ESD is a combination of Preferential Procurement, Supplier Diversity, Supplier Development and Enterprise Development Elements to service business needs. It is part of the Broad-Based Black Economic Empowerment policy to advance economic transformation in South Africa. The aforesaid can be defined as follows:
- Preferential Procurement is a national policy that encourages government departments and agencies to buy goods and services from previously disadvantaged individuals or businesses.
- Supplier Diversity is the proactive business process of sourcing products and services from previously under-used suppliers. This process helps to sustain and progressively transform a company’s supply chain thus quantitatively reflecting the demographics of the community in which it operates by recording transactions with diverse suppliers
- Supplier Development is the process of working with certain suppliers on a one-to-one basis to improve their performance for the benefit of the buying organisation, leading to improvements in the total added value from the supplier in question in terms of B-BBEE rating, product or service offering, business processes and performance, improvements in lead times and delivery.
- Enterprise Development is a strategy for promoting economic growth and reducing poverty by building SMMEs, membership organisations to represent them and competitive markets that are stronger and more inclusive. It consists of monetary and non-monetary, recoverable and non-recoverable contributions actually initiated in favour of a beneficiary entity by a measured entity with the specific objective of assisting or accelerating the development, sustainability and ultimate financial independence of the beneficiary.
The broad practice statements which underpin ESD:
- There is no single approach to ESD. Companies must select the most appropriate approach to suit their needs and their relationship with the beneficiaries that they select for development
- Before any decision is made to implement ESD the organisation’s needs and objectives must be established;
- ESD is a two-way activity that should be thought of as a joint-venture
- Whatever approach to ESD employed, companies should ensure quantifiable and measurable results that lead to business benefits
- ESD Entities should be capable of being assessed, monitored and evaluated in terms of quantifiable operational and financial impact
- A Supplier Development Plan must be developed and implemented to ensure that supporting evidence needed to guarantee that ESD projects will benefit under the B-BBEE codes is collected
- It is not necessarily only the best suppliers which should be eligible for ESD programmes – each supplier should be assessed on the basis of individual merit and potential
- ESD Entities should possess relevant expertise; in particular they need to have the necessary interpersonal and communication skills to be able to persuade stakeholders and beneficiaries who may otherwise be reluctant to embark on a development programme
Companies must identify sound reasons for embarking on ESD such as:
- Improving B-BBEE rating
- Improving beneficiary performance
- Reducing costs
- Resolving serious quality issues
- Developing new routes to supply
- Improving business alignment between the beneficiary and the sponsoring organisation
- Developing a product or service not currently available in the marketplace
- Generating competition for a high price product or service dominating the marketplace