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Everything You Need To Know About Enterprise and Supplier Development In South Africa

26th ,Nov, 2021
Programs
What Is Esd?

Definition of ESD 

The basis for Enterprise and Supplier Development (ESD) Programmes at large corporates is the B-BBEE Act (as Amended) and the Codes of Good Practice.

The primary purpose of the BBBEE Act and the Codes is to address the legacy of racist apartheid policies and enhance the economic participation of Black people in the South African economy.

According to the B-BBEE Commission, the purpose of the Enterprise and Supplier Development (ESD) is “to promote a conducive environment for creation of sustainable partnerships between Corporate South Africa and black entrepreneurs to enable access and transformation of the value chains.”

The difference between BEE and B-BBEE

BEE refers to the government’s policy which seeks to right the wrongs of the past and to distribute the wealth of nation across all races and genders, as well as growth, development and enterprise development. B-BBEE is the implementation of the policy. Both refer to the same strategic framework to promote meaningful participation of the black majority in the country’s economy.

BBBEE Act & Codes & Pillars 

The B-BBEE Act was enacted in 2003 with updated B-BBEE codes coming into effect from 1 May 2015. The updated codes significantly changed the manner in which a firm’s BBBEE status (or level) will be calculated, as the number of BBBEE points required to achieve a particular BBBEE level has been increased.

The main reason for amending the codes, according to the Department of Trade and Industry, was to do away with the formalistic tick-box approach to B-BBEE that has generally been adopted by corporates.

The B-BBEE scorecard consists of five Elements namely: 

  • Ownership
  • Management Control
  • Skills Development
  • Preferential Procurement
  • Socio-economic Development

The priority elements are: Ownership, Skills Development and Preferential Procurement. Priority Elements are those within the Codes whereby a sub-minimum is applied. That means, if the Corporate does not achieve 40% of the sub-minimum score they are penalised by 1 B-BBEE level. Therefore, there is a focus on ensuring Priority Elements are achieved to avoid penalisation.

ESD is a component of Preferential Procurement and seeks to strengthen and diversify a Corporate’s Supply Chain while simultaneously stimulating economic transformation and job creation.

All large corporates, with a turnover greater than R50 Million, must measure themselves against these Elements for a B-BBEE rating and thus comply with relevant Legislation (where applicable).

As Preferential Procurement measures the extent to which a company purchases goods and supplies from B-BBEE compliant suppliers and specific designated groups (e.g. Black Youth, Women, People with Disabilities),

*** Read More HERE ***

What is the difference between enterprise development and supplier development?

Both enterprise development (ED) and supplier development (SD) are elements of the B-BBEE scorecard.

Together ED and SD form one of the three Priority Elements of the scorecard. A business should achieve a 40% subminimum of each of the categories on the ED and SD Scorecard (excluding bonus points).

In terms of SD, the corporate is required to support the growth of the small business/supplier with either non-financial or financial assistance or both. The corporate is also required to procure goods or services from the supplier they are developing, the major difference from ED.

ED is a strategy for promoting economic growth by developing SMEs and focuses mostly on the Entrepreneurs themselves. It doesn’t require the corporate to procure from the SME they are developing, but it would always be beneficial for corporates to consider bringing them in as possible future suppliers. – Source: Edge Growth

How Esd Programmes Work

The advantages of getting into a supplier development programme for SMEs

The majority of South African SMEs are both young and vulnerable. SME South Africa in its research, An Assessment of South Africa’s SME Landscape: Challenges, Opportunities, Risks & Next Steps’ 2018/2019.

*** Full Report Available for Download HERE ***

The findings of the report show that the SME landscape is made up of relatively young businesses, with around 60% of owners being in operation for less than three years. For the most part, SME owners are operating their first business (70%).

There is little doubt that SMEs need support if they are to be major sources of employment and drivers of growth in our economy.

Other contributing challenges mentioned in the report are access to markets with 52% of SME owners saying they need a lot of assistance in this area. Entrepreneurs also said they are finding the industries they’re operating in extremely competitive (up to 40%).

Hasnayn Ebrahim, founder and CEO of strategi exe. The strategy, innovation and SMME development specialist highlights three major areas where SMEs struggle to compete with “larger incumbents” – People, Capital and Product(s).

A good ESD programme is designed to “facilitate access to, and improvement of” a small business through the following:

  • Mentorship, specialist support and networking opportunities that seeks to build the capacity of the SME to deliver;
  • Access to capital that allows for further investment into the SME; and most importantly
  • Procurement of goods or services by the Corporate from participating SMEs that provides sustainable revenue streams.
Finding The Right Esd/corporate Fit

One of the most steps to joining an ESD programme is to find one that fits your business’s needs – whether it is market access, development support or funding. It’s also important to find out the corporate’s mission for their programme to ensure there is alignment of both purpose and values.

Some of the country’s biggest corporates have existing ESD Programmes.

Some well-known programmes are SAB’s entrepreneurship programmes – SAB KickStart, SAB Foundation, SAB Thrive and SAB Accelerator, as well as its agriculture programmes to grow emerging farmers.

In the hospitality and tourism sector, the Tsogo Sun Entrepreneurs programme helps to develop entrepreneurs in diverse range of market sectors that include: tourism, ICT, cleaning, professional services, manufacturing, retail, health and beauty, agriculture and secretarial and administrative services.

Other well-known programmes are by Investec, Massmart and Anglo American, among other.

****Get the Full List of Available ESD Programmes In South Africa HERE ***

Applying To An Esd Programme

How to prepare your application to enter a ESD programme 

There is no one set of requirements that SMEs must adhere to join a corporate ESD programme. Each corporate’s programme will have its own unique set of requirements based on the sector they operate in and what they wish to achieve with their programme.

There are however some requirements that are common across most programmes such as:

  • Qualifying B-BBEE rating
  • A well-defined business plan
  • Proven financial history
  • Overall positive performance

It’s also important to note that the requirements will differ depending on whether you wish to join a corporate’s ESD programme or their Supplier Development programme.

The focus for ESD programmes is to further develop entrepreneurs, because of this, businesses that can join such programmes are often in the early stage or seed stages. This also means requirements for a business may not be as stringent.

For Supplier Development programmes, the corporate is looking to bolster their supply chain. Your SME would need to provide a business case as to how you can add value by either diversifying, transforming or increasing competitiveness of their supply chain, and unlike with ESD programmes, you may have to prove that you are able to deliver on a large scale.

What you need to apply for an ESD programme

If you are considering applying to join an ESD – here are some questions to ask yourself to ascertain if you and your business are in a good position to leverage the opportunities afforded by an ESD Programme and that you have a business that corporates want to work with.

Here are key considerations to help you maximise your chances of successfully getting into a ESD programme.

  1. Understand your personal requirements: What do you need from the programme? What would you like to realise through participation? Where are your gaps?
  2. Research Programmes: Who offers what? Where is the best fit? What can I bring to the table? What are the requirements?
  3. Reach out to ESD Programme Owners/Managers: Get in touch with the programme owners you would like to partner with, understand what they are looking for and what you would require from them to participate.
  4. Tailor your Business Plan: Get it all down onto paper. Where you are, where you want to be, what you need to get there and why is your product or service worth investment from the Corporate you are looking at. Tailor it to the programme you would have chosen in (2) and (3) above.
  5. Get Compliant: Make sure you gather all the necessary compliance documents the Programme requires. This may differ from one to the other, but generally it includes: Company Registration Documents, B-BBEE Certificate / affidavit, Financial Statements, Business Plan and so on.

How to approach a corporate

Once you have done your research and know which corporate would be a good fit for your business, the best place to start is with a well-crafted email with your company profile to an ESD Manager or to the procurement department.

How to put together a company profile for ESD programme

As an SMEs you will be required to apply for a programme by completing an application. Most programmes have an annual intake of entrepreneurs.

Outside of the intake period SMEs can still send their profile to a corporate to indicate interest in their programme.

When approaching a company for potential acceptance into its ESD programme, a professional, well- researched profile or overview will be required.

Vivian Reddy: BDS Consultant for Edge Growth advises that profile or overview be two to three pages in length, and state upfront:

  • Products and services offered
  • One’s business track record
  • What sets you apart and makes you different?
  • Your BEE credentials

Other info that you should get from a procurement officer:

  • Enquire as to how to register as a vendor
  • How the organisation sources the specific commodity, for example is there a long-term contract, one or many suppliers etc.

*** Read More: Enterprise and Supplier Development – How to Secure Your Spot in a Good Programme HERE ***

How To Get Your Business Compliant

Being part of any ESD Programme may force you to take compliance seriously because the success of any programme may rely on how compliant their beneficiaries are, says Rapelang Motsumi, founder of The Entrepreneurship Ecosystem Company (TEEC), a business development consulting firm for entrepreneurs.

“Compliance makes an entrepreneur supply chain ready and funding ready. The whole purpose of Enterprise and Supplier Development programmes is to bridge this gap.

“Compliance works when you embrace it as part of your business process rather than being reactive, doing it only when you urgently need that tax clearance because of an imminent opportunity. Others believe that compliance is expensive. I always say if you think compliance is expensive try non-compliance.

Assess how compliant your business is and what are the main areas that needs attention.

*** SEE BELOW – THE ULTIMATE SMALL BUSINESS  COMPLIANCE CHECKLIST ****

SME South Africa Business Compliance Checklist
Source: The Entrepreneurship Ecosystem Company (TEEC).

Mistakes SMEs make with ESD programmes

  • Entering a programme that is not suited to one’s life cycle stage, and/or not checking that the other SMEs in the programme are at a similar life cycle stage as yourself
  • Not checking whom the company has outsourced the programme too, ie. the service provider running the programme, and their track record
  • The corporate doesn’t buy the product or service that the SME produces or offers
  • Entering multiple programmes, and then not having the capacity to implement programme learnings
  • Not extracting the most value: entering into an ESD programme requires time and commitment, and the ability to be able to implement and adapt as you learn
  • Not taking advantage of the bigger access to procurement professionals
  • Not using the Business Development Support services and programmes available to develop the people inside one’s SME business
  • Being critical of one’s sponsors, which will not endear you to corporates

Source: Vivian Reddy: BDS Consultant for Edge Growth

*** Read More: Enterprise and Supplier Development – 8 Mistakes SMEs Are Making HERE ***

Advice For Corporates

ESD Do’s and don’ts for corporates

Thakhani Tshivhase, head of business optimisation at Lean Enterprise Acceleration Programme ( LEAP) shares best practice for a successful and impactful ESD programme.

The Johannesburg-based organisation provides enterprise supplier development (ESD) services and assists big corporates with their supply-chain management models as well as providing BBBEE advisory services:

DO’s

  1. Ensure that you have chosen the right SME to work with. Analyse your supply chain, work out what makes sense for you to invest in so that your company performs better as a result of the interventions as well.
  2. If you are not able to carry out the needed interventions yourself, ensure that you get an implementing partner. It is hard enough to run your own business, make sure that you have the time you need to dedicate to helping someone with theirs and if you can’t rather outsource it.
  3. Ensure that you have defined what success looks like and then work backwards. You essentially have to start with the end in mind.
  4. Communication is key and you have to do this in order for both entities to achieve success! At every step of the way both parties have to be able to affirm their commitment to the process and vision.
  5. The most important thing of all in my view, is to ensure that you give the right support for the entity at the right time. If an entity needs a business process improvement intervention in the first few months, but you decide to give the entity a legal intervention instead, you are likely to create disinterest and panic about how valuable this relationship is going forward. You are also likely to jeopardize the economic success of the company as well which is counter-productive.

DON’TS

  1. Don’t just graduate an Enterprise Development Beneficiary that has nothing to do with your supply chain, just to tick the box. You will need to invent things for them to sell in order to justify earning the graduation points.
  2. When deciding on developmental initiatives, don’t just throw money at the company and expect it all to work out. Each year will become incrementally harder and you will have nothing to show for it.
  3. Don’t do this without informing the supplier about what you have planned. Yes, you are about to invest in their entity but if you don’t tell them about it, they may actually have other plans in mind.
  4. Don’t wait until verification date to get justifiable and verifiable documents signed sealed and ready. This will include contracts that govern your relationship. You have no idea what a headache this can relieve if you just ensure you do this on day one.
  5. Do not forget that this is first and foremost a collaboration between you and the supplier. You need each other to summit the peak successfully.

*** Read the full article Implementing an ESD Programme for your Business HERE ***

Everything You Need To Know About Enterprise and Supplier Development In South Africa | CASE STUDIES
Case Study #1
  • REN Engineering
  • Owner: Gugu Msomi
Overview

Gugu Msomi is a partner at REN Engineering which offers mechanical-engineering services.

Their competitive advantage lies in bringing cost-effective solutions to clients and continuously looking for opportunities to reduce maintenance costs and equipment downtime.

Their expertise lies in Six Sigma, management techniques that are used to improve business processes. Her main objective is to improve our customers’ internal processes by employing lean problem-solving techniques to identify and eliminate waste, reduce defects and provide innovative solutions resulting in cost savings and process efficiency.

How they benefited from ESD

We started on a pre-incubation programme with a different business model and, through effective guiding, our vision became clearer.

When we started on the South32 programme, we had no existing business but, through the effective selling skills we learned, we were able to secure a three-year multi-million Rand contract within our first year.

We had a number of setbacks in 2018 but, despite this, we posted a turnover growth of 24% from the previous year. We have also grown from eight to 20 employees and in 2016 won the ZCCI Emerging Business of the Year award which boosted our confidence and improved our brand credibility.

We have recently acquired workshop equipment and vehicles as part of a financial grant from South32.

Last year we went through development, training and implementation of quality management systems, ISO 9001:2015 and SANS 18001:2011. This will not only provide a sound foundation for the business (leading to increased productivity and profit) but will also give our prospective and current customers’ assurance that our management systems are constantly assessed and approved which will definitely improve our customer acquisition and retention.

Case Study #2
  • Master Rib
  • Owner: Irfaan Kajee
Overview

Master Rib is primarily a B2B focused business that specialises in the processing of pre-cooked beef ribs and other meat products for the restaurant and catering industry.

Master Rib is based in Johannesburg and through their distribution network are able to supply its products to clients nationally.

Irfaan Kajee is the driving force behind the successful early development of the business. Supported by a core team of 6 employees (including recent hires in 2020), the team is focused on scaling up production and distribution capacity as well as market building.

How they benefited from ESD

With the support of his mentor, Irfaan focused on improving client engagement and refining his financial model in order to be more competitive in the market. The growth in Irfaan’s personal and business confidence is encouraging and has resulted in the achievement of numerous milestones, including:

  • Securing Famous Brands as a customer, and subsequent growth in sales volumes
  • Increase in turnover growth of 33% over course of the programme
  • Entering the retail market in 2020 (i.e., direct home sales and deliveries)
  • Diversifying their product offering and range
  • Job creation: 25%

“At the beginning of the program my mentor, Steven, set a target of R500 000. I thought it was impossible! However, with Fetola and his guidance, effort and continuous motivation I surpassed my target in the last month of the programme by over R100 000,” said Irfaan Kajee.

Case Study #3
Overview

Teboho Bongani Nkwanyana is the Managing Director of The Salad Lab. The Salad’s Lab core business is to supply commercial and household clientele with freshly cut vegetables and whole fresh produce for every need.

Teboho is responsible for overall strategy and business operations. Teboho has completed various enterprise development programmes with Raizcorp, SAB Foundation as well as Startup School, which is an Investec CSI partner programme, winning prize funding at the end of the programme where he pitched to a panel of judges.

The Salad Lab has also won numerous awards which include Top Entrepreneur from the Department of Agriculture for Agro Processing as well as The Startup School first prize winner. The Salad Lab is aiming to grow and compete with a national footprint and potentially moving into franchising.

How they benefited from ESD

Investec CSI Entrepreneurship programmes completed:

  • Global Exposure Programme – Amsterdam Food & Beverage trip 2019
  • Finance Readiness – 2020
  • Startup School – Completed the 12 week programme and first prize winner of the R100K prize funding

Currently in conversations and final deal stages of securing funding from investors that the Finance Readiness programme has enabled for Teboho and The Salad Lab.

Case Study #4
Overview

Thandeka S Ndlovu is the CEO of Total Serve Facilities Management (Pty) Ltd. TSFM focuses on Cleaning, Waste Management, Horticulture, Space Planning, Hygiene, Pest Control. The company is also diversifying its offering by diversifying into Training, Asset Management and Advisory in the Infrastructure Built Environment sector.

Thandeka Ndlovu is the founder and 100% shareholder of the company since it was founded in 2013.

The company now holds quality standards which is the ISO9001:2005 and ISO14001 which enables it to be able to compete in its industry. TSFM currently employs 205 people. The Vision of TSFM is to make sure they play a substantial role in its community and industry by being the leading partner of choice. Innovation is TSFM’s highest priority and with this TSFM is also hoping to launch its own Operational App by end of Qtr. 1.

How they benefited from ESD

Investec CSI programmes completed:

  • Global Exposure Programme – Berlin Built Environment trip 2019
  • Finance Readiness – 2019

Secured funding from investors that the Finance Readiness programme enabled.