be expanded upon below, namely Constitution, Public Finance Management Act, Treasury Regulations and Instructions and Guides.

Constitution Section 217 of the Constitution (1996) stipulates the following pertaining to procurement that is regarded a core component of supply chain management: 217. (1) When an organ of state in the national, provincial or local sphere of Government, or any other institution identified in national legislation, contracts for goods and services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost effective. (2) Subsection (1) does not prevent the organs of state referred to in that subsection from implementing a procurement policy providing for(a) categories of preference in the allocation of contracts; and (b) the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination. (3) National legislation must prescribe a framework within which the policy referred to in subsection (2) may be implemented.

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This primary legislation as set out in Section 217 of the Constitution is regarded as the 'birth certificate' in terms of legislation pertaining to supply chain management and preferential procurement as all other legislation to be discussed in this dissertation emanates from this Act.

Public Finance Management Act (PFMA) The aim of the PFMA is to address the deficiencies of the previous rule driven financial management systems that was utilised by the previous government by modernising the system of financial management in the public sector to enable public sector managers to manage and be more accountable. Section 76 (4)(c) of the PFMA (SA 1999:78) stipulates the following regarding National Treasurys role pertaining to the

development of regulations, issuing of instructions and guidance and the establishment of a framework for an appropriate procurement and provisioning system: 76(4)(c) The National Treasury may make regulations or issue instructions applicable to all institutions to which this Act applies concerning the determination of a framework for an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost effective.

Section 38 (1)(iii) of the PFMA (SA 1999:48) that address the general responsibilities of accounting officers stipulates that: 38(1)(iii) The accounting officer for a department, trading entity or constitutional institution must ensure that that department, trading entity or constitutional institution has and maintains an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost effective. Based on the abovementioned citations, it is evident that the National Treasury has the legislative mandate and responsibility to introduce uniform norms and standards pertaining to supply chain management in all spheres of Government with the view of assisting accounting officers

17

with their responsibilities in maintaining an appropriate procurement and provisioning system within their respective institution.

Treasury Regulations The aim of Treasury Regulations is to give effect to National Treasurys mandate pertaining to the establishment of a framework for an appropriate procurement and provisioning system. Chapter 16A: Framework for Supply Chain Management was developed and promulgated in Government Gazette Number 25767 on 5 December 2003 as Treasury Regulations for this purpose. It addresses aspects such as the accounting officers or accounting authority of an institutions role in the development and implementation of an effective and efficient supply chain management system in his or her institution, establishment of supply chain management units, training of supply chain management officials, procurement of goods and services, disposal and letting of state assets, compliance with ethical standards etc. just to name but a view.

Instructions and guides In accordance with the Framework for Supply Chain Management referred to in Section 76(4)(c) of the PFMA, National Treasury is empowered to issue instructions and guidelines. National Treasury issues instructions in the form of supply chain management practice notes and guidelines as circulars. Both of these forms of documents are issued with the view to promote uniformity and provide assistance to accounting officers and accounting authorities with regard to the development, implementation and maintenance of an affective and efficient supply chain management system within their respective institutions.

2.4

PROCUREMENT REFORM

2.4.1

Background

Immediately after taking office in 1994, the new Government of South Africa initiated a series of budgetary and financial reforms in its attempt to modernise the

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management of the public sector to make it more people-friendly and sensitive to meeting the needs of the communities it serves. As part of these series of reforms, National Treasury in collaboration with the World Bank launched a Country Procurement Assessment Review (CPAR), with the aim to analyse the existing public sector procurement and contract management systems in South Africa and to recommend suitable actions to improve the economy, efficiency, predictability and transparency of procurement and contract management processes. The study (CPAR, Refining the Public Procurement System in South Africa, Volume I, 2002:10-12) yielded the following weaknesses in the procurement and contract management systems: Insufficient procurement planning. Procurement planning linked to the budgeting process is not applied as a matter of principle, which leads to the need for recurring contracts, or the extension of existing ones, or the need for emergency procurements with the usual cost increases. Insufficient procurement data. There is no system to capture comprehensive data on procurements and this inhibits publication of critical statistics on national procurement, including some of the basic information on number of contracts executed by the same supplier, reasons for the termination of contracts, and time and cost overruns. No uniform procedures for tender publications. Tenders at national and provincial levels are advertised in the weekly State Tender Bulletin, which is obtainable from the offices of the State Tender Board or the Government website. It is also posted to subscribers at a nominal fee. Some provinces do not advertise in the State Tender Bulletin and only advertise in major newspapers. Local authorities usually place advertisements in major newspapers. Delays in payments to suppliers. Contractors for supplies and works are often not paid within 30 days of submitting an invoice, which has increased the Governments cost of business. On the other hand, this practice has disadvantaged consultants, who are reluctant to charge interest on overdue accounts because of fear for not obtaining new assignments.

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Generally, payment at the national level is somewhat more acceptable, at the provincial level it is mixed and at the local level it is poor. Conflict of interest and political influence through some of the tender committees. Currently, private sector members in 8 of the 9 provincial tender boards constitute a majority. This practice, in addition to such members not being accountable to the Government, gives rise to a situation of conflict of interest in awarding of contracts. The practice of councillors (politicians) participating in the decision making process of contract awards, at the local Government level, gives rise to undue influence in the awarding of contracts. Poor practice of tender opening. Except in the case of building and construction contracts, prices quoted by the bidders are not read out during public opening of tenders/bids. This is being practiced at the Central, Provincial and Local Government levels. Poor estimates of requirements in centrally managed supplies contracts. Various uncompetitive systems for the selection and appointment of consultants. Consultants providing services in the building and construction sectors are appointed from panels (a database of pre-qualified consultants) on a pre-set tariff basis. Appointments are made in the sequence in which they were registered on the database or at the discretion of officials. Some contracts are awarded on the basis of comparison of price only, without any weightage for the quality of the proposals. At the local Government level, consultants are often appointed at the discretion of councillors (politicians). Mostly, they are appointed on the basis of a fee system advocated by the Association of Consulting Engineers from a prequalified database of consultants. As a rule, contracts are awarded on a rotational basis to the pre-selected consultants who generally belong to the same constituency or municipality.

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Implementation Weaknesses. The audit of procurement in the national and provincial spheres of Government found examples of the following poor practices by organs of state: Failing to benchmark prices against other contract prices in order to establish value for money and realise savings to the state. Changing of specifications after the award of tenders. Poor planning in works contracts and excessive cost overruns. Irregular practices (including conflicts of interest) by some provincial tender boards, resulting in financial gain and other irregularities by tender board members. Failure by certain provincial tender boards to timeously call for tenders in respect of recurring commodities prior to the expiry of existing contracts resulting in the extension of existing contracts to overcome interruptions in supply. Excessive delays in the awarding of contracts resulting in escalation of costs. Lack of verification of quality, quantity and costs due to the nonavailability of procurement documents (poor record keeping). Subdividing of contracts in order to reduce the value of individual contracts to remain within delegated financial limits. Entering into lease agreements for properties which have not been utilised. The capacity of provincial and local Government to spend the allocated funds on infrastructure is generally low, due to outdated institutional arrangements, poor planning, design and project management practices.

Procurement using the National Public Housing Fund. A significant amount of public monies is spent on the provision of housing to the poor though the project linked housing subsidy scheme. The granting of rights in this scheme to the private sector to provide housing is, however,

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currently not treated as falling within the ambit of procurement. Contracts are awarded based on development proposals and not on open tendering system. The findings of the CPAR investigation prompted government to replace the outdated and rule driven procurement and provisioning practices and to this effect, in September 2003, Cabinet adopted an integrated supply chain management policy to be implemented across all spheres of Government.

2.4.2

Process of implementation

The three-phase implementation strategy that was developed to give effect to the supply chain management policy adopted by Cabinet according to National Treasury's Supply Chain Management guide for accounting officers/ authorities (2004), the following: These phases can be categorised as: Firstly, the pre-tender board abolition or preparation phase. Secondly, the immediate post-tender board abolition or full

implementation phase. Lastly, the monitoring phase.

The main aim of the first phase of implementation is the abolishment of tender boards. The reason being that in the past tender boards played an active role in the decision making process where certain decisions were made on behalf of public sector managers with regards to procurement that had a direct impact on not only service delivery of the institution but also on their authority in respect of budget expenditure. Since this rule driven process alienated the accountability from public sector managers, the abolishment of tender boards were regarded as a priority and therefore was included in the first phase of the supply chain management implementation strategy to eradicate financial systems that were based on weak accountability principles that will form the foundation for second phase of implementation.

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The second phase of implementation entails the implementation of an effective and efficient supply chain management system within all Government institutions for the procurement of goods and services and the disposal and letting of state assets. The supply chain management system to be implemented must be fair, equitable, transparent, competitive and cost effective and provide for at least the elements of demand management, acquisition management, disposal management, logistics management, disposal management; risk management and regular assessment of supply chain performance.

The implementation phase also required institutions to establish a separate supply chain management unit within their respective office of the chief financial officer. Furthermore, to ensure that supply chain management officials are trained, establishment of bid specification/ bid evaluation/ bid adjudication committees, implementation of measures of compliance with ethical standards, assessment of supply chain performance etc, to name just but a few. This phase also required the National Treasury to take the lead by developing and issuing a number of instructions and guidelines with the view of promoting uniformity and providing assistance to accounting officers and accounting authorities in this regard.

The last phase of the implementation strategy entails the establishment of a supply chain management office within National Treasury that will be responsible to monitor progress and provide support to institutions with regard to the implementation and maintenance of an effective and efficient supply chain management system. This is to achieve the goals of good governance whereby there will be uniformity in procedures, policies, bidding documentation and contract management and sound systems of control and accountability.

2.4.3

Current implementation status

Subsequently, the Policy to Guide Uniformity in Procurement Reform Processes in Government, the Regulations in terms of section 76(4) (c) of the PFMA: Framework for Supply Chain Management, the Supply Chain Management guide for Accounting Officers / Authorities, supply chain management practice notes and other supporting documents were issued to assist institutions with the

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implementation of the supply chain management processes. Currently, most tender boards have been abolished resulting in the transfer of accountability to accounting officers/authorities with the exemption of the State Tender Board of National Treasury. The State Tender Board of National Treasury will be abolished the moment the State Tender Board Act, 1968 (Act No. 86 of 1968) and its regulations have been repealed.

The majority of institutions have commenced with implementing supply chain management. The National Treasury is monitoring the progress made in this regard. The National Treasury have identified a number of challenges that institutions are experiencing in implementing supply chain management namely, the lack of the development of a detailed supply chain management implementation plan, difficulty in the establishment of bid specification/bid evaluation/bid adjudication committees, infrastructure limitations, training of personnel, mind shift from rule driven to decision making, just to name but a few.

2.5

CONCLUSION

In this chapter, background was provided on the impact of supply chain management on government institutions. Specific focus was levelled at the holistic view of the implementation environment (various spheres of Government of the Re-public of South Africa), role of National Treasury (legislative mandate), and procurement reform (background, process of implementation and current implementation status). In the next chapter, a literature review will be conducted on the concept of supply chain management.

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CHAPTER 3 SUPPLY CHAIN MANAGEMENT: A LITERATURE REVIEW

3.1 EVOLUTION OF PROCUREMENT AND LOGISTICS PERTAINING TO SUPPLY CHAIN MANAGEMENT

According to Burt, Dobler and Starling (2003:26-27), by the late 80s material cost made up approximately 60 percent of costs of goods sold in the United States. The impact of materials and purchasing management on company assets became very significant and very visible. The U.S. manufacturing industry (and many service firms) emulated most of Japanese Quality improvement initiatives in the likes of kanban, quality circles, just-in-time, and kaizan (continuous improvement). These changes, coupled with electronic purchasing systems and growing recognition by senior management of the critical role that must be played by purchasing and supply chain management, provided the stimulus for more change.

Purchasing and supply chain managers began to recognise the need for two types of resources in their organisations, namely a team of people who manage the operational and tactical activities of purchasing and materials management (material coordinators) and, supply chain managers who are involved in the development of broader strategic aspects of the function. Material coordinators are responsible for placing orders against purchase agreements (Purchase agreements identify approved sources of supply, prices and delivery criteria for carefully defined materials and services), keeping the production lines running, and minimising inventories. Supply managers participate in new product development and are involved in selecting sources, managing costs, developing and nurturing supplier partnerships and strategic alliances. Furthermore,

responsible for issuing and managing long-term agreements with carefully selected suppliers.

At proactive organisations, supply managers also are active participants in the organisations strategic planning process. As a result, organisations supply

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strategy is becoming recognised as a strategic entity equal in importance to the firms marketing, conversion, and finance strategies. These four strategies, when properly integrated, forms the organisations strategic business plan.

The 1990's became the era during which strategic logistics management developed into a critically important business activity. The focus of logistics changed from internal efficiency to external relations between parties in the supply chain (Skoett-Larsen 2000:377). It was also the era in which business experienced the most dramatic changes. Some of the changes, which impacted most definitely on the further development of the concept Supply Chain Management, are summarised by Chandra and Kumar (2000:100) as follows: Increasing national and international competition. Growing number of strategic alliances between organisations. Organisation structures are starting to align with processes. Manufacturing systems have been enhanced by tools such as enterprise resources planning and materials requirement planning. There has been a growing appreciation in many firms of total cost focus product from its source of consumption (The concept of total cost of ownership is of paramount importance in this regard.) Reduction in the number of suppliers. Outsourcing of non-core activities. Sharing of information between vendors and customers. Shift from mass production to customised products.

The impact of these changes on supply chain development was profound. It became an accepted doctrine that all players within the supply chain upstream including suppliers suppliers and downstream extending to customers customers have a role to play in understanding customer requirements and satisfying market demand. Optimising customer value is the focus point of the entire supply chain. It was also accepted that no single firm has the technology or resources to meet market demand on its own, culminating in the integration of management, processes and infrastructure across organisational borders. In addition, due to the availability of information technology, the need for sharing information across the

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entire supply chain was recognised as the main enabling factor in establishing an integrated supply chain (Hugo, Bardenhorst-Weiss & van Biljon, 2004:4).

According to the National Treasury (2004:2), supply chain management guide for accounting officers/ authorities procurement practices must be fair, equitable, transparent, competitive and cost effective. The present position is far from the ideal, for example: Procurement and provisioning procedures are rule driven, and value for money is almost always equated to the lowest price tendered the emphasis is on monitoring inputs. Procurement and provisioning activities are not linked to budgetary planning. Asset management is limited to control of inventory, rather than on ensuring a satisfactory return to the community for the funds invested. Bid documentation are not uniform, causing uncertainty to bidders and practitioners. The Preferential Procurement Policy Framework Act, 2000 (Act No. 5 of 2000) and its associated regulations are complex and difficult to implement correctly, and procurement practitioners are not adequately trained in its application. The costs and outcomes the Preferential Procurement Policy Framework Act, 2000 (Act No. 5 of 2000) are not fully quantified, hence it is impossible to evaluate the merits of the system.

In September 2003, Cabinet adopted a supply chain management policy to replace the outdated procurement and provisioning practices (described above) across government with a supply chain management function that will form an integral part of financial management and will conform to international best practices. The new arrangements will promote uniformity in supply chain management processes and also in the interpretation of governments preferential procurement legislation and policies, which should themselves be seen in the context of other related legislative and policy requirements. Above all, these arrangements will mean that

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responsibility and accountability for supply chain management related functions would be devolved to accounting officers/ authorities.

The evolution of procurement and logistics to supply chain management followed more or less the same sequence of events in the sense that both the private and public sector had to transform in order to meet its customers ever changing needs. The solution to the challenge of continuous improvement resulted in the implementation of supply chain management.

3.2

SUPPLY CHAIN MANAGEMENT DEFINED

Supply chain management is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all

movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption. The definition one American professional association put forward is that, "supply chain management encompasses the planning and management of all activities involved in sourcing, procurement, conversion and logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers and customers".

The following definitions attributed to the concept of supply chain management demonstrate the plethora of interpretations associated to the concept: In essence, supply chain management integrates supply and demand management within and across companies (Anonymous 2, 2006:1). Supply chain management is the systems approach to managing the entire flow of information, materials, and services from raw materials suppliers through factories and warehouses to the end customer (Leenders & Fearon 1997:295). Supply chain management is the

elusive combination of art and science that goes into improving the way a company finds the raw components it needs to make a product or service, manufacturers that product, service and delivers it to customers (Anonymous 3, 2006:1). Supply chain management is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to

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retailer to consumer (Anonymous 4, 2006:1). Supply chain management is a business system of enterprise strategies, business processes and information technologies for improving the planning, execution and collaboration of material, information, financial and workforce flows in the supply chain (Anonymous 5, 2006:1). Supply chain management means transforming a companys supply chain into an optimally efficient, customer-satisfying process, where the effectivity of the whole supply chain is more important than the effectivity of each individual department (Anonymous 6, 2006:1). Supply chain management includes managing supply and demand, sourcing raw material and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels and delivery to the customer. Due to its wide scope, supply chain management must address complex interdependencies, in effect creating an extended enterprise that reaches far beyond the factory doors (Anonymous 7, 2007:2). Supply chain management looks at the supply chain of a company to streamline materials, information and finances from internal and external suppliers (Anonymous 8, 2007:1). Supply chain management by definition involves the entire supply chain, from the supplier out to the manufacturer, followed by the use of the retailer and then the final customer. In order to be efficient in supply chain management, you must meet three primary goals involving levels of inventory, speed of the transaction, and efficiency in sales (Anonymous 9, 2007:1).

From the above definitions, the analogy can be drawn that supply chain management is the active management of supply chain activities to maximise customer value and achieve a sustainable competitive advantage. It represents a conscious effort by the supply chain firms to develop and run supply chains in the most effective and efficient ways possible. Supply chain activities cover everything from product development, sourcing, production and logistics as well as the information systems needed to coordinate these activities. The Institute for Supply Management describes supply chain management as, "the design and management of seamless, value added processes across organizational boundaries to meet the real needs of the end customer. The development and integration of people and technological resources are critical to successful supply chain integration" (Anonymous 10, 2007:1).

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In the opinion of this author, one of the most appropriate definitions is cited in National Treasury's Policy strategy to guide uniformity in procurement reform processes in government (National Treasury, 2003:4) which reads as follows: "Supply chain management is an integral part of financial management that seeks to introduce internationally accepted best practice principles, whilst at the same time addressing Government's preferential procurement policy objectives".

3.3

PREREQUISITES FOR THE IMPLEMENTATION OF SUPPLY CHAIN MANAGEMENT

3.3.1

Private Sector Approach

According to Burt, Dobler and Starling (2003:xxxvii-xxxviii) there is no chance of implementing the chain concept unless the following is in place or at least detailed plans set out to accomplish the following: Top management understanding and commitment: While this may be an old clich for all new programs, chain management starts at the top, the bottom layers will never force it. The quest for excellence: The only organizations which will make this change are those which will provide at all levels the desire and ability to embrace lifelong continuous improvement in quality, service, and personal effort. Effective and efficient communications: Real-time electronic communications with shared information at all levels is an absolute must. Firms must do a much better job of forecasting, which requires a mix of mathematical modelling and industry experience-judgement. The entire chain operations starts with demand forecasting, and if marketing managers really understand their role, they must dramatically improve their forecasting ability and accuracy. B2B electronic Internet commerce systems can be of enormous value as buyers can now source the world and send large amounts of data. However, the use of reverse auctions and consortiums focus on price, not relationships. If misused, B2B e-

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commerce systems will have a negative effect on supply chain management. Relationship instead of exchanges: Most people understand that

partnerships, whether in marriage or business, require trust and long-term commitment. Purchasing personnel have a long history of being risk averse because they are seldom rewarded (no one knows how to do it) for creative efforts and severely punished for mistakes. Many negotiation seminars still propose intimidation and almost childish tricks. The legal seminars are still extremely popular in purchasing circles. The heart of any good relationship is open communication and trust, not a legal document. Conversely, the production, engineering, and logistics

personnel must understand that sourcing is not the simple process they assume it is. Finding the right source and having fewer sources in longterm contracts make sourcing even more critical. The Internet provides a list of possible candidates and what they manufacture, it does not evaluate a potential partner for a long-term relationship nor can it possibly iron out the details of the performance requirements. While one can buy generic products via the computer, one would not buy strategically important goods in the same manner. Cross-functional teams: While most of us have been on a wide variety of teams - athletic, military, and some business projects - most business members carry over to the team, all the bad habits of committees, which are merely temporary collections of people representing some department or function. As most committee meetings are more often than not

dysfunctional, i.e., they either represent a speech forum for the chairman or an opportunity for the members to protect vested interests. Team

formation, training, operation, and rewards require maturity, patience, and interpersonal skills. It is a known fact that people simply cannot function on teams and that is why there are so few really outstanding teams, even though many teams have a number of great individual performers. The special philosophy-reality of teams, partnerships, and alliances: This may seem repetitious of previous comments but this prerequisite actually builds on earlier observations. Few teams/partnerships and

especially alliances start, based on complete harmony and trust. They

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should grow into this relationship based on experience, revisions, and constant practice. Top management must provide constant support,

guidance, and training to resolve the expected conflict. Impatience and the wrong kind of pressure have caused many a coach and their team or partnership to fail.

According to Brewer, Button and Hensher (2001:121-123), implementing supply chain management requires making the transition from a functional organisation to a focus on process, first inside the firm and then across firms in the supply chain. In the customer relationship management process, sales and marketing provide the account management expertise, engineering provides the

specifications which define the requirements, logistics provides knowledge of customer service requirements, manufacturing provides the manufacturing strategy, purchasing provides the sourcing strategy, and finance and accounting provides customer profitability reports. The customer service requirements must be used as input to manufacturing, sourcing, and logistics strategies. If the proper co-ordination mechanisms are not in place across the various functions, the process will be neither effective nor efficient. By taking a process focus, all functions that touch the product or provide information must work together. Typically, firms within the supply chain will have their own functional silos that must be overcome and a process approach accepted in order to successfully implement supply chain management. The requirements for successful implementation of supply chain management include: Executive support, leadership and commitment to change. An understanding of the degree of change that is necessary. Agreement on the SCM vision and the key processes. The necessary commitment of resources and empowerment to achieve the stated goals.

It is of critical importance that top management is committed to the change, effective communication channels are in place to establish a common understanding of the required degree of change that is required, and the organisation that are affected by the change must have the desire and ability to achieve the stated goals.

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3.3.2

Public Sector Approach

The National Treasury's Policy strategy to guide uniformity in procurement reform processes in Government (National Treasury, 2003:6-7), stipulates that the very substantial divide between the current outdated procurement and provisioning practices in Government and the new integrated supply chain management function, which necessitates a phased implementation approach. To prepare departments for the new concepts, tender boards, in liaison with the relevant treasuries, should begin to significantly delegate their authority to procurement departments so that the latter can begin to build capacity. In this endeavour, accounting officers/authorities should be supported by their relevant treasuries. Capacity building would include the establishment of supply chain management units in the relevant Chief Financial Officers structures, the establishment of clear lines of authority and accountability and performance criteria for minimising risk, quicker and more efficient sourcing and better asset and inventory management. It is the responsibility of every accounting officer/authority to ensure that their supply chain management personnel are adequately trained. The National Treasury facilitated the development of training material in conjunction with the South African Management Development Institute, Institute for Public Finance and Auditing, and other service providers to assist accounting officers/ authorities in the training of their personnel.

The policy strategy document and its supporting regulatory frameworks will initially apply to all national and provincial departments, constitutional institutions, public entities as defined in Schedule 3A and 3C of the PFMA, municipalities and municipal entities defined in the Municipal Finance Management Act, 2003 (Act No.56 of 2003) and all school governing bodies. The policy strategy will be adapted to also include appropriate directives that will be applicable to public entities as defined in schedule 2 of the PFMA, after the amendment of the Preferential Procurement Policy Framework Act, 2000 (Act No. 5 of 2000) and its associated regulations. The latter Act and its regulations, will be aligned with the provisions of the Broad Based Black Economic Empowerment Bill and its supporting Strategy document, in such a way that

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preferential targets will be set and incorporated into policy charters that will be issued by the Minister of Trade and Industry. These policy charters and the associated targets will also be applicable to schedule 2 public entities.

It is evident from the above that Government followed a phased-in implementation strategy whereby accounting officers/ authorities were given full accountability to implement supply chain management within their respective institutions, in terms of the legislation that was promulgated in this regard. As a result, the National Treasury was labelled as Government institutions 'Big Brother' in this process.

3.4

OBJECTIVES FOR THE IMPLEMENTATION OF SUPPLY CHAIN MANAGEMENT

The four major objectives of the supply chain management policy according to the National Treasury's Supply Chain Management guide for accounting

officers/authorities (National Treasury, 2004:9), the following: Transform Government procurement and provision practices into an integrated supply chain management function. Introduce a systematic approach for the appointment of consultants. Create a common understanding and interpretation of the preferential procurement policy. Promote the consistent application of 'best practices' throughout Government's supply chain.

3.5

THE PILLARS OF PROCUREMENT AND SUPPLY CHAIN MANAGEMENT

According to Webb (2000:6-8), proper and successful Government procurement rests upon certain core principles of behaviour, aptly termed the four pillars of procurement. They are best described as 'pillars', because if any one of them fails the procurement system as a whole fails. The four pillars of procurement which pertains to value for money, open and effective competition, ethics and fair dealing and

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accountability and reporting calls for closer scrutiny, and are elaborated upon below:

Value for Money This is an essential test against which a department must justify a procurement outcome. Price alone is often not a reliable indicator and departments will not necessarily obtain the best value for money by accepting the lowest price offer that meets mandatory requirements. Best value for money means the best available outcome when all relevant costs and benefits over the procurement cycle are considered. The procurement function itself must also provide value for money and must be carried out in a cost-effective way. Procurement organisations, whether centrally

located or devolved to individual departments, should: Avoid any unnecessary costs and delays for themselves or suppliers. Monitor the supply arrangements and reconsider them if they cease to provide the expected benefits. Ensure continuous improvement in the efficiency of internal processes and systems.

Open and Effective Competition This requires: A framework of procurement laws, policies, practices and procedures that are transparent, i.e. they must be readily accessible to all parties. Openness in the procurement process. Encouragement of effective competition through procurement methods suited to market circumstances.

Departments need to apply effort and research to get the best possible outcome from the market by ensuring that: Potential suppliers have reasonable access to procurement opportunities and that available opportunities are notified at least in the Government Tender Bulletin.

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Where market circumstances limit competition departments, recognise that fact and use procurement methods take account of it. Adequate and timely information is provided to suppliers to enable them to bid. Bias and favouritism are eliminated. The costs of bidding for opportunities do not deter competent suppliers. Costs incurred in promoting competition are at least commensurate with the benefits received.

Ethics and Fair Dealing In procurement, if all parties comply with ethical standards they can: Deal with each other on a basis of mutual trust and respect. Conduct their business in a fair and reasonable manner and with integrity.

All Government staff associated with procurement, particularly those dealing direct with suppliers or potential suppliers, are required to: Recognise and deal with conflicts of interest or the potential therefore. Deal with suppliers even-handedly. Ensure they do not compromise the standing of the state through acceptance of gifts or hospitality. Be scrupulous in their use of public property. Provide all assistance in the elimination of fraud and corruption.

Accountability and Reporting This involves ensuring that individuals and organisations are answerable for their plans, actions and outcomes. Openness and transparency in administration, by external scrutiny through public reporting, is an essential element of accountability. Within the procurement framework: Heads of departments are accountable to their ministers for the overall management of procurement activities.

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Heads of Procurement and senior procurement directors are accountable to heads of departments for various high-level management and co-ordination activities. Individual procurement officers are accountable to Heads of Procurement, and to their clients, for the services they provide. All people exercising procurement functions must have regard to these guidelines and are accountable to management.

The pillars cited above, also form the foundation of the supply chain management system implemented in Government as reflected in Treasury Regulation 16A3.2(a) that states that, a supply chain management system must be fair, equitable, transparent, competitive and cost effective.

3.6

SUPPLY CHAIN MANAGEMENT MODELS

3.6.1

Supply Chain Management Models

According to Hugo, Bardenhorst-Weiss and van Biljon (2004:7-8), the graphical depiction of supply chain management is depicted in Figure 3.1 below, and represents the integration of activities involved in the flow of material and services and furthermore shows that the supply chain as a whole is focussed on customer value creation.

Figure 3.1: Visual presentation of supply chain management. (Source: Hugo, BardenhorstWeiss & van Biljon, 2004:7).

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Dumond (1996:2) explains that there is a sequence of processes that must be performed. Some of the most important processes reflected in the Figure 3.1, the following: Customer driven supply chain. The essential process is that the customer define the product and this information is then fed through the information system back through the supply chain. The customer in reality becomes a partner in the supply chain. In this regard, Mason-Jones and Towill (1997:2) state that no matter how far upstream the suppliers are, all participants in the supply chain should work to meet the customers demand. Demand driven sales planning. Linked to customer-driven demand, volume and mix of demand is the trigger mechanism for all other processes. It is important to note that characteristics of the demand will to a very large extent determine the type of supply chain that must be created. In structuring the supply chain, it should be borne in mind that all activities and processes in the supply chain should be synchronised to the demands of the market. The supply chain should be managed as a single unit, which is entirely focussed on delivering value into the hands of customers in a specific and fast changing segmented market. Manufacturing/operations. Manufacturing processes should be flexible in order to adapt to market changes. Furthermore, they must be costeffective in order to contribute to a competitive advantage, and they must be quality conscious and able to reduce cycle time in designing, testing and producing new products. Like all other processes, manufacturing processes should be fully integrated with the upstream and down stream processes of the supply chain. Linked to the idea of fully integrated operations processes with the rest of the supply chain is the concept of 'lean production'. The concept of lean production describes value-adding processing in manufacturing and operations, where all elements of waste have been eliminated. It is clear that in the supply chain concept all manufacturing and operations processes that add cost and not value, should be eliminated.

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Efficient logistics. Efficient logistics processes will ensure lowest overall logistics costs in the supply chain while conforming to or exceeding customer requirements. The implication is that all logistics activities such as inventory, transportation, distribution systems including warehousing and order processing and delivery, should be synchronised with demand and integrated with all other processes of the supply chain. In a global business environment, superbly efficient logistics processes are major contributors to the competitive advantage that may be gained through integrated supply chain management. Information processing. New communication technology is one of the forces driving the supply chain. In terms of Figure 3.1, integrated information flow is one of the key processes since it spans the entire integrated supply chain. In this regard, it is of importance to note that the accuracy and speed of information flow in the supply chain is a major element in preventing amplification, in the order information as it passes upstream in the supply chain (the so called 'bullwhip effect'). Sourcing. Sourcing for products and services, including the very important outsourcing activity, is clearly an important process in the supply chain. Sourcing represents the upstream extension of the supply chain, and it may include second and third tier suppliers of the primary suppliers of the firm. It should be noted that in the supply chain networks, any particular firms may be 'a supplier' in one chain and 'a customer' in another. In addition, sourcing through competing supply chains is not an uncommon phenomenon. The supply chain endeavours to break down the traditional competitive and sometimes confrontational behaviour between all buyers and sellers in the supply chain, and replaces the adversarial attitude with one that emphasises partnerships, shared goals and an attitude of creating customer value through streamlining all shared processes.

According to Burt, Dobler and Starling (2003:7,9), the supply chain extends from the ultimate customer back to Mother Earth. The chain is viewed as a whole, a single entity rather than fragmented groups, each performing its own function. Money enters the supply chain only when the ultimate customer buys a product or service. Transactions within the supply chain simply allocate the

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ultimate customers money among the members of the chain. Figure 3.2 represents a graphical depiction of a firms supply system, and includes all internal functions, plus external suppliers involved in the indication and fulfilment of needs for materials, equipment, and services in an optimised fashion. This supply system plays a key role in helping the firm satisfy its role in its supply chain.

Figure 3.2: The Supply Chain. (Source: Burt, Dobler & Starling , 2003:7).

The supply system plays a key role in helping a firm satisfy its role in its supply chain. Supply chains are relatively easy to describe and visualise.

3.6.2 Governments Supply Chain Management Model

The supply chain management model that illustrates Governments supply chain management system as per National Treasury's Supply Chain Management guide for accounting officers/ authorities (National Treasury, 2004:10-11), is elaborated upon below:

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SUPPLY CHAIN MANAGEMENT

INFRASTRUCTURE (SYSTEMS)

DEMAND
GOVERNMENTS PREFERENTIAL PROCUREMENT POLICY OBJECTIVES

ACQUISITION LOGISTICS DISPOSAL

SUPPLY CHAIN PERFORMANCE DATABASE/S

Figure 3.3: Governments Supply Chain Management Model. (Source: National Treasury, 2004: 10).

The elements of the supply chain management system namely demand management, acquisition management, logistics management, disposal

management and supply chain performance calls for closer scrutiny, and are elaborated upon below at a high level to provide a holistic perspective of the concepts. The same elements will be analysed in detail in Paragraph 3.7 of this chapter.

Demand Management: This is the beginning of the supply chain where: A needs assessment is conducted to ensure that goods or services are acquired in order to deliver the agreed service. Specifications are precisely determined. Requirements are linked to the budget. The supplying industry has been analysed.

Acquisition Management: Traditionally, almost all the focus of procurement activity has been devoted to this stage (to the almost total exclusion of the other aspects of supply chain management). The management, as apposed to purely procedural considerations are: To decide on the manner in which the market will be approached.

41

To establish the total cost of ownership of a particular type of asset. To ensure that bid documentation is complete, including evaluation criteria. To evaluate bids in accordance with published criteria. To ensure that proper contract documents are signed.

Logistics Management: This aspect addresses: The setting of inventory levels. Receiving and distribution of material. Stores, warehouse and transport management. The review of vendor performance. From these processes, the financial system should be activated to generate payments.

Disposal Management: At this stage, consideration should be given to: Obsolescence planning. Maintaining a database of redundant material. Inspecting material for potential re-use. Determining a disposal strategy. Executing the physical disposal process.

Supply Chain Performance:

This is a monitoring process, undertaking a

retrospective analysis to determine whether the proper processes have been followed and whether the desired objectives were achieved. Some of the issues that may be reviewed are: Compliance to norms and standards. Cost efficiency of Supply Chain Management process (i.e. the cost of the process itself). Whether supply chain practices are consistent with Government's broader policy focus.

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3.7

ELEMENTS OF SUPPLY CHAIN MANAGEMENT

Treasury Regulation 16A3.2(d) regulates that a supply chain management system must provide for at least demand management, acquisition management, logistics management disposal management, risk management and regular assessment of supply chain performance. The core elements of the supply chain management system namely demand management, acquisition management, logistics management, disposal management and supply chain performance elaborated upon above at a high level in Paragraph 3.6.2, are analysed below in detail:

3.7.1

Demand Management

Demand management has been identified as one of the essential disciplines in developing best practices within supply chain management, as it is the stage where research and planning takes place. It is the first phase of supply chain management, and its objective is to ensure that the resources required to fulfil the needs are identified in the strategic plan of the institution, and are delivered at the correct time, price and place, and that the quantity and quality will satisfy those needs. It further ensures that the resources required to fulfil the needs are identified in a holistic manner. Requirements must be measured against the strategic objectives of the institution.

According to the National Treasury's Supply Chain Management guide for accounting officers/authorities (National Treasury, 2004:25), it is vital for managers to understand and utilize fool proof techniques to assist them in their planning, implementation and control activities. As part of the strategic plan of the institution, resources required for the fulfilment of its obligations should be clearly analysed. This includes a detailed analysis of the goods, works and

services required, such as how much can be accomplished, how quickly and with what materials, equipment, etc. Accounting officers/authorities should ensure that: Future as well as current needs are understood. Requirements are linked to the budget. Specifications are determined. The need forms part of the strategic plan of the institution.

43

An analysis of the past expenditure may assist in determining the manner in which the institution fulfilled this need in the past. The optimum method to satisfy the need is considered, including the possibility of procuring goods, works or services from other institutions (e.g. stationery, printing and related supplies from the Government Printer or furniture from the Department of Correctional Services), or on transversal or ad hoc contracts. The frequency of the requirement is specified. The economic order quantity is calculated. Lead and delivery times are identified. An industry and commodity analysis is conducted.

Managing demand is a cross-functional exercise which brings the supply chain practitioner closer to the end user, and ensures that value for money is attained.

3.7.2

Acquisition Management

3.7.2.1 Introduction

The National Treasury's Supply Chain Management guide for accounting officers/ authorities (National Treasury, 2004:11) describes the concept 'acquisition management' as follows: Traditionally, almost all the focus of procurement activity has been given to this stage (to the almost total exclusion of the other aspects of supply chain management). The management, rather than purely procedural considerations are: To decide on the manner in which the market will be approached. To establish the total cost of ownership of a particular type of asset. To ensure that bid documentation is complete, including evaluation criteria. To evaluate bids in accordance with published criteria. To ensure that proper contract documents are signed.

44

3.7.2.2 Processes of procurement

Supply Chain Management Practice Note Number 2 of 2005 (2005:1-2) dictated that acquisition management within Government institutions should be conducted within the ambit of three processes, depending on the financial threshold of the goods/ services to be procured, as follows: 1. 1.1 Up to a value of R 2 000 (VAT included) Accounting officers / authorities may procure requirements without inviting competitive bids or price quotations by means of petty cash. Accounting officers / authorities must establish their own internal procedures to ensure sound financial management of funds when goods and / or services are obtained by means of petty cash. 2. Above the value of R 2 000 but not exceeding R 10 000 (VAT included) 2.1 Accounting officers / authorities may procure requirements by obtaining at least three (3) verbal or written quotations from, where applicable, a list of prospective suppliers. The order should, however, be placed against

written confirmation from the selected supplier if the quotation was submitted verbally. 3. Above the value of R10 000 but not exceeding R 200 000 (VAT included) 3.1 Accounting officers / authorities should invite and accept written price quotations for requirements up to an estimated value of R200 000 from as many suppliers as possible, that are registered on the list of prospective suppliers. 3.2 Where no suitable suppliers are available from the list of prospective suppliers, quotations may be obtained from other possible suppliers. 3.3 If it is not possible to obtain at least three (3) written price quotations, the reasons should be recorded and approved by the accounting officer / authority or his / her delegate. 3.4 Accounting officers / authorities should apply the prescripts of the Preferential Procurement Policy Framework Act, Act 5 of 2000 and its associated Regulations for all procurement equal to or above R 30 000

45

(VAT included).

However, these prescripts may be applied for

procurement with a value of less than R 30 000, if and when appropriate. 4. 4.1 Above the value of R 200 000 (VAT included) Accounting officers / authorities should invite competitive bids for all procurement above R 200 000. 4.2 Goods, works or services may not deliberately be split into parts or items of lesser value merely to avoid complying with the requirements of the prescribed thresholds. When determining transaction values, a

requirement for goods, works or services consisting of different parts or items must as far as possible be treated and dealt with as a single transaction. 4.3 Competitive bids should be advertised in at least the Government Tender Bulletin and in other appropriate media should an accounting officer / authority deem it necessary to ensure greater exposure to potential bidders. The responsibility for advertisement costs will be that of the relevant accounting officer / authority. 4.4 Should it be impractical to invite competitive bids for specific procurement, e.g. in urgent or emergency cases or in case of a sole supplier, the accounting officer / authority may procure the required goods or services, in accordance with Treasury Regulation 16A6.4 by other means, such as price quotations or negotiations. The reasons for deviating from inviting competitive bids should be recorded and approved by the accounting officer / authority or his / her delegate. 4.5 The prescripts of the Preferential Procurement Policy Framework Act, Act 5 of 2000 and its associated Regulations must be adhered to.

The process flows depicting the above-mentioned processes (procurement by means of petty cash, quotations and bids) are contained within the ambit of Annexure A - C of this dissertation.

3.7.2.3 Appointment of consultants

The National Treasury's Policy strategy to guide uniformity in procurement reform processes in government (National Treasury, 2003:31,32) describes the

46

concept 'appointment of consultants' as follows; Technical quality and independence of advice are key considerations in engaging consultants. Consultants are engaged principally for the following reasons to: Provide specialised services for limited periods without any obligation of permanent employment. Benefit from superior knowledge, transfer of skills and upgrading of a knowledge base while executing an assignment. Provide independent advice on the most suitable approaches,

methodologies and solutions of projects. The following are the methods most generally used for the appointment of consultants: Quality and cost based selection. Quality based selection. Selection under fixed budget. Least cost selection. Single source selection. The method of selection is determined by the scope of the assignment, the quality of the service, the complexity of the assignment and whether assignments are of a standard or routine nature.

3.7.3

Logistics Management

According to National Treasury's Supply Chain Management guide for accounting officers/authorities (National Treasury, 2004:86-88), 'logistics management' pertains to coding of items, setting of inventory levels, placing of orders, receiving and distribution, stores/warehouse management, expediting orders, transport management and vendor performance. This process should also activate the financial system to generate payments. The aspect of coding, levels of required stocks, etc. should not be dealt with in isolation by the accounting officer/authority. It is the objective that throughout Government, the same coding and other support systems should be used. The National Treasury is currently in the process of developing a master plan for the integration and replacement and/or enhancement of the financial management systems to support the implementation of the integrated supply chain management system and the PFMA in general. The

47

National Treasury will in future issue further guidelines in this regard. Accounting officers/authorities should therefore refrain from procuring or implementing new stock control systems, codification systems, etc. and should approach the National Treasury prior to making any final decision in this regard. It is, however,

recommended that for the interim, the current codification procedures be maintained.

3.7.3.1

Stock levels

Due to protracted lead times, or because of a need to keep specific items in stock, the following should be determined in order to automate the ordering process: Which items and quantities thereof to be kept in stock. Minimum/maximum levels to be kept in stock based on consumption figures or inputs from users. Allowing for a safety margin (20%) to be added to the minimum level to cover unforeseen circumstances.

3.7.3.2

Placing of orders

An order should be placed either when a pre-determined stock level is reached or when a request is received from an end user for an item, which is not held in stock.

3.7.3.3

Order processing

Where a contract exists, orders should be placed for the item from the contract. Where there is no contract, the price quotation or competitive bidding method of ordering should be applied within delegated authority. The reliability of the supplier should be monitored in terms of, among others: Delivery periods. Quality. Quantity.

48

Should problems be encountered, they should be followed up with the vendor and, if it is a contract item, it should also be reported to the body that arranged the contract.

3.7.3.4

Stores/warehouse management

Expediting of orders: If the delivery conditions reflected on the order form are not complied with, it should be followed up with the supplier immediately.

Receiving of items: All goods received should be verified for quality and quantity against the ordering documentation. It is recommended that a receipt voucher be generated for payment purposes.

Storage: Municipal, legal stipulations and safety regulations should be complied with when items are being stored, e.g. flammables, poison, explosives, ammunition, weapons, etc. An effective item location system should be utilized. Shelf-life of stock should be taken into consideration. Stock and equipment should be stored properly and arranged in such a manner that the checking and handling thereof are being facilitated and the possibility of damage, exposure, deterioration and perishing thereof be limited or eliminated. A proper record of all the applicable assets, or groups of assets of the institution should be maintained by the accounting officer/authority.

3.7.3.5

Issuing/distribution of items

An issue voucher should be generated for all goods issued. Consumable items should not be recorded after issue. Non-consumable items should be recorded from receipt to disposal. Transit officials should ensure that goods are delivered promptly to the end-user.

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3.7.3.6

Stocktaking

Stocktaking of all assets in stock or on distribution shall be conducted at least once a year. This procedure entails the comparison of stock counted with official records of what should be in stock. Differences should then be accounted for.

3.7.3.7

Transport management

Trip authority should be properly authorised and correctly utilised. Proper records should be maintained.

3.7.3.8

Accounts payable

The relevant documentation should be submitted promptly for payment to avoid interest charges.

3.7.3.9

Losses/surpluses

The accounting officer/authority should ensure that, among others, the following preventative mechanisms are in place to eliminate theft, losses, wastage and misuse of assets: All damages to and losses of assets be accounted for in accordance with Treasury Regulation 12.

Damages and losses be investigated with a view to possible recovery; and surpluses be taken on record as assets immediately.

3.7.4

Disposal Management

Disposal is the final process when an institution needs to do away with unserviceable, redundant or obsolete movable assets according to the National Treasury's Supply Chain Management guide for accounting officers/ authorities (National Treasury, 2004:89). It is recommended that the accounting officer/ authority appoint a specific committee to deal with disposals, (if necessary at each

50

regional/sub-office) to make recommendations with regard to the disposal of any asset. It is the responsibility of the accounting officer/authority or his/her delegate to consider the recommendation of the appointed committee. If disposal of any asset is approved, any of the methods indicated below may, among others, be followed: Transfer to another institution in terms of section 42 of the PFMA. Transfer to another institution at market related value. Transfer to another institution free of charge (bearing in mind that the assets cannot be transferred to a sub-office, school, etc. without the approval of the Head Office of the institution under which jurisdiction such sub-office, school, etc. falls.). Selling per price quotation, competitive bid or auction, whichever is most advantageous to the State, unless determined otherwise by the relevant treasury (requirements as prescribed in Regulations 5 and 6 of the Preferential Procurement Regulations, 2001, should be adhered to). Destroying such assets.

3.7.5

Supply Chain Performance

According to National Treasury's Supply Chain Management guide for accounting officers/ authorities (National Treasury, 2004:91) a monitoring process takes place, undertaking a retrospective analysis to determine whether the proper process is being followed and whether the desired objectives are achieved. Issues to be reviewed are: Achievement of goals. Compliance to norms and standards. Savings generated. Stores efficiency. Cost variance per item. Contract breach etc. Cost efficiency of procurement process (i.e. the cost of the process itself). Whether supply chain objectives are consistent with Governments broader policy focus.

51

That the material construction standards become increasingly aligned with those standards that support international best practice. That the principles of co-operative governance as expounded in the Constitution are observed. That the reduction of regional economic disparities is promoted.

It is recommended that at completion stage of each project, an assessment of the supplier/service provider (including consultants where applicable) be undertaken and that this assessment should be available for future reference. Accounting officers/authorities should take cognisance of the fact that when suppliers do not perform according to their contractual obligations and the accounting officer/authority does not address him/her in this regard during the execution of the contract, such non-performance cannot be deemed as sound reason for passing over the bid of such supplier when adjudicating future bids.

3.7.6

Risk Management

National Treasury's Policy strategy to guide uniformity in procurement reform processes in government (National Treasury, 2003:4), describes the concept 'risk management' as follows: It is imperative that accounting officers/ authorities take cognisance of potential risks during supply chain management process. Due consideration should ideally be given to the following: Identification of procurement risk on a case-by-case basis. Allocation of risks to the party best equipped to manage such. The State bearing the cost of risks where the cost of transferring them is greater than that of retaining them. The exercising of risk management in a proactive manner and providing adequately for the cover of residual risks. Contract documentation clearly and unambiguously assigning relative risks to the contracting parties. Risk management should therefore form part of the business plan for the acquisition of all goods and services.

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3.8

THE FUTURE OF SUPPLY CHAIN MANAGEMENT

According to Saunders (1997:17), in the Public Sector the search to become leaner is thought to be just as appropriate and meaningful as it would be for manufacturing companies. However, there are issues that also have an effect on purchasing and supply management in these non-manufacturing organisations. Lean supply performance, to complement and support lean operations, is a desirable goal. Hugo, Bardenhorst-Weiss and van Biljon (2004:367) describe supply chain management as the most practically and intellectually significant theme within current managerial and economic research. However, supply chain practitioners become so immersed in the tactical demands placed upon them that they fail to understand and manage the strategic side of supply chain management. It is imperative for supply chain practitioners and their organisations to focus on and understand developments in supply chain management in order to ensure that they add value in the larger economic context and remain competitive in the everchanging business environment. The progression to world class supply chain management according to Burt, Dobler and Starling (2003:8) is graphically depicted in Figure 3.4, below:

Figure 3.4: The progression to World Class Supply Chain Management. (Source: Burt, Dobler & Starling , 2003:8).

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Figure 3.4 serves as a road map for supply chain management and is consistent with the aim of Cabinet when the supply chain management policy was adopted to replace the outdated procurement and provisioning practices across Government, with a supply chain management function that will be an integral part of financial management and will conform to international best practices.

3.9

CONCLUSION

In this chapter a literature review was conducted on the impact of supply chain management on Government institutions. Specific focus was levelled at the evolution of procurement and logistics pertaining to supply chain management, supply chain management definitions, prerequisites for the implementation of supply chain management (private sector approach versus public sector approach), and the objectives for the implementation of supply chain management. The pillars of procurement and supply chain management was elaborated upon including supply chain management models (Governments supply chain model), elements of supply chain management (demand management, acquisition management, logistics management, disposal management, supply chain performance and risk management) and the future of supply chain management. In the next chapter, the supply chain management survey design and methodology will be addressed.

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CHAPTER 4 SUPPLY CHAIN MANAGEMENT SURVEY DESIGN AND METHODOLOGY

4.1 INTRODUCTION

Howard and Sharp (1993:15) define research as, seeking through methodical processes to add ones own body of knowledge to that of others, by the discovery of non-trivial facts and insights. The authors further define the purpose of research as, "... reviewing existing knowledge in order to describe a situation or problem and to construct something novel or to explain something".

Howard and Peters (1990:8) conclude that research should be:

Aimed at a problem to which there is no single answer. Externally judged, by client, supervisor, and/or examiner as appropriate. Rigorous in its analysis and have a consistent internal logic. Aimed at a tangible output. Communicated. Developmental, i.e. should bring skills and knowledge to the researcher, which are of relevance to the work and which were not present before.

In terms of the social sciences, Hellriegel, Slocum and Woodman (1998:619) refer to research as, a planned, structured strategy of investigation intended to obtain answers to one or more questions. Furthermore the purpose of research is to provide answers to questions and to provide control for non-relevant effects that could influence the results of the study.

The aforementioned viewpoints on what research is, are probably best summarized by Hussey and Hussey (1997:1) when the authors state, that there is no consensus in literature on how research should be defined, although research is central to both business and academic activities. Furthermore research means different things to different people, but there seems to be some agreement that:

55

Research is a process of enquiry and investigation. It is systematic and methodical. Research increases knowledge.

For the purpose of clarity, the aim of this research study is to investigate the impact of supply chain management on Government institutions. This will be achieved by identifying possible deficiencies in existing supply chain management system, policies and procedures and making associated recommendations using the survey as data collection method.

4.2

TYPES OF RESEARCH

Hussey and Hussey (1997:9) classify research according to:

The purpose of the research: The reason why it is conducted. The process of the research: The way in which data are collected and analysed. The logic of the research: Moving from general to specifics or vice versa. The outcome of the research: Whether a particular problem is to be solved or a general contribution to knowledge made.

On the basis of the aforementioned, Hussey and Hussey (1997:10) recognize the following categories of research: Exploratory, descriptive, analytical or predictive research (based on purpose of research). Quantitative or qualitative research (based on process of the research). Deductive or inductive research (based on the logic of the research). Applied or basic research (based on the outcome of the research).

Howard and Peters (1990:9) identify five broad areas of research, namely pure basic, basic objective, evaluation, applied, and action research. The authors define action research as research that involves recommendations and/or actual

56

implementation of organisational change. Furthermore, it requires a commitment on behalf of the sponsoring organisation to allow or accomplish change. Action research often contributes to the body of knowledge by gaining access to information normally not available from the basic researcher (Howard & Peters, 1990:9). According to Hussey and Hussey (1997:65), action research is a type of applied research designed to find an effective way of bringing about a conscious change in a partly controlled environment. Hellriegel, Slocum and Woodman (1998:592), on the other hand, define action research as a primary change process used in most organisational development programmes. Action research is a database, problem-solving process of organisational change that closely follows the scientific method. Furthermore, according to Hellriegel, Slocum and Woodman (1998:592), it presents a powerful approach to organisational change and consists of the following essential steps: Gathering information about problems, concerns and needed changes from the members of an organization. Organising the information obtained in some meaningful way and sharing it with those involved in the change effort. Planning and taking specific steps to correct identified problems.

4.3

ASPECTS IMPACTING ON THE SURVEY

The concepts of practicality, validity and reliability defined by Emory & Cooper (1995:156) quoting Thorndike and Hagen, were adversely impacted upon during the research by various factors associated with the impact of supply chain management on government institutions. The most significant elements attributing to this situation were precipitated by the following: Government institutions participating in the research have implemented supply chain management. Respondents taking part in the research have extensive experience and knowledge of supply chain management. Respondents taking part in this research will not be biased.

57

It was therefore a requirement for the researcher to become aware of all these critical issues identified above, and prepare and equip himself to handle these issues with skill and sensitivity and guarantee the anonymity of all parties partaking in the survey concerned.

A qualitative investigation of a particularly sensitive nature conducted by Oskowitz and Meulenberg-Buskens (1997), qualified the importance of handling mission critical issues as identified above when the authors stated:

Thus any type of qualitative investigation could benefit from the researchers being skilled and prepared, and the sensitive nature an investigation into a stigmatising condition, made the need for such an undertaking even more imperative in the current study.

Furthermore, the sensitivity of certain issues and issues identified as impacting the research negatively in the environment being evaluated, not only demanded intimate personal involvement, but also demanded the personal experience of the researcher to be exploited to the fullest, a view upheld by MeulenbergBuskens (1997) as imperative to assure in qualitative research being undertaken. Checkland (1989) supports this view, however extends the concept and is of the opinion that the researcher becomes a participant in the action, and the process of change itself becomes the subject of research.

4.4

DATA COLLECTION

The data collection method used fall within the ambit of the definition attributed to the concept survey. Survey, according to Gay & Diebl (1992:238), is an attempt to collect data from members of a population in order to determine the current status of that population with respect to one or more variables. According to Babbie (2005:252), survey research is a frequently used mode of observation in the social sciences. In a typical survey, the researcher selects a sample of respondents and administers a standardised questionnaire to each person in the sample.

58

For the purpose of this dissertation, the required information with regards to the choice of survey methodology, and in this case survey design, has been obtained primarily from the authoritative work of Emory & Cooper (1995). According to Emory & Cooper (1995:270-286), three primary types of data collection (survey) methods can be distinguished namely: Personal interviewing. Telephone interviewing. Self-administered questionnaires/surveys.

The data collection method used in this survey is standardised self-administered questionnaires/surveys. The reasons for the selection of the survey as a data collection instrument are varied, but the following elements are of importance: The ease with which the survey lends itself to data collection. The issue of time constraints within the target environment. The ease with which input from diversified sources (particularly geographically) can be obtained using modern information technology.

The use of standardised self-administered questionnaires/surveys in the data collection process is in the opinion of the author critical, since according to Babbie (2005:285), surveys-especially self-administered ones- make large samples feasiblestandardised questionnaires have an important strength in regard to measurement generally.

4.5

THE TARGET POPULATION

According to Babbie (2005:112-113), the population for a study is that group (usually of people) about whom we want to draw conclusions. Were almost never able to study all the members of the population that interests us, and can never make every possible observation of them. With any survey, it is necessary to clearly define the target population, which can be defined as, that group which constitutes the defined population from a statistical viewpoint. The national sphere of Government will be surveyed, to determine the impact of supply chain management on Government institutions. The target group will consist of 30 respondents, randomly selected, and made up of senior supply chain management

59

officials of national Government departments. The focus of this survey would be to solicit responses from senior supply chain management officials of national Government departments on the impact of supply chain management on Government institutions.

The target population was specifically chosen in order to validate the research from a statistical perspective and to ensure that opinions are solicited from respondents who are affected by the impact of supply chain management on government institutions. The risk of bias, which cannot be statistically eliminated, is recognised by the author, based on the very definition of the target population as well as the number of respondents selected.

4.6

THE CHOICE OF SAMPLING METHOD

Emory and Cooper define two methods of survey sampling namely: The conventional sample, whereby a limited number of elements smaller than the chosen population are chosen (typically randomly) in such a manner as to accurately represent (without bias) the total population (Emory and Cooper 1995:228). The census approach, where an attempt is made to survey every element within the population. (Emory and Cooper 1995:200).

The conventional sample was chosen for this survey, as this approach works best when the total number of population elements is sufficiently represented by a limited number of smaller elements.

4.7

MEASUREMENT SCALES

The surveys used in the research validation process of the key factors affecting the impact of supply chain management on Government institutions, are based on the well known dichotomous scales, which is according to (Anonymous 11, 200:1) a two point scale, which provides the respondents with only two options to choose from for their response to the individual survey questions.

60

The advantages in using the popular Dichotomous scales scale include: Consistency people are evaluated on the same measures. Defensible all information is used in a consistent manner. Efficient gathers only information relating to the impact of supply chain management on government institutions. The Dichotomous scales are also treated as an interval scale. Interval scales per se, have the benefit that the scale data can be analysed by virtually the full range of statistical procedures. According to Remenyi, Money and Twite (1995:224), interval scales facilitate meaningful statistics when calculating means, standard deviation and Pearson correlation coefficients.

The most important reason however for choosing the dichotomous scales in this research, is the fact that the scale does not require difficult arithmetic calculations, and is most appropriate to glean data in support of the research problem in question.

4.8

SURVEY DESIGN

The survey design to be used in this instance, is that of the descriptive survey as opposed to the analytical survey. The descriptive survey has as its purpose the counting of a representative sample, which allows inferences to be made about the population as a whole. Furthermore, descriptive surveys indicate how many members of a population have a certain characteristic. Within the process of survey design, the following variables have been identified as being pertinent to the investigation: Dependent variables. Controlled variables. Uncontrolled variables.

The statements within the survey have been designed with the following principles in mind: Avoidance of double-barrelled statements. Avoidance of double-negative statements. Avoidance of prestige bias.

61

Avoidance of leading statements. Avoidance of the assumption of prior knowledge.

Statements were so formulated as to allow the respondents to respond on equal terms on the impact of supply chain management on government institutions.

4.9

SURVEY

One survey was constructed. For the purpose of this research, copies of the survey (in the form of e-mails and facsimiles) as a technique for data collection, (Henderson, Morris and Fitz-Gibbon, 1978:29-30) was used for the following reasons: Implied costs would not be as high as, for example, face-to-face surveys. The method would enable coverage of local authorities throughout the national sphere of Government. Detailed information could be extracted once the respondent had completed the survey at their own pace and in their own time. The survey could be disseminated to a number of people simultaneously. Surveys provide greater uniformity across measurement situations than, for example, interviews.

The reason for not following the postal survey route, where copies of the survey are mailed to individuals, was that the survey might have been viewed as just another piece of junk mail.

4.10

THE VALIDATION SURVEY QUESTIONS

The following survey questions were designed to solicit the opinions of survey respondents to various concepts relating to the impact of supply chain management on Government institutions.

62

Question 1

Has

your

department

adopted

supply

chain

management policy? Question 2 Do you agree that the implementation of supply chain management transformed Government procurement and provisioning practices into an integrated supply chain management function? Question 3 Does your departments supply chain management system make provision for the following elements: 3.1 3.2 3.3 3.4 3.5 3.6 Question 4 Demand Management? Acquisition Management? Logistics Management? Disposal Management? Supply Chain Performance? Risk Management? Do you agree that the implementation of supply chain management introduced a systematic approach for the appointment of consultants? Question 5 Does your department have the necessary systems infrastructure to manage an effective and efficient supply chain management system? Question 6 Has the implementation of supply chain management created a common understanding and interpretation of the preferential procurement policy? Question 7 Do you agree that the supply chain management system prescribed by National Treasury promotes the application of international best practices? Question 8 Does your department analyse at the completion stage of each project, whether proper processes were followed and the desired objectives achieved? Question 9 Has your departments supply chain management procedures been compiled in accordance with the supply chain management regulatory documents (Policy,

Circulars, General Conditions of Contract, Guide for

63

Accounting Officers etc.)? Question 10 Does your department's bid/specification/evaluation/ adjudication committees comprise of cross-functional teams? Question 11 Have responsibilities (including values) been delegated to supply chain management practitioners/committees in writing? Question 12 Has the turnaround time in procuring goods and services been enhanced since the implementation of supply chain management? Question 13 Have the implementation of supply chain management yielded savings for your department? Question 14 Is your department's supply chain management

practitioners trained in supply chain management programmes? Question 15 Is the training programmes provided to Government officials in supply chain management sufficient? Question 16 Are you in agreement that the implementation of supply chain management enhanced your department's ability to reach operational objectives?

4.11

CONCLUSION

In this chapter the supply chain management survey design and methodology were addressed. Specific focus were levelled on aspects such as types of research, aspects impacting on the survey, data collection, the target population, the choice of sampling method, measurement scales, survey design, the validation of survey questions and validation of survey results. In the next chapter a data analysis and interpretation of results will be conducted on the data gleaned from the research survey conducted within the ambit of this chapter.

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CHAPTER 5 DATA ANALYSIS AND INTERPRETATION OF RESULTS

5.1 INTRODUCTION AND BACKGROUND

The purpose of research is to provide answers to questions pertaining to the research conducted. The data collection method that was used in this research was self-administered questionnaires/ surveys based on dichotomous scales. The focus of this survey was to solicit responses from senior supply chain management officials of national Government departments on the impact of supply chain management on government institutions. Statements were so formulated as to allow the respondents to respond on equal terms on the impact of supply chain management on government institutions. The target group consisted of 30 respondents, randomly selected, and made up of senior supply chain management officials of national Government departments. The target population was specifically chosen in order to validate the research from a statistical perspective and to ensure that opinions were solicited from respondents who were affected by the impact of supply chain management on government institutions. The rest of this chapter will consist of a descriptive analysis of the data gleamed from the survey conducted within the ambit of chapter 4.

5.2

DESCRIPTIVE SURVEY ANALYSIS

A descriptive analysis of the survey results returned by the research questionnaire respondents, are reflected below in table format for ease of reference.

Question 1: Has your department adopted a supply chain management policy?

Yes 30

No 0

65

The results from question 1 returned that 100% of respondents have adopted a supply chain management policy within their respective institution.

Question 2: Do you agree that the implementation of supply chain management transformed Governments procurement and provisioning practices into an integrated supply chain management function?

Yes 26

No 4

The results from question 2 returned that: 87% of respondents indicated that they agree that the implementation of supply chain management transformed Governments procurement and provisioning practices into an integrated supply chain management function. 13% of respondents did not agree with the statement as procurement and provisioning practices are still conducted in silos within their respective institutions.

Question 3: Does your departments supply chain management system make provision for the following elements: 3.1 Demand Management?

Yes 11

No 19

The results from question 3.1 returned that: 37% of respondents indicated that their institutions supply chain management system makes provision for the element of demand management. Against the ruling principles of supply chain management, these results clearly point to a deficiency as the importance thereof has been emphasised by the National Treasury's Supply Chain Management guide for accounting officers/ authorities (National Treasury, 2004:25).

66

63% of respondents indicated that their institutions supply chain management system does not make provision for the element of demand management.

3.2

Acquisition Management?

Yes 30

No 0

The results from question 3.2 returned that 100% of respondents indicated that their institutions supply chain management system makes provision for the element of acquisition management.

3.3

Logistics Management?

Yes 30

No 0

The results from question 3.3 returned that 100% of respondents indicated that their institutions supply chain management system makes provision for the element of logistics management.

3.4

Disposal Management?

Yes 30

No 0

The results from question 3.4 returned that 100% of respondents indicated that their institutions supply chain management system makes provision for the element of disposal management.

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3.5

Supply Chain Performance?

Yes 12

No 18

The results from question 3.5 returned that: 40% of respondents indicated that their institutions supply chain management system makes provision for the element of supply chain performance. These results clearly point to a deficiency in the monitoring process which needs to be conducted at the completion stage of each project, to determine whether desired objectives were achieved. The associated risks relating to this deficiency depicts Governments inability to identify elements of poor performance in the supply chain management system, which ultimately leads to increased costs that defeats the purpose of continuous improvement.

3.6

Risk Management?

Yes 13

No 17

The results from question 3.6 returned that: 43% of respondents indicated that their institutions supply chain management system makes provision for the element of risk management. These results clearly point to a deficiency in the Governments ability to identify potential risks during the supply chain management process. This deficiency shows that Government is bearing the cost of risks that could have been prevented by the allocation of risks to the party best equipped to manage such risk.

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Question 4: Do you agree that the implementation of supply chain management introduced a systematic approach for the appointment of consultants?

Yes 26

No 4

The results from question 4 returned that: 87% of respondents indicated that they are in agreement that the implementation of supply chain management introduced a systematic approach for the appointment of consultants. These results point to the tendency of Government institutions who do not always follow a systematic approach to the appointment of consultants, which is consistent with the findings of question 3.1 namely, inadequate demand management.

Question 5: Does your department have the necessary systems infrastructure to manage an effective and efficient supply chain management system?

Yes 12

No 18

The results from question 5 returned that: 40% of respondents indicated that their institution have the necessary systems infrastructure to manage an effective and efficient supply chain management system. These results clearly point to a deficiency in the systems infrastructure which poses the risk to Government institutions not having accurate and timeous information at hand, which is crucial for making sound business decisions.

69

Question 6: Has the implementation of supply chain management created a common understanding and interpretation of the preferential procurement policy?

Yes 23

No 7

The results from question 6 returned that: 77% of respondents indicated that they are in agreement that the implementation of supply chain management has created a common understanding and interpretation of the preferential procurement policy. These results show that Government institutions are still faced with interpretation challenges, when it comes to the preferential procurement policy.

Question 7: Do you agree that the supply chain management system prescribed by National Treasury promotes the application of international best practices?

Yes 26

No 4

The results from question 7 returned that: 87% of respondents indicated that they are in agreement that that the supply chain management system prescribed by National Treasury promotes the application of international best practices. These results show that not all Government institutions have completed the process of implementing supply chain management within their respective arenas, and as a result are still using outdated procurement and provisioning practices.

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Question 8: Does your department analyse at the completion stage of each project, whether proper processes were followed and the desired objectives achieved?

Yes 11

No 19

The results from question 8 returned that: 37% of respondents indicated that their institution analyse at the completion stage of each project whether proper processes were followed and the desired objectives are achieved. These results clearly point to a deficiency in Government institutions ability to conduct a post mortem at the completion stage of each project, which is crucial for future reference/projects, and which are consistent with the findings of question 3.5.

Question 9: Has your departments supply chain management procedures been compiled in accordance with the supply chain management regulatory documents (Policy, Circulars, Guide for Accounting Officers etc.)?

Yes 28

No 2

The results from question 9 returned that: 93% of respondents indicated that their institutions supply chain management procedures have been compiled in accordance with the supply chain management regulatory documents (Policy, Circulars, General Conditions of Contract, Guide for Accounting Officers etc.) These results point to the fact that not all Government institutions have completed the process of implementing supply chain management within their respective arenas, resulting in a lack of uniformity in the application of supply chain management procedures to the detriment of operations.

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Question

10:

Does

your

department's

bid

specification/evaluation/

adjudication committees comprise of cross-functional teams?

Yes 26

No 4

The results from question 10 returned that: 87% of respondents indicated that their institutions bid specification/ evaluation/adjudication committees comprise of cross-functional teams. These results depict that bid specification/evaluation/adjudication

committees does not necessarily comprise of cross-functional teams, which poses the risk of uninformed procurement decisions being taken in the absence of expertise, which is associated with cross functional teams.

Question 11: Have responsibilities (including values) been delegated to supply chain management practitioners/committees in writing?

Yes 29

No 1

The results from question 11 returned that: 97% of respondents indicated that responsibilities (including values) have been delegated to supply chain management practitioners/committees in writing. These results depict that not all accounting officers/ authorities have delegated responsibilities (including values) to supply chain management practitioners/committees. This creates the risk of bottlenecks and delays in satisfying institutional needs, which will ultimately have a negative impact on Governments service delivery.

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Question 12: Has the turnaround time in procuring goods and services been enhanced since the implementation of supply chain management?

Yes 18

No 12

The results from question 12 returned that: 60% of respondents indicated that the turnaround time in procuring goods and services has been enhanced since the implementation of supply chain management. These results point to a deficiency in proper change management methodologies being implemented within Government institutions. The mindset change from rule driven to decision making has not taken place and has a negative service delivery implication.

Question 13: Have the implementation of supply chain management yielded savings for your department?

Yes 13

No 17

The results from question 13 returned that: 43% of respondents indicated that the implementation of supply chain management yielded savings for their respective institutions. These results point to a deficiency in Government institutions ability to measure savings being generated. This can be attributed to inadequate systems infrastructure and poor supply chain performance, to name but a few.

Question 14: Is your department's supply chain management practitioners trained in SCM programmes?

Yes 25

No 5

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The results from question 14 returned that: 83% of respondents indicated that their institutions supply chain management practitioners are trained in SCM programmes. These results point to a deficiency in Government institutions to fully grasp the concept of supply chain management and the benefits associated with the concept. This furthermore is a result of the lack of trained supply chain management practitioners within the organisation.

Question 15: Is the training programmes provided to Government officials in supply chain management sufficient?

Yes 10

No 20

The results from question 15 returned that: 33% of respondents indicated that the training programmes provided to government officials in supply chain management are sufficient. These results point to a deficiency in the training programmes that are provided to Government officials and poses risks associated with the under development of supply chain management practitioners. This in turn culminates in inconsistent interpretation and application implications of supply chain management processes.

Question 16: Are you in agreement that the implementation of supply chain management enhanced your department's ability to reach operational objectives?

Yes 27

No 3

The results from question 16 returned that: 90% of respondents indicated that they are in agreement that the implementation of supply chain management enhanced their institutions

74

ability to reach their operational objectives. These results as in the instance of Question 12 point to a deficiency in change management methodologies as all Government institutions did not fully comply with the implementation of supply chain management.

5.3

KEY SURVEY FINDINGS

The responses to the questionnaire revealed the following key research findings pertaining to the research conducted: Government institutions have adopted a Supply Chain Management policy, however has not implemented all of its functionality. While the implementation of supply chain management transformed Governments procurement and provisioning practices into an integrated supply chain management function, it is evident from the survey that some of Government institutions are still conducting business 'as usual', without gleaning the benefit associated with an integrated supply chain management function. Government institutions acknowledge that the supply chain management system must consist of the elements, demand management, acquisition management, logistics management, disposal management and risk management. However, it is evident from the results obtained that most Government institutions are challenged with the functionality pertaining to demand management, supply chain performance and risk management. This can be attributed to a lack of clear guidelines and policy documentation available to guide Government institutions. The implementation of supply chain management has created a common understanding and interpretation of the preferential procurement policy. This is consistent with the objectives set by Cabinet for the implementation of supply chain management within government institutions. The majority of government institutions do not have the necessary system infrastructure to manage an effective and efficient supply chain management system. The majority of Government institutions are in agreement that that the supply chain management system prescribed by National Treasury promotes

75

the application of international best practices. This proves that the National Treasurys supply chain management related prescripts maps to

international best practices. A number of Government institutions have not experienced a reduction in the turnaround time with the procurement of goods and services since the implementation of supply chain management. This may be as a result of Government institutions being challenged to create synergy between all elements of the supply chain management function. A number of Government institutions have not yielded savings since the implementation of supply chain management within their respective institutions. This may be as a result of Government institutions not having the systems/infrastructure in place to calculate savings generated. The majority of supply chain management practitioners have been trained in supply chain management programmes. However, the training programmes provided to Governments supply chain management practitioners are regarded as insufficient. This is of concern as a lack in the development of supply chain management practitioners will have a long-term affect on the ability of a Government institution to establish and maintain an effective and efficient supply chain management system. Even though Government institutions have been challenged with the implementation of supply chain management, the majority of government institutions share the view that the implementation of supply chain management enhanced their ability to reach their operational objectives.

5.4

CONCLUSION

In this chapter a data analysis and interpretation of results were conducted on the data gleaned from the research survey conducted within the ambit of chapter 4. Specific focus was levelled at aspects such as descriptive survey analysis and key research findings. In the next chapter a holistic perspective of the research conducted thus far will be provided.

76

CHAPTER 6 CONCLUSION
6.1 INTRODUCTION

For the purpose of good order, a holistic perspective of the research conducted thus far, is provided.

Chapter 1.

Scope of the Research:

In this chapter, a high level

background was provided of the scope of the research undertaken. Specific focus was levelled at aspects such the research process, the research problem, the research question, and the research design and methodology.

Chapter 2. Holistic View of the Implementation Environment: In this chapter, a holistic view of the implementation environment was provided. Relevant aspects such as the various spheres of the Government of the Republic of South Africa, role of National Treasury (legislative mandate) and the procurement reform (background, process of implementation & current implementation status) have been addressed in terms of its relevance to the research topic.

Chapter 3. Supply Chain Management: A Literature Review: In this chapter, a literature review was conducted on the concept of supply chain management. Specific focus was levelled at the evolution of procurement and logistics pertaining to supply chain management, prerequisites for the implementation of supply chain management (private sector approach versus public sector approach), objectives for the implementation of supply chain management, and the pillars of procurement and supply chain management. In addition the elements of supply chain management (demand management, acquisition management, logistics management, disposal management, supply chain performance and risk management) were elaborated upon in detail.

77

Chapter

4.

Supply

Chain

Management

Survey

Design

and

Methodology:

In this chapter, the supply chain management survey

design and methodology were addressed. Specific focus was levelled on aspects such as types of research, aspects impacting on the survey, data collection, the target population, the choice of sampling method, measurement scales, survey design, and the validation of survey questions.

Chapter 5.

Data Analysis and Interpretation of Results:

In this

chapter, a data analysis and interpretation of results were conducted on the data gleaned from the research survey conducted within the ambit of this research.

In this chapter the research will be concluded, recommendations will be made and final analogies of the research drawn.

6.2

THE RESEARCH PROCESS REVISITED

In this research dissertation, the following research process was followed: Determine the 'field of study' for the proposed research. Identify a specific complex problem within a researchable application area. Conduct a holistic survey of the functional area in which the complex problem exists, to determine the impact of the problem on the specific area of application and the value the proposed research may bring. Conduct an abbreviated literature review on the subject matter being investigated. The purpose being to not only provide insight into the

complexity of the problem, but also to provide insight into the literature pertaining to the field of study of the proposed research. Describe and formulate the research problem. Describe and formulate the research question, and associated investigative questions. Select an appropriate research design and methodology, which includes the data collection design and methodology. Determine the key research objectives for the proposed research.

78

Document the research process, which will be followed for the proposed research and formulate an associated workplan. Identify the limitations, which may impact on the proposed research. Based on the above, formulate a formal research proposal and submit for approval. Establish a structured working relationship with the allocated supervisor. Conduct an in-depth literature review on the subject being researched. Collect, analyse and interpret the research data. Write up the dissertation. Proofread the dissertation and submit for formal vetting.

6.3

THE RESEARCH PROBLEM REVISITED

The research problem in this dissertation formulated within the ambit of Chapter 1, Paragraph 1.3.1 reads as follows:

"The impact of inefficient supply chain management on Government institutions".

The research conducted in terms of this dissertation has identified the relevant aspects that need to be addressed in order to resolve the impact of inefficient supply chain management on Government institutions. Specific recommendations made within the context of Paragraph 6.8 of this chapter, in view of this author, mitigates the research problem.

6.4

THE RESEARCH QUESTION REVISITED

The research question, which formed the crux of the research in this dissertation, formulated within the ambit of Chapter 1, Paragraph 1.3.2 read as follows:

"How can the impact of inefficient supply chain management on Government institutions be mitigated?"

The survey that was conducted (by means of a questionnaire) within the ambit of Chapter 4 identified the relevant aspects that need to be addressed in order to not

79

only mitigate the research problem, but also to provide an answer to the research question.

6.5

THE INVESTIGATIVE QUESTIONS REVISITED

The investigative questions, which were researched in support of the research question, are listed below. Each question is elaborated upon in terms of relevance to the overall research. Are Government's objectives for the introduction of supply chain management in Government institutions being achieved? The research survey returned that Governments objectives for the implementation of supply chain management are being achieved as the majority of government institutions agreed that that the implementation of supply chain management transformed government procurement and provision practices into an integrated supply chain management function. Furthermore, that the concept introduced a systematic approach to the appointment of consultants, created a common understanding and interpretation of the preferential procurement policy and promotes a consistent application of 'best practices' throughout Government's supply chain.

Have government institutions adopted a supply chain management policy? The research survey returned that while Government institutions have adopted a supply chain management policy, not all elements of the concept were implemented resulting in not all of the benefits from the concept gained as is evident from the answer to the next investigative question.

Does the supply chain management system implemented by Government institutions make provision for the elements, demand management, acquisition management, logistics management, disposal management, supply chain performance and risk management? The research survey returned that the supply chain management system implemented by Government institutions make provision for the elements,

80

demand management, acquisition management, logistics management, disposal management, supply chain performance and risk management. Of concern is the fact that the majority of Government institutions are challenged with the elements of demand management, supply chain performance and risk management. As a result, the full benefit of supply chain management is not gained to the benefit of the Government.

Do Government institutions have the necessary systems infrastructure to manage an effective and efficient supply chain management system? The research survey returned that Government institutions do not have the necessary systems infrastructure to manage an effective and efficient supply chain management system which is consistent with the descriptive survey analysis reflected in Chapter 5, Paragraph 5.2, Question 5.

Has the implementation of supply chain management in Government institutions enhanced the turnaround time in procuring goods and services? The research survey returned that the implementation of supply chain management has enhanced the turnaround time in procuring goods and services for the majority of Government institutions systems, which is consistent with the descriptive survey analysis reflected in Chapter 5, Paragraph 5.2, Question 12.

Does the supply chain management system as prescribed by National Treasury promote the application of international best practices? The research survey returned that the supply chain management system as prescribed by National Treasury does promote the application of international best practices which is consistent with the descriptive survey analysis reflected in Chapter 5, Paragraph 5.2, Question 7.

81

Have supply chain management practitioners been trained in supply chain management programmes? The survey returned that in excess of 80% of governments supply chain practitioners have been trained in supply chain management programmes. Where supply chain management practitioners are not trained,

Government institutions will be challenged to establish and maintain an effective and efficient supply chain management system.

Has the implementation of supply chain management yielded any savings for government institutions? The research survey returned that the implementation of supply chain management has not yielded savings for most government institutions, which is consistent with the descriptive survey analysis reflected in Chapter 5, Paragraph 5.2, Question 13.

6.6

THE RESEARCH DESIGN AND METHODOLOGY

Case study research as described in Chapter 1, Paragraph 1.4 was conducted within this research study. The research method that was used was case study research, which was undertaken in the social world, was theoretical in nature and used the qualitative paradigm as basis. The unit of analysis for this research study was a national Government department, the population consisted of 34 national departments of which a sample of 30 were randomly selected.

6.7

KEY RESEARCH FINDINGS

The key research findings as a result of this research study, is repeated here from Chapter 5 for ease of reference: Government institutions have adopted a Supply Chain Management policy, however has not implemented all of its functionality. While the implementation of supply chain management transformed Governments procurement and provisioning practices into an integrated supply chain management function, it is evident from the survey that some of Government institutions are still conducting business 'as usual', without

82

gleaning the benefit associated with an integrated supply chain management function. Government institutions acknowledge that the supply chain management system must consist of the elements, demand management, acquisition management, logistics management, disposal management and risk management. However, it is evident from the results obtained that most Government institutions are challenged with the functionality pertaining to demand management, supply chain performance and risk management. This can be attributed to a lack of clear guidelines and policy documentation available to guide Government institutions. The implementation of supply chain management has created a common understanding and interpretation of the preferential procurement policy. This is consistent with the objectives set by Cabinet for the implementation of supply chain management within government institutions. The majority of government institutions do not have the necessary system infrastructure to manage an effective and efficient supply chain management system. The majority of Government institutions are in agreement that that the supply chain management system prescribed by National Treasury promotes the application of international best practices. This proves that the National Treasurys supply chain management related prescripts maps to

international best practices. A number of Government institutions have not experienced a reduction in the turnaround time with the procurement of goods and services since the implementation of supply chain management. This may be as a result of Government institutions being challenged to create synergy between all elements of the supply chain management function. A number of Government institutions have not yielded savings since the implementation of supply chain management within their respective institutions. This may be as a result of Government institutions not having the systems/infrastructure in place to calculate savings generated. The majority of supply chain management practitioners have been trained in supply chain management programmes. However, the training programmes provided to Governments supply chain management practitioners are

83

regarded as insufficient. This is of concern as a lack in the development of supply chain management practitioners will have a long-term affect on the ability of a Government institution to establish and maintain an effective and efficient supply chain management system. Even though Government institutions have been challenged with the implementation of supply chain management, the majority of government institutions share the view that the implementation of supply chain management enhanced their ability to reach their operational objectives.

6.8

RECOMMENDATIONS

The following recommendations are made following the research within the ambit of this dissertation to mitigate the research problem and to provide answers to the research question, and associated investigative questions: It is recommended that the National Treasury revisit their policy documentation relating to the elements of demand management, supply chain performance and risk management in order to provide Government institutions with clear and comprehensive guidelines. This will enable Government institutions to develop individual elements that will contribute to the overall efficiency and effectiveness of their respective supply chain management systems. The researcher recommends further that Government institutions invest in supply chain management systems infrastructure in order to gain more reliable and advanced management information, which serves as a critical element in managing an effective and efficient supply chain management system. In addition, it is recommended that the National Treasury establish and facilitate a platform whereby Government institutions can share developments, problems encountered and successes achieved through their respective supply chain management practices. By establishing such a platform, Government institutions will reap the benefit of sharing information, solving supply chain management related problems and identifying best practices that will ultimately lead to uniformity and the enhancement of their respective supply chain management systems. The

84

National Treasury will also reap the benefit of having credible feedback regarding critical supply chain management issues that will place the National Treasury in an excellent strategic position in determining supply chain management related policies and guidelines. The researcher recommends that the National Treasury reviews the training material and accredit training providers that offer supply chain management programmes to Governments supply chain management practitioners. This will ensure that credible service providers provide quality-training programmes.

In the opinion of the researcher, the recommendations made within the ambit of this dissertation will contribute towards resolving the impact of inefficient supply chain management on government institutions. Furthermore, is that the recommendations made will improve supply chain management practices to comply with international best practices that will not only benefit Government institutions, but ultimately the communities it serves.

6.9

PERSONAL REFLECTION

It is acknowledged that 'knowledge is power'. The researcher has benefited through undertaken this study as it equipped him with the necessary skills and ability to investigate areas of importance to ultimately contribute to the country and its people. From the research, this researcher drew the analogy that the vehicle by which knowledge is gained is through research, ultimately becoming is the key to power. In terms of the research conducted within the ambit of this dissertation, the researcher has gained insight into aspects that have a negative impact on supply chain management within the Government institutions. This enabled the researcher to formulate recommendations towards resolving the impact of inefficient supply chain management.

85

6.10

CONCLUSION

In this chapter, the research conducted within the ambit of this dissertation was concluded. Specific focus was levelled on aspects such as the research process, the research problem, the research question, and the investigative questions. The research was conducted with recommendations so formulated as to create an avenue to not only mitigate the research problem, but also provide an answer to the research question and associated investigative questions.

86

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ANNEXURE A

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ANNEXURE C

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