Supply Chain Management Reforms

Presenter: | Kenneth Pillay, Chief Director, National Treasury | 6 April 2016

1

AGENDA

• Focus of reform

– Legal and Regulatory reforms

• Bill, PPPFA Regs, NTRs and Instructions

– Strategic Sourcing

• Differentiated approach to sourcing

• Transversal Contracts for government

– Governance and Compliance

• SOEs and Public Entities

• Improving non compliance

• Abuse of SCM system

– Managing stakeholders

– Technology and SCM

• Opportunities for Local Procurement

• Discussions and questions

2

SCM Review 2015 and SCM Review Update 2016

• Provides a frank and candid assessment of SCM aspects:

– Role of SCM in the public service;

– Organisational structures and systems;

– Roles of technical and political office bearers in SCM;

– Capacity of SCM practitioners;

– Legislation, regulations, policies and procedures in SCM;

– Supplier management and relations;

– Balance between social objectives and transformation and price and quality

of goods and services

• Provides insights SCM reform agenda; and

• Provides a view of the role and functions of the Office of the Chief Procurement

Officer.

3

Focus of public procurement

• Service delivery;

– Quality, efficient, cost-effective

– On time, right quality and quantity, the right price

• Socio-economic objectives;

– Address economic imbalances (racial)

– Women, youth, people with disabilities, SMMEs

– Job creation

• Value-for-money and return on investment;

• Getting the balance between the objectives right is important

4

Status of current SCM system

• Fragmented SCM environment;

• Operational inefficiency in government;

– High staff turnover at SMS level

• Limited or no accountability;

• Limited transparency;

• Lack of coherence between departments;

• Over emphasis on secondary objectives;

• Procurement not a strategic function; and

• Use of technology to automate, standardise and simplify SCM under utilised.

5

SCM – compulsory capabilities

Procurement system should be based on the following capabilities:

1. Demand Planning

2. Procurement Planning

3. Items and Specifications management

4. Supplier management

5. Bids management through the required committees

6. Legal, Contracting and Disputes management

7. Supplies and Contract management (supply schedules)

8. Inspection and Quality management

9. Product and Services management (utilisation)

10. Audit and Enforcement

6

Instruction Notes Issued

7

No INSTRUCTION STATUS /COMMENTS

1 Large bore spiral submerged arc welded steel conveyance pipes: 500MM to 3500MM

(Conveyance pipes)

Instruction issued and was effective from 21 October

2015

2 Steel Power Pylons, Monopole Pylons; Steel Substation Structures; Power line Hardware;

Street Lighting Poles and Lattice Towers and Masts

Instruction issued and was effective from 28

September 2015

3 Transformers, shunt reactors and associated equipment Instruction issued and was effective from 21 October

2015. Class 2 and Class 3 Transformers were,

however, not designated.

4 Valves and actuator products Instruction issued and was effective from 18 February

2016 (latest instruction)

5 Working Vessels (Boats) Instruction issued and was effective from 21 August

2014

6 Electrical and Telecom cables Instruction issued and was effective from 8 May 2013

7 Textile, clothing, leather and footwear sector Instruction issued and was effective from 16 July 2012

8 Bus sector Instruction issued and was effective from 16 July 2012

9 Set top boxes sector Instruction issued and was effective from 26

September 2012

10 Furniture Products Instruction issued and was effective from 15

November 2012

Instruction Notes In Process

8

No INSTRUCTION STATUS /COMMENTS

1 Two-way radio terminals and associated

equipment

The instruction is being finalised from by the OCPO with the information received March 2016

2 Mining and construction vehicles (Yellow

metal)

A letter was sent to the DTI (addressed to Mzwakhe Mbatha) dated 20 October 2015 indicating that the

response from the DTI regarding the instruction on Yellow metals was not addressing the challenges that were

raised by the National Treasury.

3 Construction materials A meeting was held on 14 October 2015 and the following was decided on:

The dti will update the Instruction note on construction materials to focus on those products that have been

recommended for designation. Furthermore, the dti will also provide more information on the areas where

there were concerns that were raised in order to strengthen the case for the recommended designated

products.

4 Poultry • National Treasury’s Economic Policy unit is going through the research documents from the DTI to establish

economic rationale; and

•Waiting for official communication from the Minister of the DTI regarding the final decision to designated and a

draft instruction with all the designation details

5 Wheelie Bins • National Treasury’s Economic Policy unit is going through the research documents from the DTI to establish

economic rationale; and

•Waiting for official communication from the Minister of the DTI regarding the final decision to designated and a

draft instruction with all the designation details.

6 Water Meters • National Treasury’s Economic Policy unit is going through the research documents from the DTI to establish

economic rationale; and

•Waiting for official communication from the Minister of the DTI regarding the final decision to designated and a

draft instruction with all the designation details.

7 Fire engines/trucks National Treasury’s Economic Policy unit is going through the research documents from the DTI to establish

economic rationale; and

Waiting for official communication from the Minister of the DTI regarding the final decision to designated and a

draft instruction with all the designation details.

9

Contract Register

Contract Number Description Estimated Value for Contract Period (ZAR)

Start Date Expiry Date

RT5-2013 Courier Services 108 000 000 01-Sep-2013 30-Jun-2016 RT8-2015 Transportation of Cargo and Furniture Relocation

Services 81 277 963 01-Feb-2015 31-Jan-2017

RT11-2013 Animal Feed 126 000 000 01-Apr-2014 31-Mar-2016 RT14-2012 Toilet paper and paper towels 62 000 000 01-Aug-2013 31-Mar-2016 RT23-2013 Lubricating oil 179 000 000 01-Jan-2014 31-Mar-2016 RT46-2014 Fleet Vehicle Maintenance (Pool) 26 470 860 01-Apr-2014 31-Mar-2019 RT57-2015 Vehicles 7 889 381 002 01-Apr-2015 31-Mar-2016 RT58-2012 Insurance for subsidised vehicles 42 151 850 01-Apr-2012 31-Mar-2017 RT61-2014 Rental of aircraft and helicopters 165 000 000 01-Apr-2014 31-Mar-2017 RT62-2015 Maintenance and administration of the Subsidised Vehicle

Fleet 331 121 000 01-Dec-2015 30-Nov-2020

RT68-2015 Financing of subsidised vehicles 1 238 770 156 01-Sep-2015 31-Jul-2020 RT69-2013 Tyres and tubes - supply, delivery, fitment and balancing 220 000 000 01-Dec-2013 30-Jun-2016 RT74-2014 Prefabricated steel shelving 192 000 000 01-Dec-2014 30-Nov-2017 RT79-2015 National aero-medical service 1 445 082 903 01-Sep-2015 31-Jul-2018 RT152-2013 Photographic, micrographic reproduction material and

video tapes 12 600 000 01-Dec-2013 30-Jun-2016

RT1-2014 School Furniture 240 000 000 01-Aug-2014 31-Jul-2016 RT2-2016 Medical equipment 1 300 000 000 01-Jun-2016 31-May-2019 RT4-2015 Ambulance rescue and emergency equipment and

accessories 220 794 310 01-Mar-2015 28-Feb-2017

RT7-2015 Supply, management and distribution school textbooks 1 700 000 000 01-Aug-2015 31-Jul-2018 RT13-2015 Respiratory Aids 29 300 000 01-Dec-2015 30-Nov-2017 RT17-2015 Management and distribution of school stationery 1 900 000 000 01-Aug-2015 31-Jul-2018 RT21-2013 Radiographic Material 554 218 694 01-Oct-2013 30-Apr-2016 RT22-2016 Work books 2 791 734 533 01-Apr-2016 31-Mar-2019 RT24-2013 Hospital ward and theatre furniture 223 000 000 01-Oct-2013 31-Mar-2016 RT50-2013 Industrial compressed gases, industrial bulk gases and

medical gases 539 658 037 01-Apr-2013 30-Sep-2016

10

Contract Number Description Estimated Value for Contract Period (ZAR)

Start Date Expiry Date

RT70-2014 Petrol and diesel 6 300 000 000 01-Feb-2015 31-Jan-2020 RT72-2014 Medical oxygen : Home patients 63 700 000 01-Jul-2014 30-Jun-2017 RT252-2013 Surgical instruments 27 500 000 01-Nov-2013 31-Mar-2016 RT302-2012 Surgical sutures and ligatures 33 508 022 01-Aug-2013 31-Jul-2016

RT3-2015 Office Equipment & Labour saving devices 915 948 401 01-Oct-2015 30-Sep-2018 RT9-2014 Infant Feed, Complete enteral feeds for paediatrics and

adults, enteral feed supplements, other nutritional supplements and tube feeding systems

964 000 000 01-Sep-2014 31-Aug-2017

RT10-2015 Veterinary remedies 65 300 000 01-Dec-2015 30-Nov-2018 RT12-2015 Agricultural Remedies 69 700 000 01-Dec-2015 30-Nov-2018 RT15-2016 Mobile communication services to the State 3 200 000 000 01-May-2016 30-Apr-2020 RT16-2015 Fertilizers 43 500 000 01-Apr-2015 31-Mar-2018 RT25-2016 Service providers for an integrated financial management

and internal control system for Local Government 01-Jun-2015 31-May-2019

RT26-2015 Blankets, Sheets and Pillowcases 21 774 688 01-Apr-2015 31-Mar-2016 RT59-2015 Footwear 110 628 606 01-Apr-2015 31-Mar-2016 RT60-2015 Fabric, Towelling and Towels 21 294 160 01-Apr-2015 31-Mar-2016 RT64-2014 Clothing, Uniforms, Rescue related clothing and

Underwear 33 762 230 01-Apr-2015 31-Mar-2016

RT233-2014 Wheelchairs 35 867 970 01-Sep-2014 31-Aug-2017 RT274-2014 Hearing aids 69 044 040 01-Sep-2014 31-Aug-2017 RT275-2016 Speech therapy equipment 25 454 030 01-Jun-2015 31-May-2019 RT287-2015 Dental instruments and related items 20 251 200 01-Mar-2015 28-Feb-2018 RT296-2015 Dental materials and consumables 67 607 337 01-Mar-2015 28-Feb-2018

Contract Register (Cont.)

11

1 008

1 032

1 033

1 085

1 123

1 152

1 187

1 197

1 252

1 372

1 431

1 450

2 012

2 067

2 137

2 231

2 238

2 961

3 101

3 149

3 275

3 471

3 505

3 918

4 766

17 097

23 797

Transport conveyance rental or lease services

Network applications software

Social development and services

Print advertising

Data Sevices

(Contract- Const & Maint Machinery)

Water and sewer utilities

Computers

(Legal Advice)

Internal audits

Meeting facilities

Facsimile and telegraph services

Management support services

(Security services)

Building maintenance and repair services

Printing and writing paper

Banquet and catering services

Passenger air transportation

Software or hardware engineering

Electric utilities

Business and corporate management consultation services

Passenger road transportation

Hotels and motels and inns

Temporary personnel services

Project management

Lease and rental of property or building

Commercial and office building construction services

Spend by commodity classes 2012 – 2014 (Rm)

National Government Spend Overview by commodity class

27 Commodity classes

accounted for 80% of

National government

spend

Total for 27 classes (80% = R94Bn

Total National Government

Spend = R116Bn

Drugs and pharmaceuticals

12

Inventory

Medicine

• (Inventory Med : Unspecified)

• (Inventory Medicine:

Antiretroviral Drug)

• (Inventory Medicine: Tablets,

Capsules and Lozenges)

• (Inventory Medicine: Vaccines)

• (Inventory: Animal Medicine)

• (Inventory: Animal Vaccines)

• (Inventory Med : Unspecified)

• (Inventory Medicine:

Antiretroviral Drug)

• (Inventory Medicine: Tablets,

Capsules and Lozenges)

• (Inventory Medicine: Vaccines)

• (Inventory: Animal Medicine)

• (Inventory: Animal Vaccines)

• 15 494

• 8 034

• 208

• 3 158

• 41

• 77

Medsas • Medsas

• (Medsas- Stock Purchase

General)

• (Medsas- Miscellaneous

Variance)

• (Medsas- Stock Issues)

• (Medsas- Purchase Variance)

• (Medsas- Stores Surpluses)

• 8 563

• 0.9

• 0.04

• -0.09

• -2

Estrogens and

progestins and

internal

contraceptives

• Estrogen, progestin, or internal

contraceptive

• Oral contraceptives • 252

*Class Family *Commodity Spend (Rm)

100% = R36Bn 252

8 562

27 283

Estrogens and progestins andinternal contraceptives

Medsas

Inventory Medicine

Drugs and Pharmaceutical spend 2012/13 -2014/15 (Rm)

National and Provincial Supplier overview

13

878

899

928

1073

1144

1145

1223

1231

1263

1378

1601

1619

1701

1804

2022

2053

2129

2555

6747

8389

GROUP FIVE CONSTRUCTION

MEDPRO PHARMACEUTICAL

THE STANDARD BANK

ADCOCK INGRAM

BLOEMFONTEIN CORRECCONTRACTS*

THE MVULA TRUST

THE BIOVAC INSTITUTE

DCOG CWP

PTY TRADE 73 (PTY) LTD

SA CUSTODIAL SERVICES

FIRST AUTO PTY LTD

TELKOM SA

GEMINI MOON TRADING

SITA

SA NATIONAL BLOOD SERVICES

ASPEN PHARMACARE LTD

IMPILO CONSORTIUM

AUDITOR GENERAL*

NATIONAL HEALTH LABS

INDEPENDENT DEV. TRUST

Top Government Suppliers* 2012-2014 (excluding government entities

Total = R41.7Bn

• Building Construction and MRO

• Laboratory services

• External Auditing

• Building Construction – MRO

• Pharmaceuticals

• Blood services

• IT products & services

• Travel and accommodation agency services

• Telecommunications

• Fleet services

• Property & Operating Leases

• Leaner & Teacher Material support

• Casual Labour ( temporary personnel)

• Pharmaceuticals

• Building Construction and MRO

• Property Leases

• Pharmaceuticals

• Fleet services

• Pharmaceuticals

• Building Construction & MRO

Top 20 suppliers

(10% of spend)

= R 42Bn

47% spend

unclassified by

supplier

= R220Bn

100% spend

=R431Bn

National Government Spend Overview by

department

12 departments account for 80% of National government spend*

22 720

2 552

2 857

3 312

4 980

5 111

5 485

6 640

9 483

10 192

13 038

13 588

16 755

OTHERS

AGRICULTURE,FORESTRY & FISHERIES

HEALTH

ENVIRONMENTAL AFFAIRS

HOME AFFAIRS

RURAL DEVELOPMENT & LAND REFORM

COOP GOVERNANCE & TRADITION AFFAIRS

INTERNATIONAL RELATIONS & COOPERATION

BASIC EDUCATION

PUBLIC WORKS

WATER AFFAIRS

JUSTICE&CONSTITUTION DEVELOPMENT

CORRECTIONAL SERVICES

Spend by department 2012 – 2014 (Rm)

*excluding police and defence

100% = R116bn

80

20

Areas for centralisation

• Travel and accommodation

• Telecommunications

• Computer services and hardware

• Consultancy/professional services

– Financial first…later construction

• Education

– Learner and teacher support materials

– Infrastructure

• Health

– Medical equipment, drugs and medicine

15

Areas for urgent review/intervention

• Construction/infrastructure standards

• Human settlements

– Super profits

– Indirect cost on other programmes

• Public entities

– Relevance

– Corporate structure

• Infrastructure delivery

– All three spheres weak (pockets of excellence)

16

PC/ Smartphone/Laptop/ Internet Cafe

Request Workflow

Update Supplier

Master

CSD Supplier

Master

Business Registration

(CIPC)

Member. Director details

(CIPC)

Bank Account

CDV (BAS)

B-BBEE (SANAS)

Tax Clearance (SARS)

Account Holder information

(BankServ)/SafetyWeb) Government

Network Subscriber A

File based

Subscriptions placed

for subscribers Government Employee

Verification :

- PERSAL

- PERSOL

- eDeclaration

- Municipal Payroll.

Supplier Self-Registration

ID Number (Dept of Home

Affairs)

Supplier (User)

Supplier

Request Data

Assisted Supplier Self

Registration

Data Preparation

Subscriber A

Prepared Supplier Data Upload to CSD

User

Security

Subscriber x

Subscriptions

Fetched

Central Supplier

Data from

Subscribers

Subscription

Management

3rd Party Interfaces for

Electronic Verification

In-Process

Automated

Verification

Subscribers: National-, Provincial- and Local government as well as

State Owned Entities (SOE’s)

Internet

Subscriptions

Subscriber B

CSD HIGH LEVEL CONCEPTUAL SOLUTION

Note: xxxxx will be done in future once an electronic

source is available with consolidated information to

allow for automated vetting.

In-Process queries from

Subscriber systems via

Standard Web APIs

Subscriber

Users

Departments;

Municipalities;

SOEs;

Internet

Regular

Automated Re-

Verification

G-Commerce site

18

E-tendering

19

SCM Review update

• Focus on renegotiating contracts with government’s top 100 suppliers

– Travel and Accommodation - Leasing

– Transversal contracts - ICT

– Construction - Pharmaceuticals

• Optimising procurement strategies

• Stakeholder engagement and outreach programmes

• 30 day payment violations

• Avoiding unnecessary purchases, reducing waste and inefficiency

• Drafting of Procurement Bill

20

Opportunities for Local Content

Improved collaboration between the DTI, DSBD, Economic Development and National Treasury and

Government Agencies

More sector specific and commodity driven interventions by government/ business compact

Centralised contracting for key commodities across the State

Use technology for public sector local content - flag Local RSA products on gCommerce with a national flag

next to the item to promote buying local, proudly SA too conservative in their marketing campaigns

Alternative instruments to stimulate local content rather than designated sectors eg. Tax incentives

Manufacturing and purchase of industrial goods will he stimulated through SOE purchasing power - mobilise

where the impact will be;

Cut the red tape in procurement proceses - too expensive, takes to long

Make 3 year demand plans for SOEs and infrastructure projects compulsory for tabling with budget and

appropriation and lead quarterly engagements between gov and business on opportunities

Good old fashioned pep talk by leaders with captains of industry to do the patriotic thing namely to buy local

products –

top 100 manufacturing companies indaba

21

Questions

Any questions or further

clarifications?

22