The Development Of A Framework For The Management Of Suppliers As Part Of Public Procurement Management And Supply Chaim Management Practices In District Municipalities Of The Free State Province

Abstract

Public-sector procurement practices are the biggest single consumer of allocation in most countries. Procurement of the organs of state varies between 5% and 8% of the gross domestic product (GDP) in most industrialised countries (Ambe and Badenhorst-Weiss, 2012:244). During 2013/2014 the South African public sector spent R500 billion on goods, services and on construction work (National Treasury, RSA, 2015b:3). This indicates that public procurement fulfil a vital role in any country in that it has important economic and political implications. Therefore, the South African government has to ensure that public procurement processes are economical and efficient. Government procurement spending has created opportunities for Small, Medium and Micro-Enterprises (SMMEs) to grow the economy and create jobs. In South Africa, the government uses a large share of its fiscus to procure goods, services and infrastructural needs from SMMEs suppliers for communities due to the developmental needs of the historical past. It is therefore an imperative to enhance the efficiency of supplier management as part of the procurement management and SCM (SCM) practices in all municipalities and for the purpose of this study in district municipalities of the Free State Province. Since 1995, the South Africa government embarked upon financial management reforms, including reforms of procurement management systems to, amongst others, address the inefficiencies in government procurement practices, contract management and asset control, particularly in municipalities. Since the inception of these reforms all municipalities have been responsible for implementing the principles of the system of Supply Chain Management (SCM) to manage infrastructure, goods and services, including contracts awarded to SMMEs suppliers, in an effective manner. This study shows that municipalities in the Free State Province have defaulted on timeous payment to their suppliers and other creditors when compared to other municipalities in other provinces. The challenge of late and non-payment of suppliers has had an adverse financial effect on municipalities, townships and rural businesses, as well as on youth and women-owned SMMEs. However, it was noted that the challenge of late and non-payment of the Free State SMME suppliers still persists, which has a ripple effect on the township and rural business, as well as on youth and woman-owned SMMEs. It is now spreading to the communities. In this regard most of the municipalities in the Free State Province fell behind with their payments for bulk purchases of electricity and water to Eskom by R2,5 billion and water boards by R2,5 billion outstanding on 30 June 2017. In addition, the Auditor-General (AGSA) cautioned that the continued disregard for procurement processes in municipalities of the Free State resulted in irregular expenditure that created an environment open to misappropriation, wastage and the abuse of public funds. The appointment of contractors and suppliers without following the competitive bidding process resulted in irregular expenditure in most of the municipalities in the Free State Province (AGSA, RSA, 2017:55-56). Thus, one could argue that most municipalities of the Free State disregard SCM policies and procedures that resulted in non-payment or late payment to suppliers and irregular expenditure. The aim of this study was to promote effective procurement and SCM practices positively by developing a framework for the management of suppliers as part of public procurement and SCM practices in district municipalities of the Free State Province. The proposed framework, provides a coherent and holistic step by step approach by identifying key components and criteria required to promote and improve the management of suppliers as part of public procurement management and SCM practices in district municipalities and affiliated local municipalities of the Free State Province in an effective manner. The following elements are emphasised in the proposed framework for the management of suppliers as part of public procurement management and SCM practices in district municipalities of the Free State Province, namely supplier selection, supplier relationship management, supplier performance evaluation and certification and supplier development. Each of these elements are influenced by particular factors. In addition to the proposed framework for the management of suppliers as part of public procurement management and SCM practices in district municipalities of the Free State Province, the following was recommended to improve the management of suppliers as part of public procurement management and SCM practices. The accounting officer of all district municipalities of the Free State Province and affiliated local municipalities must ensure that all money owed by the municipality must be paid within 30 days of receiving the relevant invoice or statement, unless prescribed otherwise for certain categories of expenditure. All district municipalities of the Free State Province and affiliated local municipalities must give effect to the requirements of the Municipal Financial Management Act (MFMA) (RSA, 2003), the Preferential Procurement Policy Framework Act (PPPFA) (RSA, 2000), and the amended Preferential Procurement Regulations (PPR) (RSA, 2017a) to promote the effective management of procurement and SCM systems. All district municipalities of the Free State Province and affiliated local municipalities must plan for all their procurement and SCM needs during the strategic planning process (National Treasury, RSA, 2017a). The selection of suppliers should be managed in terms of the requirements of the Municipal SCM Regulation of the MFMA (RSA, 2005b) and National Treasury SCM Instruction Note 4A (RSA, 2016f), which require that price quotations be invited and accepted from prospective suppliers listed on the CSD (National Treasury, RSA, 2005b; National Treasury, RSA, 2016f). Provision should be made to select more previously disadvantaged female and disabled suppliers. The Municipal Public Accounts Committees (MPAC) must investigate tenders awarded to people working in the municipality. Except for the above recommendations the following were also recommended; The skills levels of procurement officials need to be upgraded to enable them to implement procurement management practices effectively. Each municipality and municipal entity should have standard training programmes designed to empower SMMEs on procurement practices. Adequate monitoring and evaluation on municipal procurement management practices is critical to ensure appliance of MFMA, (RSA, 2003), National Treasury (RSA, 2005b) and other applicable Acts and regulations. Practitioners who are hired in the municipal procurement sections or SCM units should have proper procurement and SCM qualifications and experience. Procurement and SCM regulations, policies, delegations, and Codes of Conduct should be discussed quarterly amongst procurement management and practitioners. The skills levels of procurement officials need to be upgraded to enable them to deal with new SCM challenges.