Despite marginal improvements within a number of the G20 economies, the overall global outlook remains very patchy and uncertain. This unpredictability continues to result in budgetary cutbacks never before experienced in the modern era. To date, no sector has been spared: public/government departments, state owned enterprises and countless private sector organisations have experienced the distressing effects of the global meltdown.
With no sign of a major upswing in the economic fortunes of the world economy, the downward trend is expected to continue into the foreseeable future. At the same, there are increasing demands from shareholders and society at large for higher performance and significant improvements in service delivery.
In April Dr Duffour, the Finance Minister underscored the importance of amongst others good governance as a prerequisite for a rapid economic and equitable development.
“This unprecedented financial challenges and socio-economic value shift calls for amongst others, urgent collective action on how public and private sector organisations in the emerging world strategically acquire products and services plus deal with selected suppliers..” says Dr Douglas Boateng, Smart Procurement Editorial Board member and President of both the Institute of Operations management Africa and West African Institute for Supply chain Leadership.
“The United Kingdom’s Chancellor of the Exchequer announced during June-10, major austerity measures which have far reaching implications for public sector workers. Indicative of the state of the economy, it is a drive towards optimal efficiency in the civil service. Similarly, countries including Spain, Greece, Germany, the US, India and China are also looking for ways to limit the potential damage from an anticipated and impending second global meltdown and asset bubble; banking group HSBC anticipates that growth in the Euro zone will stagnate for several years. A business survey among 11000 companies across 17 countries released by KPMG on the 2nd of August-10 shows international business confidence sharply down* compared to last year.”* As Whitney Debevoise, a former US Executive Director to the World Bank succinctly puts it the donors are under stress ....a situation which has far reaching implication for fragile economies.
There is no denying that Ghana and the rest of the continent are part of a global community
“While most pundits continue to voice the opinion that Africa will escape relatively unscathed, the question remains: for how long? Our policy makers should not be hoodwinked into believing that the boom in commodity exports will completely cushion the continent from the unfolding financial crisis. During the 40th briefing of the MPC, they pointed out those uncertainties surrounding sovereign and financial sector risks in parts of the Euro zone could spread, posing difficulties for both financial stability and global growth.....The impact of which is already reflecting in slower GDP growth in 2009.”
Representatives of both the World Bank and IMF are already cautioning that in the short term, budgetary shortfalls shall result from declines in tax revenue, external financing (particularly from migrants’ remittances and FDI), aid cutbacks and slow domestic and sub regional demand. “The liquidity crisis according to Boateng is already being experienced in countries like Tanzania, Mozambique, Malawi, some sectors of the South African economy and Ghana. A classic example of the fall out was reported by Donna Bryson on MSF efforts in Congo, Kenya, Lesotho Malawi Mozambique South African, Uganda and Zimbabwe. “If these shock waves continue to translate into further unemployment rates, especially among the youth, it could prove politically tricky for African governments”.
“Certainly, there has been relatively good progress made in implementing policies and structural reforms to counteract some of the effects of the global meltdown and service delivery challenges.”
In July-10 the African Parliamentary Network Against Corruption (APNAC) project was launched. It provides an opportunity for objective investigation into atypical practice within spheres of Government
Speaking at a workshop in Accra during August Mrs Effie Simpson Ekuban, Acting Chief Director of MOFEP, highlighted efforts via the Crown Agents to conduct value for money audits on high-value single sourced procurements with the principal objective of ensuring transparency and accountability in public procurement and contracting.
.In a further effort to improve accountability within public sector institutions President Mills according to the Daily Guide has charged Chief Executive Officers (CEOs) of organizations in the public sector to work with the Internal Audit Agency (IAA) to set up functional internal audit units by March 2011.
These are all efforts to reduce the comparatively high unusual purchases and sometimes easily avoidable squandering within selected government departments and state owned entities, the consequences of which are various poor service deliveries and shoddy workmanship bedevilling society at large. ” Says Boateng
Currently, private sector company directors are quickly subjected to the wrath of shareholders if they fail to ethically and prudently use resources. Boateng sees no reason why the same yardsticks cannot be adapted for use in the public sector and especially among state owned enterprises. “Gone are the days when there was enough in the financial kitty to hide the inefficiencies within organisations be it public or private”.
While technology has a role to play in gaining efficiencies and reducing irregularities, Boateng vehemently believes that fundamental core challenges must first be addressed. Topping the list is the exigent need to increase the technical knowhow of the supply chain and procurement management professional, from whom a fundamental paradigm shift is required in terms how she/he can innovatively stretch the limited financial kitty through strategic sourcing.
Stretching the limited kitty through strategic sourcing
“Significant value chain improvements and savings can be achieved if organisations strategically source and manage their tangible and intangible products...........”Unfortunately there seem to some “terminological” confusion between strategic sourcing, procurement and supply chain management. Figure 1 presents a schematic representation of the three interrelated concepts. “Strategic sourcing is part of the procurement process that assists an organisation to optimise the total cost of ownership of a commodity. As a systematic process it objectively encourages the critical analysis of product acquisition and associated usage patterns within an organization.Procurement, on the other hand, is a mega-process (like customer service or logistics), within a supply chain. Supply Chain Management (SCM) is the seamless management of the entire value chain, which includes amongst others procurement, customer service, and logistics”.
“Strategic sourcing has been successfully applied in various public and private sector organisations: Defence, Automotive, Aviation, Banking and financial services, Healthcare, Media, Agriculture, Pharmaceuticals, Utilities, building and construction, ICT and Transport services etc. Today, it continues to help organisations achieve quantifiable savings, often between 4% and 12% on procurement spend. Boateng points out that in South Africa and the rest of the continent, there is still a general focus on price rather than a holistic product lifecycle management view of sourcing and long term supplier development.

“By adopting strategic sourcing, buying organisations especially in the public sector can begin to seriously move towards value chain sourcing, and productivity improvements.. “It is comforting to note that the appropriate implementation of the concept automatically lends itself to supporting the development of small and medium sized enterprises, economic empowerment of indigenous suppliers; a theme which is in line with the mandates of the South African administration and increasingly, other governments on the continent” says Boateng. “As a process, strategic sourcing is geared towards ensuring that resources are utilised for optimal value chain benefit. It does not merely concentrate on what an organisation is buying, but rather prompts the process custodian to continuously appraise a sourced-in product using various value adding benchmarks to evaluate the total acquisition cost:
Can Ghana and Africa’s public and private sector organisations benefit from strategic sourcing?
“The supply chain or procurement professional must note that, strategic sourcing does not only apply to the purchasing of, for example, stationery, or computers.” It is also equally relevant in the sourcing of consulting services, packaging components, security services, uniforms, media and advertising, temporary labour recruitment, various components and parts, furniture, health services, catering services, travel and entertainment, road and sea transport, renting of office/retail space and properties, warehousing services, safety services, aero-logistics, maintenance, general insurance, cleaning services, facilities management, education and training, and ...........many more”.
Like most African countries Ghana’s Public Procurement Act (663) is relatively still non total acquisition costs based and cumbersome coupled with an unfortunate of misunderstanding of its strategic intent
Despite relative improvements, the current Procurement Acts/Laws and associated policies in most African countries according to Boateng unfortunately require further tweaking to take into account the need to strategically source from a supply chain and total acquisition costs perspective and not just on price and immediate short term need....
”For example Ghana’s Public Procurement Act 663 S59 “sermonises that a successful bidder shall be the one with the lowest evaluated tender price………. It is a well known fact that that too much emphasis on price other than total acquisition cost is counterproductive to strategic sourcing, supply chain management, long term value for money, empowerment of indigenous suppliers and more importantly sustainable socio economic growth and development”.
Boateng also believes that our policy makers must be careful and not be deceived into believing that single sourcing always represents value for money...”Yes there could be short term economies of scale and volume discounts. However various studies have demonstrated that if not monitored and managed with all the relevant benchmarks, an organisation/institution could be held to ransom. Nor does it always represent long term value for money.”
These are some of the reasons why for example most construction projects and other initiatives in Ghana and other African countries significantly exceed their initial budgets. He says
Nor is this all for there is the urgent need for policy and process simplification as current systems are so convoluted resulting in continued lack of understanding by process custodians, creative circumvention, low staff morale, long procurement delays, contingency pricing by suppliers, waste and service delivery problems” associated with our institutions . The complexity and inter-related implementation according to Boateng is such that the Government is overall seriously losing than gaining from the Public Procurement Act 663 ...He believes his assertion can easily be corroborated by what is happening within various educational institutions and government departments such as roads and transport, health, local government, public works and housing.
Certainly both the STX transaction and the emerging Petro-chemical sector could benefit from Strategic sourcing
The STX deal could benefit from strategic sourcing if the Government invites supply chain professionals to objectively look at the finer details of the transaction, and its associated roll out plan and deliverables...In so doing the transaction can be constructively evaluated to understand the total acquisition costs plus how it can be used to sustainably empower Ghanaians plus spread economic activity. Failure to do so according to Boateng shall (like other similar initiatives of the past) result in future generations paying a huge price for mistakes which could have been avoided. “As professionals we are all duty bound and ready to assist if called upon to offer value adding professional input”. Says Boateng
“To date carefully constructed sourcing methodologies have clearly proven to have immediate to long-term bottom-line benefits when implemented with the relevant human capital. Firstly, it encourages a shift from a purely cost-cutting and price sensitive mentality, to a clearly defined and managed approach to sourcing. Secondly, it encourages a modus operandi that allows for an organised, systemic approach to defining requirements, product development and innovation, supplier selection and development, negotiations, integrated forecasting, planning and demand management. Thirdly as a supply sub process it can be used to both stimulate and spread economic activity and growth. “Thus there is a compelling argument for both public and private sector organisations to move from a purely transactional procurement and independent sourcing approach, to an enhanced collective and value-adding practice of ‘total product acquisition”. Reaffirmed Boateng
Within the spheres of government and state owned enterprises, a well-conceived strategic sourcing programme can assist in achieving quantifiable savings and productivity improvements* well in excess of 30% over a three- to five-year timeframe for selected sourced-in items. “For the private sector, especially in financial services, mining, agriculture, beverages, food processing, chemicals, education and health sectors, savings in the region of 15% is more realistic.
About the author
Dr Douglas Boateng is the Founder, President and CEO of PanAvest International a 5PSCM niche business advisory, education, training, coaching and mentoring company. The organization’s goal is to assist companies to profitably extend their market reach through the application of long term innovative, Business Development Logistics and Supply Chain Management solutions. Dr Boateng is an external examiner and project supervisor on supply chain management at UNISA’ SBL and President of the Institute of Operations Management Africa. He is also Founding President of the West African Institute for Supply chain Leadership in Ghana. (aka WAISCL). WAISCL is an exclusive supply chain training institutional partnership between Kwame Nkrumah University of Science and Technology and PanAvest International. Dr Boateng is a FELLOW of the (a) Institute of Directors-UK & Southern Africa (b) Chartered Management Institute -UK (c) Chartered Institute of Logistics and Transport-UK and South Africa (d) Institute of Operations Management-UK.
Dr Douglas Boateng (FIoD, FCILT, FCMI, FIBC, FIOM)
dboateng@panavest.com. www.panavest.com