Procurement and supply chain

During the year under review, Telkom Group including subsidiaries Trudon and Swifnet has spent a total of R21.3 billion on the procurement of capital items, goods and services. Telkom remained committed to upholding solid corporate governance in terms of fair, transparent, responsible and accountable tendering processes, which ensured that, where appropriate, tender requests were published weekly on our tender bulletin on the Telkom website. During the past year we launched a stand alone e-sourcing/auction platform, which resulted in more competitive bidding, improved efficiencies as well as a reduction in the use of paper as part of the administrative process.

With the exception of requests for quotations (RFQs) and emergency purchases, in the majority of cases the tender process is initiated at business unit level where the specification of goods or services required are formulated. The most suitable sourcing processes are determined by subject matter specialists from whom the appropriate pre-qualification criteria, high-level criteria and associated weightings are set by the Subject Matter Expert Evaluation Team (SMEET). Prior to publication, a recommendation to publish is channelled to the relevant Category Sourcing Team (CST) for their support before being approved by the Group Procurement Council (GPC). The evaluation process is fully aligned to and meets the requirements of the Preferential Procurement Policy Framework Act (PPPFA).

Upon receipt of the tender responses the SMEET compile a shortlist of potential suppliers based upon the evaluation of the pre-qualification criteria. A suitable recommendation to short-list and proceed with full paper evaluations is submitted to both the CST and the GPC for approval prior to proceeding with final evaluation. Following the selection of the successful bid or bidders, a recommendation to award is made to the CST, GPC and other designated authority for their support and approval in terms of the Telkom delegation of authority. The subject matter specialists debrief the unsuccessful bidders in order to address any concerns regarding their responses to the tender.

During the period under review there were approximately 8,000 trade vendors on the Telkom database. The number of active contracts was in the order of 600.

Engaging with suppliers and building their capacity

To ensure continuity in delivery, pricing and quality throughout the supply chain, Telkom interacts with its supplier base to improve performance through collaboration and discussion of operational issues. Such collaboration is designed to better anticipate challenges and manage supply chain risks.

On a quarterly basis Telkom’s procurement services department evaluates the performance of the top 40 to 50 suppliers (based on strategic importance and spend volumes) in terms of their delivery, quality and Black Economic Empowerment. A full assessment of late deliveries is performed and suppliers are engaged to resolve any operational issues. Penalties for non-delivery or late delivery are consistently imposed to ensure on-time delivery is achieved. Telkom has aligned its payment policies for procurement to enable quicker payments to Exempted Micro Enterprise (EME)/Qualifying Small Enterprise (QSE) suppliers. During the period under review, payment was made within 10 days of receipt of invoice to 88% of active Black EME/QSE suppliers.

Where possible, Telkom seeks to diversify supplier risk by using at least two suppliers for critical network related products. Where diversified risk is not required, measures are put in place to encourage the entrance of new, preferably local, suppliers into the market. For this purpose, Telkom offers regular training for potential local suppliers. We also hold annual supplier engagement sessions aimed at resolving technical issues with mainly medium-spend suppliers. Telkom also trains and educates suppliers in SHE issues as well as supplier quality requirements associated with doing business with Telkom.

Among the topics addressed with our suppliers during the various feedback sessions and general engagement are:

In line with the Group’s broader developmental mandate Telkom continues to expand its implementation of BEE commitment plans to ensure that our suppliers are contracted on all seven pillars of B-BBEE aspects to achieve meaningful transformation in the industry.

In order to transform Telkom’s procurement services into a world class operation, various memberships with international and local bodies are in place. These assist in ensuring that opportunities such as category management are brought to the fore and fully utilised.

Preferential procurement: a tool for economic transformation

Preferential Procurement is one of the main elements on the B-BBEE scorecard driving transformation in organisations. This element has a weight of 20 points on the B-BBEE scorecard (ICT codes), excluding six available bonus points. Over the past decade, Telkom has demonstrated best practice in the area of Preferential Procurement, creating a new generation of pioneering black businesses in the country’s ICT sector.

During the 2013 financial year, Telkom procured R4,602 million from black-owned companies, equating to 27.89%, R1,746 million from QSE/EME companies, R925 million from black female-owned companies and R14,463 million from B-BBEE compliant companies, this amounts to 87.66% of the Group’s total measured procurement spend.

Telkom is pleased to record that a consistently high score on the Preferential Procurement element of the scorecard of 18.46 points out of a possible 20 (excluding the bonus points) was achieved. Telkom performed exceptionally well during this reporting period, achieving a total Preferential Procurement score of 24.46 points, inclusive of bonus points. This is an achievement that few South African companies could match. During the 2013 financial year Telkom procured 82.97% of all goods and services locally compared to 82.53% in 2012.

Enterprise development: core to social engineering

A key pillar of Telkom’s preferential procurement strategy is the creation of world-class black-owned companies. This requires strong partnerships and commitment to create sustainable enterprises by continuously building the capacity of its black suppliers through multiple Enterprise Development Initiatives. For Telkom, supplier development is part of our development mandate to encourage black production, stimulate the growth of small and medium enterprises, create jobs and provide critical ICT intensive skills for the economy. It is a transformative tool intended to stimulate economic and social development in a broad context. We seek to shift procurement from established companies and bring new players into our supply chain. This is a long-term sustainable strategy that embraces the principles of economic growth and development. Furthermore, in line with the country’s macro economic objective to increase employment, Telkom encourages multinational suppliers to partner with local black suppliers. These partnerships will lead to job creation and an improvement in the country’s GDP .

Telkom maintained a maximum score of 11 points for Enterprise Development, spending a total of R119 million on Enterprise Development initiatives during the 2013 financial year. Telkom initiated various supplier development initiatives to ensure sustainability of Black Qualifying Small Enterprises (QSE) and Exempt Micro Enterprise (EME) through:

case study: Sibongile Security Services

Two trailblazers illustrate the benefits of this approach. In an inspiring story of personal transformation, Sibongile Mphilo, a black female entrepreneur has progressed from petrol attendant to security-mogul-in-the-making in one decade. A long the way, this Telkom supplier has also transformed the lives of the more than 1,000 people that she employs.

In 2002, Mphilo registered a company, Sibongile Security Services, using the money she received from tips to rent a small office in Polokwane. Her break came when she was awarded a six-month contract at the Sekhukhune Magistrate’s office. Other contracts followed. By 2004, she was well-established in Polokwane and was awarded a large contract by the Department of Education. She then established an office in the North West and sourced work in the province.

As the company grew she opened an office in Pretoria in 2008, and was awarded a tender at the South Africa Social Security Agency. “As the year progressed, I decided to open offices in other provinces. I used the company profits to pay the rent of the new offices and to employ administrators to do marketing. Deciding to expand nationally was a huge risk financially as most of the profits went to operating costs and travelling to different provinces. This meant many nights sleeping in a car as I did not have the funds to pay for accommodation,” she says.

Her success in a male-dominated industry was met with disbelief by competitors who accused her of being a front for major security companies. “This motivated us to work even harder and learn as much as we could to prove we are capable of running a successful security business; one that is even better than the male-owned companies,” she says.

The hard work paid off in 2011 when Sibongile Security Services was awarded a contract by Telkom. “Very soon we discovered that this would not be like any other contract we had. The Telkom team wanted to develop our company into a more professionally managed and well-equipped business, not just with infrastructure but also knowledge and experience,” Mphilo says.

New challenges followed after she landed the Telkom contract. The contract required a huge capital outlay. Banks refused to provide loans for vehicles, uniforms and equipment such as control rooms and firearms. “Eventually, the Telkom team helped us and the banks were able to provide the loans. Today we have 50 cars and 150 firearms,” she says. In the first year, Telkom assisted Sibongile Security Services to develop and implement a quality management system that is ISO 9001:2008 compliant. Sibongile Security Services has graduated from being an Exempt Micro Enterprise (EME – companies with turnover of less than R 5 million) to Large Black supplier (LBS – company with a turnover of over R 35 million) within a period of less than two years! She is ploughing back to the communities by using some of her proceeds from Telkom’s contracts as part of her socio-economic development initiatives.

case study: Telecom Southern Networking (Pty) LimitEd

A further success story is that of Telecom Southern Networking (Pty) Limited (TSN) under the leadership of Stan Sibeko, which provides a classic case study in social entrepreneurship, combining the principles of entrepreneurship with those of economic development.

TSN provides ICT services such as HDSL and Wi-Fi network installation to various clients including Telkom, Mustek, Central Johannesburg College, Mangosuthu University of Technology and the Customs service of the Democratic Republic of Congo (DRC). Since 1997, TSN has had a contract with Telkom to supply HDSL/HSDSL. But the TSN team is not motivated by profit alone. TSN invests its profits into Right Entry, an innovative Midrand community based electronics school which Telkom once sponsored in 2010.

Telkom showcases black-owned suppliers at Enterprise Development Expo 2012

Telkom sponsored 20 of its leading black suppliers to exhibit their products and services at the Enterprise Development Expo 2012, held in Midrand in November. These suppliers are involved in areas such as installation and maintenance services, network technologies, IT services and security.

While the Enterprise Development Expo was an opportunity for these suppliers to gain valuable exposure to other large South African organisations by networking with their peers, it held multiple benefits for Telkom as well:

Telkom has also taken out a one-year subscription for each supplier on the Supply Chain Network e-portal. This means that their contact information will be at the fingertips of many more South African companies over the coming year. Telkom’s procurement team will utilise the e-portal to gain access to verified company profiles, which will assist in increasing the pool of Black QSE/EME and black female-owned companies in all sectors.

The feedback from the suppliers chosen for the Expo has been enthusiastic:

“We made use of every minute we spent on the exhibition floor to market ourselves. Our interaction with fellow exhibitors has re-ignited our passion and drive to co-operate with each other on projects and share expertise,” said Lesedi Rakgokong, MD of Puisano Telecom, which supplies Telkom and others with specialised ICT services.

“Your initiative has certainly helped us in marketing our company and opening us up to new opportunities. Even as I write this letter, we are already processing an order from one of the other companies hosted by Telkom,” said Buti Kgobisa, CEO of AFT Optiroad, a supplier of microducting technology to terrestrial telecommunications companies operators in the country.

Over the next few years, Telkom will be addressing a number of continuing challenges in the area of B-BBEE within the ICT Sector.

Compliance

During the reporting period Telkom formed the Supplier Code of Conduct, which is to be applied when engaging with suppliers. The code will be implemented by the Procurement division once it has gained approval from Exco. All suppliers are required to adhere to the code through our annual supplier commitment plans. T he Procurement division will monitor and compile progress reports on supplier Code of Conduct commitment. Any matters identified on nonconformance with the code will be referred to TARPS or the Ethics office. Telkom encourages external surveys to be conducted in order to test adherence to the Code.

The Procurement Services Policy serves as a standard for Telkom as and when goods and/or services are procured. This includes requirements for consultancy services and the sourcing of competitive bids in relation to possible joint ventures or partnerships. Subject to Telkom’s Delegation of Authority, the policy applies to all Telkom employees and/or end-users that participate and/or are involved in the procurement of goods and/or services.

Bidding companies are obliged to comply with all applicable occupational health and safety and environmental management legislation and corresponding regulations in terms of all tenders. Bidders are required to complete the necessary statement of compliance relating to the relevant policy, procedure and legislation.

The quality of goods and/or services to be supplied and/or rendered by the bidders may be benchmarked against the standard as required by Telkom and the bidder will be graded accordingly. Telkom is committed to the promotion of the principles of B-BEEE when procuring goods and/or services. Bidders are evaluated in accordance with the applicable and relevant Telkom policies, for example the Preferential Procurement Policy.

Procurement Services supports local businesses in the supply chain through a deliberate and committed effort toward promoting the purchase of locally manufactured goods and services where available and practical. In cases where the supply of goods is deemed vital to production, dual supply strategies are adopted around local suppliers in order to ensure continuity and least cost. The spending against these suppliers fluctuates in accordance with their ability to deliver. Monthly spend reports provide an indication of the total spend between local and international suppliers.