Procurement and Corruption in Africa
Corruption is Africa’s biggest threat to its peace, stability and social economic development.At the center of this web, are greedy men and women in procurement that represents the lion’s share as much as 90 percent of overall costs in Governments and Private sector in the continent. Nowhere is the pressure to improve procurement as intense as in Sub Saharan Africa where economic growth has gone hand in hand with increase in graft, both for domestic and multinational companies that rely on the region as an important source of goods and services.Companies in African countries like Kenya wrestle with operations that have bloated during high-growth years. Those in countries like Nigeria struggle to shore up margins as top line growth slows and competition increases. Firms in all parts of the Sub Saharan Africa deal with rising and volatile input costs. When I recently spoke to a procurement officer, she agreed that volatility continues to dominate African agenda. Leadership teams have dutifully set aggressive targets for reducing input costs and usually in a short period of time. Despite their best intentions, however, she admitted that her and colleagues are simply ill prepared to meet their goals.She told me companies rely on procurement capabilities that are no better than their competitors and sometimes worse.She has worked in four African countries of Egypt, Ghana, South Africa and currently she’s working in Tanzania as a procurement officer with a multi national organization.
As we talked, she helped me identify those procurement organizations that stand out. A five percent cost performance gap and contribution to revenues is what sets apart good from great procurement organizations in leading companies across the Sub Saharan Africa region when compared with their industry peers. She described procurement operations that are lagging behind global best practices which spells trouble for companies in Sub Saharan Africa as well as global multi national companies that source extensively from the region.In study she was involved in 2014 which a copy I have, researchers found that procurement teams in African countries often lack organizational support and prominence, tend to focus on short-term activities, rely on inadequate demand management processes and struggle with underdeveloped supply bases. Most of the CEOs in the region feel their supply base is underdeveloped.In addition, they lack systematic supplier management processes, reliable data systems and strong procurement talent. In fact, only less than a quarter of CEOs involved in the survey were satisfied with their procurement talent. Fortunately, they can learn from the best. Even companies that are woefully behind can catch up by adopting the practices of what she told me they refer to as “4th-Generation” procurement using the procurement function as a way to add value to the business year after year, boosting the bottom line by keeping costs from mounting.
With a dedicated effort and a continuous improvement culture supported by the complementing capabilities,she has seen her organization based in Dar Es Salaam Tanzania repeatedly achieve 5 to 7 percent savings year over year, following initial savings of 10 to 14 percent.I sought to understand more what fourth Generation procurement is all about.She informed me that based on her work with clients and study of procurement capabilities in Africa, she has identified the criteria that raise companies above their rivals.In her words, leaders in East African region tackle procurement from an organizational standpoint, choosing a mandate and structure to maximize procurement gains.However, some companies are moving from managing their procurement according to product line to managing them according to stages in the manufacturing process and that has enabled them to buy the same part for their production machines. She hared with me two organizations in Kenya that have reorganized reporting structures and that now all procurement team members report to a head of procurement and gave procurement a seat at the table in top executive consensus meetings.Since 2012, the savings have mounted and all executives are impressed with how she helped them achieve that fete. Procurement’s impact on the bottom line is estimated at US$20 billion in 2015, and it remains a key factor in East African Community member states of Uganda, Tanzania, Kenya, Rwanda and Burundi continued success.She was quick to point out that companies must focus on the critical processes they need to get right starting from vendor development, category management and the quality of information.In her organization, she has rigorously evaluated suppliers and contracts, always conducting a total cost of ownership analysis. Australia based mining company with major operations throughout mainland Tanzania, works with internal customers to identify short and long term needs and develops expert knowledge of supply markets, vendors and value levers.
To minimize costs and maximize value, the company with operations headquarters in Geita region implements category strategies, taking a total cost of ownership approach. Then it systematically manages its suppliers through predefined key performance indicators and common objectives. Along with other initiatives, the procurement operation is expected to contribute to the company’s expected cash cost savings of more than $300 million by the end of 2017.As we concluded, it was clear that Fourth Generation procurement companies rely on customized, dynamic dashboards that provide integrated and transparent data for both direct and indirect spending, highlighting performance gaps. With seamless access to centralized global information, procurement managers quickly see and adapt best practices. The companies can actively work with the supplier to improve their record and meet global standards for all their facilities.To boost the effectiveness of the profit and loss, companies with 4th-Generation capabilities establish pull based demand management with enforced compliance and formalized budgeting for all categories. At one leading retailer in East Africa, an advanced category management toolkit has allowed the company to see the direct effect of its sourcing decisions on the bottom line, a first step in alerting it to the need to make adjustments. Leaders should make a serious point of investing in talent. They establish procurement as a grooming ground for leadership and manage performance through well defined KPIs and incentives.What African countries need are the right mind-set that whenever a key person in procurement is being recruited, stakeholders throughout the company need to be consulted in the process. Forward thinking firms should also establish risk teams that track and manage all transactional and strategic risks.