SUPPLY CHAIN MANAGEMENT A GUIDE FOR ACCOUNTING …

1 NATIONAL TREASURY Republic of South Africa February 2004 _____ SUPPLY CHAIN MANAGEMENT A GUIDE FOR ACCOUNTING OFFICERS / AUTHORITIES 2 PREFACE This GUIDE sets out the philosophy behind the adoption of an integrated SUPPLY CHAIN MANAGEMENT (SCM) function across government and will assist stakeholders to understand the responsibilities this implies. This document explains the impact of the changes for ACCOUNTING officers/authorities at each step of the SCM cycle. While the Constitution states that 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.

2 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, No 5 of 2000 (PPPFA) and its associated Regulations are complex and difficult to implement correctly, and procurement practitioners are not adequately trained in their application; the costs and outcomes of the PPPFA are not fully quantified, hence it is impossible to evaluate the merits of the system.

3 In September 2003, Cabinet adopted a SCM policy to replace the outdated procurement and provisioning practices (described above) across government with a SCM function that will be an integral part of financial MANAGEMENT and will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

4 Above all, these arrangements will mean that responsibility and accountability for SCM-related functions will be devolved to ACCOUNTING officers/authorities. The very substantial divide between the current outdated procurement and provisioning practices in government and the new integrated SCM function necessitates a phased implementation approach. This GUIDE is intended to facilitate a general understanding of the changes to SCM practices. It must be seen as a step to assist ACCOUNTING officers/authorities in the smooth implementation of SUPPLY CHAIN MANAGEMENT within their institutions.

5 The GUIDE will be supplemented on a regular basis to keep abreast as the development of the SUPPLY CHAIN MANAGEMENT function within government progresses. 3 An informal approach has been followed to make the GUIDE as user friendly as possible. The term institution is used throughout the document to refer to all organs of state to whom the policy adopted by Cabinet applies. The GUIDE is not a substitute for legislation and should not be used for legal interpretations. Nor does it in any way detract from the responsibilities Parliament and the legislatures expect all ACCOUNTING officers/authorities to fulfil in terms of the public Finance MANAGEMENT Act, 1999 (Act 1 of 1999 as amended by Act 29 of 1999) (PFMA), as well as the Preferential Procurement Policy Framework Act, Act 5 of 2000 (PPPFA).

6 4 INDEX Page PREFACE 2 GLOSSARY AND ABBREVIATIONS 7 CHAPTER 1 : INTRODUCTION Background 8 Improving accountability 8 SUPPLY CHAIN MANAGEMENT : The new policy 9 SUPPLY CHAIN MANAGEMENT model 10 The appointment of consultants 12 Preferential procurement 12 Promoting uniformity in SCM practices 12 The policy context.

7 Related initiatives 14 CHAPTER 2 : IMPLEMENTATION STRATEGY Introduction 17 National Treasury 18 Tender Boards 19 Provincial Treasuries 20 Institution 20 Support 22 Training 22 Monitoring

8 And guidance 22 Medium-term policy issues 22 Introduction 22 Reviewing the PPPFA and associated Regulations 22 Introducing targets based on charters 23 Fraud and corruption 23 CHAPTER 3 : DEMAND MANAGEMENT Introduction 25 Demand considerations 25 Flowchart of the demand MANAGEMENT process 26 Preferential procurement strategy 27 Specification of goods/works or services 27 CHAPTER 4.

9 ACQUISITION MANAGEMENT Introduction 28 Treasury support 28 Delegations 28 Assessment of the market 28 Sourcing strategy 29 Establishment of a database of suppliers when obtaining quotations 29 Acquisitioning process 30 Urgent an emergency cases 31 5 Accommodation and conferences 32 Negotiations with a supplier

10 32 Limited bidding 32 Two-stage bidding 33 Compiling bid documents 34 Inviting bids 41 Receiving responses 44 Evaluating responses