Maintaining the scores

Saul Symanowitz, Divisional Manager at Sage Pastel BEE123

South African businesses will need to work far harder to maintain their scores in the Preferential Procurement element (of the Department of Trade & Industry's Revised Black Economic Empowerment (BEE) Codes relative to the older codes.

That's according to Saul Symanowitz, Divisional Manager at Sage Pastel BEE123, who says that most companies will need to rethink their approach to Preferential Procurement if they want to avoid dropping one or more empowerment levels when next they go through BEE certification.

The Department of Trade & Industry's Revised BEE Codes come into effect when the current transitional period ends on 30 April 2015. One of the most profound changes in the Revised Codes is that Preferential Procurement and Enterprise Development have now been folded into one category,- Enterprise and Supplier Development- with tougher and more complicated compliance requirements than before, says Symanowitz.

Under the Revised Codes, the 25 points for Preferential Procurement can only be earned when procuring from 'Empowering Suppliers', irrespective of the BEE status level of the supplier in question. An Empowering Supplier-compared to the simple BEE recognition of the earlier BEE scoring system-is a multifaceted concept.

An 'Empowering Supplier', defined as an entity that meets three of the following criteria if it is a Generic entity (R50 million-plus turnover) or one if it if is a Qualifying Small Enterprise (R10 million to R50 million turnover):

  1. Buys at least 25% of cost of sales excluding labour cost and depreciation from local producers or local suppliers
  2. 50% of jobs created are for Black people, provided that the number of Black jobs are at least maintained from the previous period
  3. At least 25% transformation of raw material/beneficiation
  4. Spends at least 12 days a year of productivity in assisting small Black owned companies to increase their operation or financial capacity

On top of that, there are nine of the 25 points available for companies that spend 40% of their procurement with suppliers that are at least 51% black owned and a further four points for spending 12% of procurement with empowering suppliers that are at least 30% black women-owned.

"Under the older Codes most companies would fairly easily score close to 15 out of 20 points for Preferential Procurement, without needing to change suppliers at all, simply because enough of their current suppliers would tend to have BEE Certificates. The remaining 5 points, for procuring from Black owned suppliers, were often thus disregarded, and treated almost as bonus points

The Revised Codes demand however that companies spend a large portion of procurement with companies with high levels of Black Ownership," says Symanowitz. "The challenge here is to identify stable and credible Black owned suppliers. How do companies transition to these new suppliers while ensuring they get the same level of quality and service?"

The answer lies in the fact that the Enterprise Development and Preferential Procurement elements have been united under one pillar in the new Codes. DTI envisages that established businesses will invest 2% of their net profit after tax into nurturing their qualifying Black owned suppliers, says Symanowitz. "DTI is looking for companies to create big brother type relationships with emerging Black owned businesses" he says.

"The Codes reward them for supplier development efforts that help emerging enterprises to become self-sufficient, sustainable businesses in their own right. This makes sense, as through their supplier development investments, companies will ultimately receive better quality service from the emerging suppliers they have supported". Indeed, there is one bonus point to be had for creating one or more jobs directly as a result of supplier development and enterprise development and another for graduating of one or more enterprise development beneficiaries to graduate to the supplier development level.

Symanowitz says the new Preferential Procurement and Enterprise and Supplier Development scoring system demands complex calculations from companies who want to keep their BEE levels constant. Automated tools can take much of the pain out of the process, especially the Preferential Procurement element, which can otherwise be exceptionally laborious and administratively intensive"

Sage Pastel BEE123 provides a range of tools that help organisations calculate and understand their BEE scores ahead of an audit for certification (for both the current and Revised Codes). They can simply input the relevant numbers in and the application will tell them how the new Codes will impact on their scorecards. Once they have done so, they can use the Sage Pastel BEE123 scenario planning tool to determine exactly how certain changes could potentially impact their BEE rating, and thereby develop an appropriate and cost effective strategy. Sage Pastel BEE123 also helps them to find BEE Certified suppliers in its database of BEE companies. 

Janina Boezaart

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Issue 93


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