An analysis of state-owned water utilities
supply management to support
organisational strategy
E Maartens
orcid.org 0000-0002-0560-6357
Mini-dissertation accepted in partial fulfilment of the
requirements for the degree
Masters of Business Administration
at the North-West University
Supervisor: Mr. JC Coetzee
Graduation: May 2020
Student number: 29673550
ABSTRACT
The Supply Chain Management (henceforth SCM) function in the public sector is highly regulated by the South African Government, with more than 80 different legal instruments and instruction notes governing public SCM. The Auditor-General has reported regression in audit outcomes of water utilities, with a corresponding increase in irregular expenditure. Irregular expenditure constitutes spending that was incurred, other than the method as mandated by legislation.
Strategic Management is an important subject for the public sector, with its focus on service delivery, and not financial gain – as with the private sector. The provision of infrastructure, and the upkeep and maintenance thereof, is important to the strategic choices available in South Africa. Actual strategy implementation focuses on the achievement of the results or goals, as set out in the formulated organisational strategy. Apart from the achievement of organisational strategy, the goal of the Department of Water and Sanitation is to restructure water boards into Regional Water Utilities, to manage bulk water services infrastructure and supply bulk water to water service providers, manage bulk sanitation infrastructure, and develop new water resource infrastructure. This strategic intent implies major capital projects that will have to be initiated by water utilities, which need to be supported by SCM to achieve the strategic direction.
The objective of this study was to investigate factors and challenges affecting SCM process inefficiencies within Water Utilities, as well as the impact that they have on strategy and strategic direction. A mixed-method research approach was adopted for the execution of the study. Two self-administered questionnaires were used for data collection. The focus of the research was collecting data from the largest water utility in South Africa, as all water utilities are governed by the same legislation, making the research representative. Non-probability convenience sampling was implemented to form the study population, which consisted of SCM staff and Senior Managers. Ethical considerations were taken into account, and confidentiality was assured to all participants.
Data were analysed using the Statistical Consultation Services of the North-West University, with the goal to answer the research question. Based on the literature
review and findings, as per the survey used in the empirical research, conclusions and recommendations were made to enhance SCM effectiveness to support the achievement of organisational strategy and strategic direction. The goal of this study was to establish a framework for collaboration between water utilities and their stakeholders.
Key terms: Supply Chain Management (SCM), supply management, organisational
ACKNOWLEDGEMENTS
To my daughter Melanie; Thank you for your love, encouragement and support. I am blessed to be your mother and I love you very much.
To my sister Analise Vosloo; Thank you for your constant encouragement, support and love. You are a blessing in my life and I cherish you in my heart.
To family and friends who I often neglected during this journey. Thanks for your love and support.
To my group leader Jan Hofmeyr; Your guidance, example and encouragement throughout our journey will always be remembered. My respect for you is endless and I gained a good friend.
To the #bettertogether team; We did it together!
To my colleagues from Rand Water for their valuable input and assistance through this process.
To my study leader, Mr. Johan Coetzee. Thank you for your guidance through each stage of the process.
To Steph Mostert, for the professional language and technical editing.
To Marike Cockeran from the North West University, for the statistical analysis and excellent service.
In the words of Loretta Young: “I‟m grateful to God for his bountiful gifts …… He
TABLE OF CONTENTS
Abstract ... i
Acknowledgements ... iii
List of Figures ... ix
List of Tables ... x
List of Abbreviations ………...…xvii
CHAPTER 1: ORIENTATION AND PROBLEM STATEMENT ... 1
1.1 Introduction ... 1
1.2 Contextualisation ... 9
1.3 Causal factors ... 14
1.4 Importance of this study ... 16
1.5 Problem statement ... 16
1.6 Research objective ... 17
1.6.1 Primary objective ... 17
1.6.2 Secondary objective ... 18
1.7 Research methodology ... 18
1.7.1 Literature and theoretical review ... 19
1.7.2 Empirical research ... 19
1.7.2.1 Research design ... 19
1.7.3 Limitations ... 20
1.7.3.1 Sources ... 20
1.8 Layout of the study ... 21
1.9 Conclusion ... 21
1.10 Chapter summary ... 22
CHAPTER 2: LITERATURE REVIEW ... 23
2.2 Legislation governing national Government business enterprises ... 25
2.3 Definitions of key terms ... 27
2.4 Correlation between supply management and organisational strategy ... 29
2.5 Challenges related to strategy implementation in South Africa ... 35
2.5.1 Promotion of equality in the workplace and workplace diversity... 36
2.5.2 Broad-Based Black Economic Empowerment ... 36
2.5.3 National developmental agendas ... 37
2.5.4 Infrastructure ... 37
2.5.5 Shortage of management skills ... 38
2.6 SCM challenges in the South African public sector ... 38
2.6.1 Lack of knowledge, skills and capacity ... 39
2.6.2 Non-compliance with SCM policy and regulations ... 40
2.6.3 Inadequate planning and budget provision for procurement ... 41
2.6.4 Accountability, fraud, corruption and unethical behaviour ... 41
2.6.5 Inadequate performance measurement of SCM ... 43
2.6.6 Decentralised procurement function ... 43
2.6.7 Ineffectiveness of black economic empowerment policy ... 46
2.6.8Supplier relationship management ... 46
2.6.9 E-Procurement/e-commerce and information systems ... 48
2.7 Corporate governance and supply chain management ... 50
2.8 Supply management in water utilities and the impact on organisational strategy ... 52
2.8.1 Rand Water‟s strategy ... 55
2.8.2 Supply Management in public utilities ... 57
2.8.3 Acquisition management in the public sector ... 57
2.8.5 Inefficiencies in Supply Management amongst water utilities... 59
2.9 Conclusion ... 60
2.10 Chapter summary ... 62
CHAPTER 3: RESEARCH METHODOLOGY AND FINDINGS... 65
3.1 Introduction ... 65
3.2 Mixed-Method ... 65
3.3 Sample group, size and reliability ... 66
3.4 Procedure and scope of the quantitative research... 69
3.5 Procedure and scope of the qualitative research ... 70
3.6 Survey instrument ... 70
3.7 Qualitative analysis ... 72
3.8 Questionnaire 1: Appendix B - Conducted amongst SCM staff ... 76
3.8.1 Demographical profile of respondents ... 76
3.9Empirical study: results ... 78
3.9.1 Frequency analysis and descriptive statistics ... 78
3.9.1.1Legislation governing SCM ... 78
3.9.1.2Practicality of SCM processes ... 91
3.9.1.3Compliance ... 98
3.9.1.4Performance of SCM staff ... 102
3.9.1.5Ad hoc additional information indicated by respondents ... 108
3.10 Questionnaire 2: Appendix C - Conducted amongst senior managers responsible for the execution of strategy ... 108
3.10.1 Demographical profile of respondents ... 108
3.11 Empirical study results for second questionnaire on the achievement of strategy in the context of SCM processes ... 110
3.11.1 Frequency analysis and descriptive statistics ... 110
3.11.1.2 Compliance ... 115
3.11.1.3 Rate the performance of the SCM Department ... 119
3.11.1.4 General ... 124
3.12Conclusion ... 129
3.13 Chapter summary ... 131
CHAPTER 4: CONCLUSIONS AND RECOMMENDATIONS ... 132
4.1 Introduction ... 132
4.2 Attainment of objectives ... 133
4.2.1 Literature objectives ... 133
4.2.1.1 Establish whether Water utilities are interpreting and implementing relevant legislation, NT instructions and practice notes correctly, and is 80 different legal instruments governing SCM in the public sector effective? ... 133
4.2.1.2 Investigate the impact of the different legislations on compliance . 134 4.2.1.3 SCM processes and systems: Improvements to processes to achieve SCM efficiencies and ownership of processes amongst SCM staff and users and the role of information systems ... 135
4.2.1.4 Establish the effectiveness of Tender related processes and the effectiveness of the contract management system ... 136
4.2.1.5 Establish of SCM staff has enough knowledge in their fields ... 137
4.2.1.6 Establish how proper supplier relationship management can be implemented by water utilities... 138
4.2.1.7 Establish the impact of SCM inefficiencies on the achievement of organisational strategy ... 138
4.2.1.8 Establish if SCM and business understand their roles and responsibilities ... 139
4.3 Limitations and implications for further research... 140
4.4 Conclusion ... 140
REFERENCE LIST... 142 APPENDIX A ... 153 APPENDIX B ... 154 APPENDIX C ... 158 APPENDIX D ... 162 APPENDIX E ... 163 APPENDIX F ... 164
LIST OF FIGURES
Figure 1.1: The generic elements of Supply Chain Management ... 4 Figure 2.1: Differences between the supply chain for goods and services and for
infrastructure ... 32 Figure 2.2: The Infrastructure Delivery Management System Diagram ... 35 Figure 3.1: Research population and sample ... 66
LIST OF TABLES
Table 2.1: State owned water utilities in South Africa, area of supply and number of
households to whom water is supplied ... 24
Table 2.2: Purchasing roles ... 31
Table 2.3: Advantages and disadvantages of a centralised- and decentralised Supply Chain Management function ... 45
Table 2.4: Strategic objectives not met ... 56
Table 3.1: Sample size for a given population ... 68
Table 3.2: Gender of the respondents ... 76
Table 3.3: Age of respondents ... 76
Table 3.4: Highest qualification ... 77
Table 3.5: Position/Role ... 77
Table 3.6: Several National Treasury Instructions and Practice Notes govern water utilities. Rate your general understanding thereof (Q2.1) ... 78
Table 3.7: What is the quality of training you received to understanding the content of National Treasury Instructions- and Practice notes (Q2.2) ... 79
Table 3.8: What is the quality of training you received in understanding the Public Finance Management Act 1 of 1999 (Q2.4.1) ... 80
Table 3.9: Rate your understanding of the Public Finance Management Act 1 of 1999 (Q2.3.1) ... 80
Table 3.10: What is the quality of training you received in understanding the Promotion of Administrative Justice Act 3 of 2000 (Q2.4.2) ... 81
Table 3.11: Rate your understanding of the Promotion of Administrative Justice Act 3 of 2000 (Q2.3.2) ... 81
Table 3.12: What is the quality of training you received in understanding the promotion of equality and prevention of unfair discrimination Act 4 of 2000 (Q2.4.3) ... 82
Table 3.13: Rate your understanding of the promotion of equality and prevention of unfair discrimination Act 4 of 2000 (Q2.3.3) ... 83 Table 3.14: What is the quality of training you received in understanding the
Preferential procurement policy framework Act 5 of 2000 (Q2.4.4) ... 83 Table 3.15: Rate your understanding of the Preferential procurement policy
framework Act 5 of 2000 (Q2.3.4) ... 84 Table 3.16: What is the quality of training you received in understanding the
Construction Industry Development board (CIDB) Act 38 of 2000 (Q2.4.5) ... 85 Table 3.17: Rate your understanding of the Construction Industry Development
Board (CIDB) Act 38 of 2000 (Q2.3.5)... 85 Table 3.18: What is the quality of training you received in understanding Broad-based Black Economic Empowerment Act 53 of 2003 (Q2.4.6) ... 86 Table 3.19: Rate your understanding of Broad-based black economic empowerment
Act 53 of 2003 (Q2.3.6) ... 86 Table 3.20: What is the quality of training you received in understanding the
Prevention and combating of corrupt activities Act 12 of 2004 (Q2.4.7) ... 87 Table 3.21: Rate your understanding of the Prevention and Combating of Corrupt
activities Act 12 of 2004 (Q2.3.7) ... 87 Table 3.22: What is the quality of training you received in understanding the content
of policies and procedures of your organisation (Q2.6)? ... 88 Table 3.23: Rate your understanding of the policies governing SCM within your
organisation (Q2.5.1)... 88 Table 3.24: Rate your understanding of the SCM procedures within your organisation
(Q2.5.2) ... 89 Table 3.25: Summary of the level of understanding legislation governing SCM in the
public sector ... 89 Table 3.26: To what extent do you rate the effectiveness of the request for quotation
Table 3.27: To what extent do you rate the effectiveness of e-Procurement systems (Q3.1.2) ... 92 Table 3.28: To what extent do you rate the effectiveness of tender processes
(Q3.1.3) ... 92 Table 3.29: To what extent do you rate the effectiveness of the e-tender application
portal (Q3.1.4) ... 93 Table 3.30: To what extent do you rate the effectiveness of the duration of tender
processes (Q3.1.5) ... 93 Table 3.31: To what extent do you rate the effectiveness of the ease in completing
documentation relating to the tendering process (Q3.1.6) ... 94 Table 3.32: To what extent do you rate the effectiveness of the bid committees
(Q3.1.7) ... 94 Table 3.33: To what extent do you rate the effectiveness of the 3-quotation process
for procurement under R500,000 (Q3.1.8) ... 95 Table 3.34: To what extent do you rate the effectiveness of the contract
management system (Q3.1.9) ... 96 Table 3.35: To what extent do you rate the effectiveness of the SCM policy (Q3.1.10) ... 96 Table 3.36: To what extent do you rate the effectiveness of SCM procedures
(Q3.1.11) ... 97 Table 3.37: Summary of the rate of effectiveness of SCM processes ... 97 Table 3.38: To what extent is your organisation in compliance with the SCM policy
(Q3.2.1) ... 98 Table 3.39: To what extent is your organisation in compliance with SCM procedures
(Q3.2.2) ... 99 Table 3.40: To what extent is your organisation in compliance with NT instructions
and practice notes (Q3.2.3) ... 99 Table 3.41: To what extent is your organisation in compliance with the PFMA 1 of
Table 3.42: To what extent is your organisation in compliance with PPPF Act 5 of
2000 (Q3.2.5) ... 100
Table 3.43: To what extent is your organisation in compliance with CIDB Act 38 of 2000 (Q3.2.6) ... 101
Table 3.44: To what extent is your organisation in compliance with BBBEE Act 53 of 2003 (Q3.2.7) ... 101
Table 3.45: Summary of the extent of compliance ... 102
Table 3.46: Rate the performance of the SCM department in terms of buyer efficiency (Q3.3.1) ... 102
Table 3.47: Rate the performance of the SCM department in terms of turnaround time in the placing of orders (Q3.3.2) ... 103
Table 3.48: Rate the performance of the SCM department in terms of time lines for tenders (Q3.3.3) ... 103
Table 3.49: Rate the performance of the SCM department in terms of efficiency of the tender process (Q3.3.4) ... 104
Table 3.50: Rate the performance of the SCM department in terms of cost effectiveness (Q3.3.5) ... 104
Table 3.51: Rate the performance of the SCM department in terms of SCM consistently deliver services on time (Q3.3.6) ... 105
Table 3.52: Rate the performance of the SCM department in terms of professionalism of supply chain management employees (Q3.3.7) ... 105
Table 3.53: Rate the performance of the SCM department in terms of SCM employees being held responsible for non-compliance to legislation, policy and processes (Q3.3.8) ... 106
Table 3.54: Rate the performance of the SCM department in terms of quality of suppliers (Q3.3.9) ... 106
Table 3.55: Summary of the rate of performance of the SCM department ... 107
Table 3.56: Age of respondents ... 109
Table 3.58: Position/Role ... 109 Table 3.59: Division ... 110 Table 3.60: To what extent do you rate the effectiveness of the request for quotation
process in your organisation (Q2.1) ... 111 Table 3.61: To what extent do you rate the effectiveness of the tender processes
(Q2.2) ... 111 Table 3.62: To what extent do you rate the effectiveness of the duration of the tender
processes (Q2.3) ... 112 Table 3.63: To what extent do you rate the effectiveness of the 3-quotation process
for procurement under R500,000 (Q2.4) ... 112 Table 3.64: To what extent do you rate the effectiveness of the contract
management system (Q2.5) ... 112 Table 3.65: To what extent do you rate the effectiveness of the ease of completion of
documentation relating to the tendering process (Q2.6)... 113 Table 3.66: To what extent do you rate the effectiveness of the bid committees
(Q2.7) ... 113 Table 3.67: To what extent do you rate the effectiveness of the SCM policy (Q2.8) ... 114 Table 3.68: To what extent do you rate the effectiveness of the SCM procedures
(Q2.9) ... 114 Table 3.69: Summary of the rate of effectiveness of SCM processes ... 115 Table 3.70: To what extent is your organisation in compliance with SCM policy
(Q3.1) ... 115 Table 3.71: To what extent is your organisation in compliance with SCM procedures
(Q3.2) ... 116 Table 3.72: To what extent is your organisation in compliance with NT instructions
and practice notes (Q3.3) ... 116 Table 3.73: To what extent is your organisation in compliance with PFMA (Q3.4) . 117
Table 3.74: To what extent is your organisation in compliance with the Preferential Procurement Policy Framework Act (Q3.5) ... 117 Table 3.75: To what extent is your organisation in compliance with the CIDB Act
(Q3.6) ... 118 Table 3.76: To what extent is your organisation in compliance with BBBEE Act
(Q3.7) ... 118 Table 3.77: Summary of the extent of compliance ... 118 Table 3.78: Rate the performance of SCM departments in terms of buyer efficiency
(Q4.1) ... 119 Table 3.79: Rate the performance of SCM departments in terms of the turnaround
time in the placing of orders (Q4.2) ... 119 Table 3.80: Rate the performance of SCM departments in terms of the time line for
the tender process (Q4.3) ... 120 Table 3.81: Rate the performance of SCM departments in terms of the SCM
employees being held responsible for non-compliance to legislation, policy and processes (Q4.4) ... 120 Table 3.82: Rate the performance of SCM departments in terms of the SCM
employees deliver services on time (Q4.5) ... 121 Table 3.83: Rate the performance of SCM departments in terms of the
professionalism of SCM employees (Q4.6) ... 122 Table 3.84: Rate the performance of SCM departments in terms of the efficiency of
the tender process (Q4.7) ... 122 Table 3.85: Rate the performance of SCM departments in terms of cost effectiveness
(Q4.8) ... 122 Table 3.86: Rate the performance of SCM departments in terms of the quality of
suppliers (Q4.9) ... 123 Table 3.87: Summary of the rate of performance of the SCM department ... 123 Table 3.88: How many strategic targets were not met because of procurement
Table 3.89: Do you believe SCM receives accurate information from business to effectively and timeously action the procurement/tender processes (Q5.2)? ... 125 Table 3.90: Do you believe SCM understands their roles and responsibilities and
how they supplement each other (Q5.3)? ... 125 Table 3.91: Do you believe SCM understands their roles and responsibilities in the
achieving of strategic objectives (Q5.4) ... 126 Table 3.92: Do you believe SCM has the human capacity to meet the needs of the
organisation (Q5.5)... 126 Table 3.93: Do you believe SCM has the necessary skills to meet the needs of the
organisation (Q5.6)?... 127 Table 3.94: Do you believe SCM processes are effective (Q5.7)? ... 127 Table 3.95: Part of strategy is to analyse the internal and external environment and
to identify strategic goals and develop strategies in line with the organisations vision and mission. Do you believe SCM processes support business to such an extent that it is easily achievable to meet set goals (Q5.8)? ... 128 Table 3.96: Do you believe SCM processes are the reason why you couldn‟t meet
LIST OF ABBREVIATIONS
AG Auditor-General
BBBEE Broad-Based Black Economic Empowerment CAPEX Capital expenditure
CPAR Country Procurement Assessment Review CIDB Construction Industry Development Board DWA Department of Water affairs
DWS Department of Water and Sanitation
FIDPM Framework for Infrastructure Delivery and Procurement Management
IDMS Infrastructure delivery management system KPIs Key performance indicators
NT National Treasury
OCPO Office of the Chief Procurement Officer PFMA Public Finance Management Act
PPPFA Preferential Procurement Policy Framework Act RW Rand Water
SCM Supply Chain Management SM Supply Management
SMME Small, medium and micro sized enterprises SOE State owned entities
CHAPTER 1: ORIENTATION AND PROBLEM STATEMENT
1.1 Introduction
Water utilities in South Africa are schedule 3B state-owned public entities, in terms of the Public Finance Management Act (PMFA). These entities operate in terms of Section 84 of the Water Services Act no. 108 of 1997. The Government of the Republic of South Africa, through the Department of Water and Sanitation (DWS), duly represented by the Minister of Water and Sanitation, is the sole shareholder. Their primary mandate is to supply potable water to other water service institutions within its service area (Rand Water, 2017:297; Rand Water, 2018:40; Umgeni Water, 2017:8; Department of Water affairs, 2014:5).
The public-sector supply chain management (SCM) is regulated by the South African Government to minimise discretion by state-owned entities, corruption and political risks (Badenhorst-Weiss et al., 2017:368; National Treasury, 2004:9; Mbanje & Lunga, 2015:63). The key role players are the National Treasury, the Provincial Treasuries, Accounting Officers or Chief Executive Officers, and Chief Financial Officers or Supply Chain Management Units (National Treasury, 2004:18-21; Badenhorst-Weiss et al., 2017:368; Mbanje & Lunga, 2015:73). The National Treasury is a governmental body that controls uniform procurement, and manages and monitors the use of public funds on behalf of government. The National Treasury develops new Treasury regulations and practice notes, and enforces and monitors these standards and policy outcomes (Mbanje & Lunga, 2015:73; Turley & Perera, 2014:12).
All role players under the PFMA, including state-owned Water utilities, must comply with the National Treasury (NT) regulations including compliance to SCM processes (Mbanje & Lunga, 2015:73; Turley & Perera, 2014:12). It is thus essential that SCM policies and procedures in all state-owned entities are aligned with NT instructions and practice notes, as well as with all other legislation that governs SCM to secure compliance. The NT is in the process of developing a single SCM legal framework, as there are more than 80 different legal instruments and instruction notes that govern public SCM. This must be streamlined into a single piece of legislation (National Treasury, 2015c:12). One of the reforms is the Public Procurement Bill,
and its main purpose is to consolidate fragmented pieces of procurement legislation. This process is currently delayed, and one of the reasons for this is recent changes in government (Van Wyngaardt, 2018:1).
According to Lazenby (2014:255), South Africa has undergone significant political transition, and the public sector is now more representative of diverse cultures. Strategic management is an important issue for the public sector, with its focus on service delivery and not financial gain – as is the case with the private sector. Money, however, remains important in the public sector, because without it, services cannot be rendered and must be managed efficiently, effectively and appropriately, which makes strategic management important. The provision of infrastructure is important to the strategic choices available in South Africa, and the upkeep and maintenance of infrastructure is an area of concern (Goldman, 2010:30). Goldman (2010:31) asserts that strategy formulation is focusing on the strategic intent of the organisation, but the actual strategy implementation focuses on the actual deed to achieve the results or goals, as set out in the formulated organisational strategy. Procurement reforms were introduced in 1995 in the South African public sector, in order to promote socio-economic objectives and good governance. The reform process is entrenched in section 76(4)(c) of the Public Finance Management Act 1 of 1999 (PFMA), and the Preferential Procurement Policy Framework Act 5 of 2000 (PPPFA) (Badenhorst-Weiss et al., 2017:365; Bezuidenhout & Pilane, 2018:169). In 2001, the National Treasury and the World Bank concluded a “Country Procurement Assessment review (CPAR)”, where an assessment was done on procurement practices in the public sector, and deficiencies were identified relating to governance, misinterpretation of the PPPFA and associated regulations (Badenhorst-Weiss et al., 2017:365). According to Badenhorst-Weiss et al. (2017:365), the following deficiencies – which resulted in reform initiatives in conjunction with the National Treasury to implement effective and efficient procurement practices – were identified:
Conflicts of interest in bid committees due to its composition.
Isolation of activities with no link to budget, strategy or integrated development plan objectives.
Inventory, rather than return on capital investment was priority.
Ad hoc use of procurement documentation with no uniformity.
Use of ineffective consultants.
Implementation of a complex PPPFA.
Cost and outcome of PPPFA not quantified, making it difficult to assess the merits of the system.
Insufficient training of procurement practitioners.
To replace the out-dated procurement practices, parliament adopted a SCM policy in September 2003, which conforms to world-wide best practices with the aim to have uniformity in SCM processes, as well as to improve financial management (National Treasury, 2004:2; Turley & Perera, 2014:12, Ambe, 2016:282). The regulations empowered the National Treasury to issue practice notes, to ensure uniform standards. Due to the substantial differences between the current and out-dated procurement practices, the new SCM function, adopted in 2004, required a phased implementation methodology, and is applicable to all organs of state (National Treasury, 2004:2). In February 2004, the NT published a document “Supply chain management: a guide for accounting officers and municipalities”, to clarify roles, responsibilities and duties (Badenhorst-Weiss et al., 2017:368; National Treasury, 2004:18). The guide outlines the philosophy behind the implementation of an integrated SCM function across government, and empowers officials to understand their roles and responsibilities (National Treasury, 2004:2).
More than a decade later, the NT has acknowledged challenges in the public-sector SCM and the negative effects of inefficient public sector SCM (National Treasury, 2015c:1). Furthermore, it acknowledges that government is starting to value the strategic importance of SCM to service delivery and that reforms are considered as SCM has to be capacitated and transformed (National Treasury, 2015c:1).
Figure 1.1 indicates the key elements of the public sector SCM system. SCM processes are supported by policies, procedures and systems. Processes within the
SCM system for the maintenance and provision of infrastructure are included in goods and services, which are required to develop and maintain infrastructure.
Figure 1.1: The generic elements of Supply Chain Management
Source: The National Treasury (2015c:28)
The “2015 Public sector Supply Chain Management review” acknowledges the strategic importance of SCM to service delivery, value creation, socio-economic transformation and fiscal prudence, and confirms that it is valued and recognised by Government (National Treasury, 2015c:1). Section 217 of the constitution makes provision for the implementation of SCM reforms, and the benefits will include: improvement in service delivery, economic growth, improvement in social welfare, improved pricing, innovation, and a decrease in the cost of doing business with the state (National Treasury, 2015c:1).
The first review of the SCM Policy was published in 2015 (Ambe, 2016:282). The Office of the Chief Procurement Officer (OCPO), at the NT was established in 2013. The purpose of the OCPO is to oversee the public sector SCM system, and to ensure that it is aligned with the Constitution and relevant legislation that governs
SCM (Ambe, 2016:288). Cabinet resolved that the OCPO accelerates SCM reforms in the public sector, by simplifying procurement processes, implementing a legal SCM framework, and modernising SCM technology (National Treasury, 2018b:3). To achieve an efficient and cost-effective public sector SCM system, processes and procedures must be simplified. Reforms must be considered to achieve good governance and accountability, cost optimisation, ease of entry for Small, Medium and Micro sized Enterprises (SMME‟s), effective supplier participation, and improved contract management (National Treasury, 2016:8).
The SCM review update of 2016, indicates that the review of the SCM legislative framework is underway, and will result in a single public procurement legislation that will address legislative inefficiencies. Once the Public Procurement Bill is finalised, it will fully establish the OCPO, and will establish a fair and agile SCM system of preference to support social-economic transformation, as per section 217 of the Constitution (National Treasury, 2016:8).
Since 1995, Government has not succeeded in establishing an effective SCM framework. Thus, it is not unexpected that audits, conducted by the Auditor-General on Water Boards over the last 3 years, confirm regression in audit outcomes (Auditor-General, 2018a:11; Auditor-General, 2018b:6):
In the 2014/2015 financial year, 6 out of 9 Water Boards received unqualified audit outcomes with findings, and 3 received unqualified audit outcomes without findings (Auditor-General, 2018b:6). An unqualified audit indicates that the financial statements give a true and fair view of the state of the organisation‟s affairs (Cosserate & Rodda, 2009:541; Auditor-General, 2018a:10).
In the 2015/2016 financial year, 5 Water Boards received unqualified audit outcomes with findings, 3 Water Boards received unqualified audit outcomes without findings, and Overberg Water was disclaimed with findings (Auditor-General, 2018b:6). Disclaimed with findings means that the auditors could not express an opinion on the financial statements, due to significant limitations on audit scope (Cosserate & Rodda, 2009:541; Auditor-General, 2018a:10).
This has changed during the 2016/2017 financial year, as only 1 water board had an unqualified audit opinion with no findings, 4 had an unqualified audit opinion with findings, 3 had a qualified audit opinion with findings, and 1 audit was outstanding (Auditor-General, 2018b:6). A qualified audit opinion indicates that the financial statements give a true and fair view, except for specific reservations, deficiencies, shortcomings, or scope limitations (Cosserate & Rodda, 2009:541; Auditor-General, 2018a:10).
According to Cosserate and Rodda (2009:541–545), an independent auditor will issue a qualified audit opinion statement where:
information provided is limited in scope, meaning enough information could not be gathered, yet the financial statements are still a fair indication of the financial position of the organisation;
the accounting system does not completely conform to General Acceptable Accounting practices provisions;
there is a material change in accounting policies between accounting periods;
a compromise on methods to treatment, or valuation of assets could not be reached between management and the auditors;
disagreement with management, in relation to relevance and reliability of the prepared financial statements; and/or
unacceptable practices were not corrected.
The Auditor-General identified material non-compliances at 7 out of 8 water boards. The non-compliances related to:
incurring of irregular- and fruitless and wasteful expenditure
a competitive bidding process was not followed, as per SCM prescripts (Auditor-General, 2018b:8).
R298 million was reported as irregular expenditure, relating to non-compliance with various procurement legislation (Auditor-General, 2018a:19). Although irregular expenditure does not necessarily mean wastage or fraud, it is spending that was
investigated (Merten, 2018; Khalo et al., 2007:8; National Treasury, 2018a:7). To determine if irregular expenditure has been incurred, one of the following had to be transgressed:
PFMA
Treasury regulations
National treasury instructions issued in terms of section 76 of the PFMA
Internal policies approved by the Accounting officer
Any applicable legislation
Fruitless and wasteful expenditure is considered unnecessary expenditure made in vain, which could have been avoided, if proper care were taken (Khalo et al., 2007:8).
Merten (2018) confirms that audit outcomes over the last 4 years, in the public sector, indicate a decline of compliance to legislation and regulations, which results in the decline of public finances, in the absence of the implementation and enforcement of effective internal controls. According to the Auditor-General (2017a:20), political leadership and accounting officers are entrusted with the accountability of state resources, and must act in the interest of the public, as well as to the benefit of society. Leadership must be accountable to the public, and must be held responsible for their actions, decisions and policies, as entrenched in the Constitution of the Republic of South Africa, 1996. Leadership should set the tone for accountability (Auditor-General, 2017a:21). In the report, 5 key programmes were identified, of which „Water infrastructure development‟ was listed, and it is indicated that it has an impact on the achievement of Government priorities (Auditor-General, 2017a:25). This key programme confirms the strategic direction of water utilities, and this has the potential to be derailed by SCM inefficiencies.
The institute of public procurement acknowledges that strategies are of no value without proper implementation and execution. They call attention to the role of the procurement professional who has the competencies for turning plans into actionable objectives (Demel et al., 2015). Thompson et al. (2017:19) point out that good or
poor organisational performance is dependent on how well the strategy is executed by management. An organisation does not function in isolation, but must have the ability to function as an enterprise in its supply- and value chain clusters, as it is critical to its success (Burt et al., 2010:19). Factors like the availability of goods and services procured, cost of goods or services purchased, and roles and responsibilities have an influence on where supply management falls within the organisational structure (Burt et al., 2010:3). These factors are dependent on reliable and dependable suppliers.
The role of supplier relations should not be under estimated. Lazenby (2014:132) emphasises that organisations should have good relationships with their suppliers, as they are dependent on suppliers for their input resources to produce goods and services, and managers should secure reliable supply thereof. It is important that sound relationships are established with suppliers (Lazenby, 2014:104). Unreliable suppliers can result in public sector institutions running out of supplies used to deliver goods or services to the community (Lazenby, 2014:258). In the context of water supply, contracts with chemical suppliers are essential to ensure fair and equitable prices, and continuous uninterrupted water supply to the citizens of South Africa.
The level of performance attained within the organisation is largely determined by capabilities, the motivation of individuals, and the organisational structure within which the individual‟s function (Burt et al., 2010:31). The organisational structure must in turn fit its strategy (Lazenby, 2014:335). Organisational structures that promote the importance of the procurement function, are materials management, the SCM structure and cross-functional teams. The position of the SCM function considerably affects its influence on corporate strategy (Burt et al., 2010:3).
SCM in Water utilities must be characterised by efficient processes, good management of suppliers, and effective cross-functional interaction to ensure the attainment of organisational strategic objectives. The aim of the research is to study SCM in Water utilities and procurement challenges that confront Water utilities, as well as the effect it has on the achievement of organisational strategy.
1.2 Contextualisation
The term procurement is most often used in the context of the purchasing function of public entities. The traditional procurement function has transformed into a wider framework, known as supply management. The aforementioned was absorbed into a management philosophy, known as supply chain management, which is a multifunctional and multi-organisational impression (Hugo & Badenhorst-Weiss, 2011:6; Burt et al., 2010:6). According to Burt et al. (2010:2) supply management lays the foundation for successful Supply Chain Management (SCM). For this study, the definition of supply management is of importance, as the focus is shifted from the functional perspective of purchasing, to long-term goals that contribute to the future strategic direction of the organisation, and the impact on strategy. Supply management includes the activities of purchasing, but has a long-term strategic focus (Hugo & Badenhorst-Weiss, 2011:4). For the purpose of this study, the terms Supply Management and Supply Chain Management will be used interchangeably. According to Burt et al. (2010:5), purchasing involves working with strategic assets management, operational staff and suppliers, so that materials and services can be acquired. Purchasing provides the foundation of supply management, which has a broader scope of activities when the focus is on total cost of ownership, as opposed to price (Badenhorst-Weiss et al., 2017:210). Badenhorst-Weiss et al. (2017:210) assert that the procurement function includes the sourcing of supply source locations, timing of purchasing, negotiation of price, and developing standards of quality. The terms procurement and purchasing are often used interchangeably. To further determine whether these concepts are related, it must be viewed from a management perspective, as well as from a business function perspective. From a management perspective, purchasing and supply management are different concepts, in terms of process and systems importance, as well as the strategic approach, which is a characteristic of supply management. However, from a business function perspective, the importance is on activities that must be performed, which poses a major overlap in the concepts (Hugo & Badenhorst-Weiss, 2011:7).
The following characteristics relate to supply management as a strategic version of basic purchasing:
Supply management has a strategic focus (Hugo & Badenhorst-Weiss, 2011:6; Burt et al., 2010:17).
Supply management focuses on the attainment of overall organisational goals, whereas procurement focuses on the achievement of functional goals (Hugo & Badenhorst-Weiss, 2011:6).
Supply management is a systems approach to the acquisition of materials and services in collaboration with other functional areas, with the aim to achieve organisational goals, whereas purchasing is a functional approach with the aim to achieve functional goals (Hugo & Badenhorst-Weiss, 2011:6).
Supply management engages in long term relationships or partnerships with suppliers. Suppliers are regarded as extensions of the organisation, as they are involved at a strategic level (Handfield et al., 2009:8-9; Baltzan, 2015:162).
The above discussion indicates that supply management is built on traditional skills, objectives and activities of purchasing, and is a step in the evolutionary development of the traditional purchasing function (Hugo & Badenhorst-Weiss, 2011:7).
Procurement guidelines in the early 1800‟s emphasised administrative procedures, and the focus was on cost reduction. It took more than 100 years for purchasing to evolve from an activity that requires tactical decisions, to one with a strategic value. The view has changed from simply buying goods and services to overseeing an integrated set of management functions. Historically, the focus used to be on transaction management, but has now evolved to relationship management with internal and external stakeholders. Research has indicated that the development of purchasing, from a tactical task to a more strategic focus, is not a universal phenomenon (Hugo & Badenhorst-Weiss, 2011:3). According to Hardt et al. (2007:114), purchasing still has a transactional focus, and organisations have not succeeded in realising the full strategic potential of the purchasing function. Staats (2018) explains that transactional procurement refers to routine actions like documentation, whereas the focus should be more on analytical aspects of business
operation, which adds value in the long term. According to Charles (2016), a shift in procurement is starting to evolve in that procurement teams have a more strategic approach. Procurement is starting to play a more prominent role in the overall vision of organisations (Charles, 2016). Organisations now realise that they are dependent on materials and services supplied by other businesses, and that sound supplier relationships in the supply chain is of greatest importance (Badenhorst-Weiss et al., 2017:119).
The current public sector undervalues the importance of supplier relationship management, and should develop long term strategic supplier relationships (National Treasury, 2015c:5). The NT acknowledges that the public sector should develop long-term strategic supplier relationships, to overcome challenges. For example, suppliers who exploit the current weak public sector SCM environment, in that excessive prices are charged, contract irregularities exist, unethical behaviour is common, poor quality of products and services are rendered, coupled with supplier non-performance (National Treasury, 2015c:5).
To enhance integration and collaboration with suppliers and other business partners to improve the operation efficiency and business effectiveness of the supply chain, organisations increase their use of Internet technologies (Mbanje & Lunga, 2015:111). The National Treasury has the e-tendering portal for procurement over R500,000, where all government institutions publish their tenders and award notices on a single platform. The research will test the effectiveness of an e-procurement system to allow suppliers to respond to the request for quotations electronically, for procurement under R500,000 (Vat inclusive), to enhance procurement efficiencies (National Treasury, 2019:1). Ambe (2016:287) asserts that Government has 36 different SCM systems characterised by poor integration. This statement is confirmed by the National Treasury indicating that the Government SCM is supported by a diversity of systems with variations in scope, efficiency and functionality, and that 45% of total supply chain activities are manual processes that result in inefficiencies (National Treasury, 2016:6).
Public procurement spending represented 29% of Gross Domestic Product (GDP) in 2014 (Turley & Perera, 2014:1), and 22% in 2015 – which is an approximation of R500 billion (Bolton, 2016; National Treasury, 2015c:3). The SCM review update of
2016 indicates that the procurement of goods, services and works over a 3-year period is anticipated to be R1,5 trillion across all spheres of government (National Treasury, 2016:1). Over R750 billion is anticipated to be invested in economic and social infrastructure, to support economic growth and improve the quality of life of South African citizens (National Treasury, 2016:4). This considerable amount of money must be spent wisely and efficiently in an extensively regulated and constitutionalised environment, to support the delivery of services to the citizens of South Africa.
According to the National Treasury, South Africa‟s public sector SCM system has many deficiencies and is characterised by inefficiencies. The following issues affect the performance of SCM (National Treasury, 2015c:4, 5):
The strategic importance of SCM in not understood. Budgets and strategic plans must be translated into deliverables, and necessitate an efficient public SCM system.
Often organisational structure, SCM systems and outdated databases are not ideal. Poor leadership, high staff turnover and untrained staff result in inefficiencies.
Competency assessments must indicate gaps in SCM skills and knowledge, to ensure competent SCM practitioners.
Lack of consequences for people failing to perform.
Policies, regulations and processes are cumbersome to suppliers who must fill out numerous forms.
Lack of supplier management, and suppliers taking advantage of the weak public sector SCM environment.
Procurement in the public sector has two major objectives:
o Objective 1: Section 217 (2) of the Constitution of the Republic of South Africa, 1996, requires that public procurement be in accordance with a system which is fair, equitable, transparent, competitive and cost-effective
o Objective 2: The Preferential Procurement Policy Framework Act, 2000 (PPPFA) provides for the use of public procurement for transformation and development purposes.
To balance these two objectives in the interest of the South African public, in a highly regulatory environment, is challenging.
A report, submitted by the Auditor-General, on audits performed on State-Owned Entities (SOE‟s), during the 2016/2017 financial year, indicates the most common supply chain management findings. It must be noted that the same findings were raised relating to the 2015/2016 financial year. Based on the information contained in the report (Auditor-General, 2017b:47), the findings are:
Three written quotations not invited.
Preference point system not applied.
Suppliers are not tax compliant.
Inadequate contract monitoring and performance.
Competitive bidding not invited.
The report indicates that officials are not familiar with policies and procurement processes (Auditor-General, 2017b:47). Out of the above findings, and the findings in previous paragraphs, it is implied that proper supplier relationship management also poses a challenge.
Some of the issues reflected above affect the performance of the SCM function at Water utilities, and were explored in the study. The study analysed processes in terms of NT instructions, practice notes and other legislation, to establish whether the interpretation and implementation to ensure compliance is correct, as well as whether the numerous instructions and practice notes are easily implementable. An important aspect is that the NT does not take cognisance of the nature of the business of the state-owned entity, and the legislation is a „one-fit-for-all‟, which could have a detrimental impact on business, with resulting compliance challenges. The study investigated the competency levels of SCM practitioners, level of
ownership, and knowledge and understanding of supply management processes within water utilities.
Performance management was explored, and performance related key performance indicators (KPIs), like Buyer efficiency, will be recommended to be part of performance contracts. SCM processes were studied, and optimisation of processes will be proposed, as some suppliers have indicated that they are reluctant to do business with water utilities, due to cumbersome processes – which are mostly manual, and paper driven. The lack of supplier relationship building was explored, and recommendations will be made, as suppliers are a key strategic element in SCM. The role of business was investigated to ensure SCM in water utilities have been provided with enough and appropriate resources, and appropriate information to empower them to do their work, as well as enabling businesses to meet strategic objectives.
1.3 Causal factors
The causal factors for this study are as follows:
According to Badenhorst-Weiss et al. (2017:364), more research has investigated SCM in the private sector, than in the government sector. There are challenges with the implementation of SCM in the government sector of South Africa. Globally, more research is needed on sustainable SCM (Vachon & Mao, 2008; Bansal & McKnight, 2009). The NT acknowledges challenges in the public-sector SCM, and indicates that reforms are considered, as SCM has to be capacitated and transformed (National Treasury, 2015c:1).
The Director-General of the NT has acknowledged that the strategic importance of SCM was undervalued, and reform is treated as a national project (National Treasury, 2015c:1).
The National Treasury releases regulations and practice notes on state entities governed by the PFMA on a “one fit for all basis”, regardless of the sector of an organisation. This practice has the potential to impact business negatively. Public institutions are listed in PFMA schedule 1, 2, 3A, 3B, 3C and 3D, which are constitutional institutions, major public entities, other public
and Provincial Government Business Enterprises. As at 30 April 2015, the different schedules amounted to 289 different government business enterprises (National Treasury, 2015b:1-12). The Public Protector of South Africa is a Schedule 1 public entity, whereas water utilities are schedule 3B public entities. Procurement for these entities will differ substantially in that different products, services and contracts are required. Provision must be made for SCM in sectors other than a NT deviation process, with the unintentional consequence of delaying processes that contribute to SCM inefficiencies.
Government spending is substantial, and it is important that financial controls are implemented and enforced, to maximise delivery. An efficient, well-performing SCM function is essential to achieve the strategic objectives and goals of an organisation. The NT has acknowledged that, to achieve an efficient public sector SCM system, processes and procedures must be simplified (National Treasury, 2016:8). Cabinet has resolved that SCM reform be accelerated in the public sector, by simplifying procurement processes and implementing a single legal SCM framework, as well as modernising SCM technology (National Treasury, 2018b:3). SCM must be practiced and applied at a strategic, executive and management level, and the accounting officer, or authority, must ensure that the SCM function is staffed with qualified and competent professionals to support the achievement of the organisational mandate, strategy and goals (National Treasury, 2015c:52).
Until such time as the SCM reforms are concluded, the processes implemented by water utilities, to align SCM practices with legislation and NT instructions, must be tested to ensure that the interpretation thereof is correct. Government has acknowledged that public procurement faces challenges. This has an impact on organisational strategy, as new infrastructure is at a backlog, and maintenance is delayed. The ineffectiveness of public procurement potentially puts the sustainability of water utilities and Government‟s mandate to provide potable water to all citizens of South Africa, at risk. The legislative framework must be simplified, and governance and accountability must be enforced, to build public
confidence in Government‟s ability to account for public resources in a transparent manner.
1.4 Importance of this study
Water utilities are State-owned entities and should be characterised by good management and governance to honour their commitment of providing water to their customers. Public entities are funded by taxes and fees, and these funds must be used to service the public (Badenhorst-Weiss et al., 2017:394). For many years KPIs setting strategic direction to water utilities, and measurable objectives were met and exceeded. Audits, conducted by the Auditor-General on Water Boards over the last 3 years, point to regression in audit outcomes (Auditor-General, 2018a:11). Many measurable objectives and KPIs were not achieved, and are directly attributed to supply management inefficiencies. It can, therefore, be concluded that for water utilities to be high-performance organisations, and to remain sustainable, SCM must be transformed and should include efficient and effective supplier relationship management to achieve business and strategic direction. The findings of this study can influence and establish an effective SCM framework.
1.5 Problem statement
The primary research question of this study is: What are the factors and challenges affecting SCM process inefficiencies within water utilities, how does it impact strategy and what are the solutions for an effective and efficient SCM function? The problem being investigated in this study is inefficiencies in SCM at public water utilities due to changes in SCM processes, and the resulting effect on strategy. Due to Government reforms, changes were made to processes, in order to comply with legislation, NT instructions and practice notes. More than 80 different legal instruments and instruction notes govern public SCM, as opposed to one consolidated comprehensive piece of legislation.
To ensure compliance, new processes, sourcing and tender processes were implemented. However, these are so cumbersome that orders and the award of work are delayed, and emerging suppliers find it difficult to become participants in an
ineffective and complex public sector SCM environment. The competency levels of SCM staff were tested, as well as possible training interventions.
SCM tender committees are inefficient and SCM has no authority over them, as they are often independent from SCM. Tenders are cancelled, which affects effectiveness, efficiency and economy of the bid process for other tenders, in that resources were utilised prior to the decision to cancel the tenders. Capital expenditure (Capex) and other infrastructure projects are at back log, potentially affecting long-term sustainability of water utilities and its strategic direction. The role of business must not be underestimated, as SCM can only act on comprehensive information received from business. A proper specification, as well as pre-qualifiers are essential to attract appropriate tenderers. Consequently, operations and strategy at water utilities are affected, as key performance indicators (KPI‟s) and measurable objectives are not met and can be attributed to SCM challenges.
1.6 Research objective
The main objective of this research was to investigate the SCM system of water utilities and how it impacts strategy. The primary objective was to analyse processes in terms of NT instructions, practice notes and other legislation, to establish whether the interpretation and implementation – to ensure compliance – is correct. A study, of the efficiencies and competency levels of SCM staff and internal customer‟s dependant on procurement, supplier relationship management, as well as the impact of SCM on strategy, was conducted. The aim of the study is to add value to the SCM function within water utilities to support organisational strategy and direction. The research will be documented with the expectation that readers will recognise the findings and conclusions as valid (Bryman & Bell, 2014:33).
1.6.1 Primary objective
The primary objective of this study is to investigate factors and challenges affecting SCM process inefficiencies within water utilities, as well as the impact it has on organisational strategy and strategic direction.
1.6.2 Secondary objective
To achieve the primary objective of the study, the secondary objectives to be realised are:
Investigate whether water utilities interpret and implement relevant legislation, NT instructions and practice notes correctly.
Investigate the effectiveness of approximately 80 different legal instruments governing SCM in the public sector.
Investigate the impact of the different legislations on compliance.
Investigate possible improvements of processes to achieve SCM efficiencies.
Establish whether there is ownership of SCM processes amongst SCM staff and employees at water utilities.
Investigate the effectiveness of the three different bid committees.
Establish whether SCM and business understand their roles and responsibilities.
Establish whether SCM staff has enough knowledge in their fields.
Establish how proper supplier relationship management can be implemented in water utilities.
Establish the impact of SCM inefficiencies on the achievement of organisational strategy.
Establish what role information systems play in SCM activities and other organisational activities.
Establish whether water utilities use e-tendering for procurement under R500,000
1.7 Research methodology
Research methodology considers the rationality behind research methods and techniques (Welman et al., 2005:8). This study was conducted in two phases. Phase one consisted of a literature and theoretical review, and the second phase the
1.7.1 Literature and theoretical review
A literature and theoretical study on SCM within water utilities was conducted, and the impact of strategy was investigated. Special attention was paid to legislation governing the SCM function, compliance and interpretation to legislation, the roles and responsibilities of SCM staff and business, supplier relationship building, and the impact of inefficiencies on strategy.
1.7.2 Empirical research
Empirical research was conducted with the aim to accomplish the research objectives of the study. The empirical study consisted of the research design, data collection methods and data analyses.
1.7.2.1 Research design
Due to the nature of the research question, a mixed methods research approached was implemented by doing a combination of qualitative and quantitative research (Bryman & Bell, 2014:62). According to Creswell (2014:16), a mixed method approach engages methods of gathering data that involve collecting data simultaneously, or sequentially to give a better understanding of the research problem. The research method for the collection of data in the study included structured interviews, as well as semi-structured interviews. Qualitative research was conducted in the form of semi-structured interviews with subject matter experts who are responsible for the execution of strategy in water utilities. A list of 4 pre-determined questions on legislation was posed (Bryman & Bell, 2014:225).
Following on the qualitative research, the empirical study focussed on SCM inefficiencies within water utilities, by testing competency levels, interpretation of NT instructions and practices notes, as well as relevant legislation, compliance and e-tendering. Quantitative research was conducted through the use of structured interviews, by means of distributing self-completion questionnaires, where respondents were asked to answer specific questions. Two survey questionnaires were used, and primary data were collected in the form of these 2 questionnaires:
SCM employees: Senior Buyers, Buyers, Sourcing Managers and other SCM staff within the SCM Division of the largest water utility were approached to participate in this study. The participants selected for this study are knowledgeable about SCM processes, and due to their experience, they can share practical insight into the concepts of interest in this study. Provision was made for respondents to describe challenges.
Senior Management: Senior Managers are accountable for the achievement of strategic targets. They plan, organise, lead and control to influence achievement of organisational objectives. Senior staff was approached to participate in this study, due to their expertise and exposure to strategy. General-, departmental- and sectional managers in the different divisions – within respective portfolios – were approached, due to the impact on their functional areas. The target population is the largest water utility‟s head office and operational staff on sites.
Provision was made for respondents to describe challenges relating to their specific roles and responsibilities, in the context of supply management within the organisation.
1.7.3 Limitations
The following limitations were identified as it is not in the control of the researcher and can place restrictions on the methodology and conclusions:
1.7.3.1 Sources
The literature and theoretical review are limited to sources available on the Internet, North West University Library online database, text books and publications up to 31 October 2019.
1.8 Layout of the study
The mini-dissertation is divided into four chapters, which will be presented as follows:
Chapter 1: Introduction and problem statement
This chapter discussed the background and context of the topic, the contributing factors to the study, as well as the problem statement. It provided an overview of the research design, and included the layout of the chapters that follow.
Chapter 2: Literature review
This chapter investigates, through a literature review, the primary objective, which is to analyse factors and challenges affecting supply management processes within water utilities, as well as the impact on strategy.
Chapter 3: Research methodology and findings
This chapter presents the research methodology by discussing the sampling methods used for the research, the compilation of the survey instrument in the form of questionnaires, and the study participants and data collection. The results of the study are presented and discussed.
Chapter 4: Conclusion and Recommendations
The final chapter of the study consists of the conclusion of the study based on the literature review and empirical investigation, as well as recommendations for further studies.
1.9 Conclusion
SCM has a direct impact on the performance of an organisation, and cuts across all functions within the organisation and suppliers. The SCM function must understand the organisational strategy, measurable objectives and goals and the organisation must align their procurement strategy with organisational strategy, in order to support and achieve the organisational strategy. There must be full integration amongst functions, and all role players must understand their roles and responsibilities.
SCM must be empowered to execute their roles and responsibilities by getting timeous and accurate information from their internal customers, to start the competitive bidding or sourcing process. Processes must support legislation to ensure compliance, but should not be cumbersome to the extent that end users and suppliers find it challenging to complete documentation (electronically or manually). The aforementioned has the potential to result in procurement delays and cancellation of tenders, which is to the disadvantage of business and strategy. The numerous legislative instruments must be consolidated into a single comprehensive legislation, for ease of understanding and implementation. The importance of supplier relationship management, the benefits thereof to the organisation and suppliers, as well as the impact on strategy must be acknowledged, and supplier relationship management must be implemented and managed.
Government acknowledges the importance of supply chain management – a function which is highly regulated. The intention is, however, not to put business at a disadvantage, but to enhance efficiencies to guarantee quality service delivery to business and citizens of South Africa, and at the same time contribute to economic growth and, through the preferential system, address socio-economic objectives.
1.10 Chapter summary
The objective of this study was to investigate factors and challenges affecting SCM process inefficiencies within the South African public water utilities, and the impact it has on strategy. SCM is highly regulated in the South African public sector and compliance is non-negotiable. Processes are time-consuming and cumbersome; suppliers on the central supplier database are often of poor calibre, and supplier relationship management is non-existent, as it is perceived as unethical and irregular. SCM staff is often incompetent and lack commitment. Furthermore, staff does not share a long-term view of business operations and strategy.
The relevance of SCM inefficiencies and its effect on organisational strategy was analysed and assessed. A proposal was presented to the Department of Water and Sanitation, Public water utilities and the National Treasury, with a view to create collaboration between water utilities and their stakeholders that can support organisational strategy.
