Based on this analyze SCM practices and map SOE SCM process

In the past two decades, supply chain management (SCM) has gained significant recognition as a source of a firms competitive advantage . Competitive advantage in public-sector organisations reduces inefficiencies and waste, improves the quality of services and brings about The significant role of SCM in public organisations and entities fosters strategic thinking and planning (Lysons & Farrington, 2013:31). Strategic SCM is the linking of SCM to organisational strategy (Chopra & Meindl, 2013:32; Lysons & Farrington, 2013:42; Fawcett, Elram &Ogden, 2014:19). In aligning the supply chain strategy to the organisational strategy, the supply chain focus needs to start with the customer and then work backwards through the entire supply chain . In recognition of this, in 2003, the South African government introduced the SCM system, following two Financial Management Reform processes. The introduction of SCM was meant to address the challenges and gaps originating from the previous procurement policy and to replace the previous procurement practices and policies altogether (Mkhize, 2004:3). SCM in SA forms an integrated financial management process which promotes uniform interpretation of procurement Acts and regulations and standardisation of documents. The governments integrated SCM applies to all departments and state- owned entities (SOEs). In South Africa, SOEs play a significant role in economic development, service delivery and development of the countrys strategic sectors such as energy, transport, telecommunication, logistics and manufacturing. SOEs were established to ensure a countrys sustainability and self-sufficiency, thereby contributing to the states developmental state objectives (Fourie, 2014:33). In recent years, there are pressures on South African SOEs to improve their operational efficiencies and service delivery. These are aggravated by country-wide service delivery protests, reports of corruption, fraudulent activities, collusion, fronting, bribery and maladministration of public funds (National Treasury, 2015:15). According to Boateng (2009:1), Liebenberg (2012:2) and The Presidency (2012:39), there is a substantial misalignment between SOEs current SCM practices and the government SCM legislative environment, resulting in weaknesses in controls, poor compliance, poor policy implementation and missed transformation targets. Basheka (2010:135) asserts that a weak SCM system will cause delays in implementing government services and projects, thereby derailing service. The root causes of most poor performance in SOEs are to misalignment of strategies (Fisher, 1997:106). The first step towards improving the performance of SOEs lies in the analysis of their Risk Governance & Control: Financial Markets & Institutions / Volume 6, Issue 4, Fall 2016, Continued - 3 381 supply chain practices (Reid & Sanders, 2007:124. It is, therefore, necessary for SOEs to reassess their SCM practices to address the service delivery challenges. This article explores supply chain practices in SOEs and is based on a conceptual review of SCM practices in South African SOE environment. The article begins by providing an overview of SOEs in South Africa and then moves on to discuss supply chain practices in SOEs and SCM challenges affecting SOEs. 2. REVIEW OF STATE-OWNED ENTERPRISES IN SOUTH AFRICA SOE is a generic term used inclusively to denote all types of entity, commercial and non-commercial. SOEs in South Africa span many industries including utilities, transportation, and technology; there are about 715 SOEs in South Africa (PRC, 2012:53; Accenture, 2010:1). The Public Finance Management Act (PFMA), (Act 1 of 1999) lists approximately 300 SOEs classified under Schedules 1 (Constitutional), 2 (Major Public Entities), 3A (National Public entities), 3B (National Government Business Enterprises), 3C (Provincial Public Entities) and 3D (Provincial Government Business Enterprises). The categories of SOE are illustrated in Table 1. The South African government has entrusted these organisations to spend taxpayers money conscientiously in the interests of providing reliable public services and upliftment. By 2020, the government of South African will have invested R3,2 trillion in essential services such as water, transport, electricity and housing and large-scale projects (National Treasury, 2012:16; Fourie, 2014:34). With its purchasing influence, the SCM in SOEs has a potential role to play in contributing to South Africas gross domestic product (GDP) (Accenture, 2010:1). The SOEs governed by the Department of Public Enterprise contribute a significant 8% to the GDP. The bigger SOEs make a much greater contribution than the smaller ones (Mokwena, 2012:1). Table 1. Categories of SOE in South Africa Schedule Category of SOE Number Description 1 Constitutional entities 9 Fully funded by government e.g. ICASA, IEC, Public Protector 2 Major public entities 21 Operate under business principles, e.g. Eskom, Transnet, SABC, CEF, Denel, ARMSCOR etc. 3A National public entities and SETAS 153 Fully or substantially funded through NRF, a tax levy imposed through legislation, e.g. ARC, Housing Development Agency, Competitition Commission and Tribunal 3B National government business enterprises 26 Operate under business principles with limited borrowing, e.g. PIC, PRASA, Water Boards 3C Provincial public entities 72 Fully or substantially funded through NRF, a tax levy imposed through legislation 3D Provincial government business enterprises 18 Operate under business principles with limited borrowing, e.g. Algoa Bus Company SAA contributes 0.3% of South Africas GDP and is responsible for 35 000 jobs through its activities and a further 44 000 jobs through its catalytic demand impact on tourism (SAA Annual Report, 2013:20). Eskom directly employs over 40 000 workers and has created 129 000 jobs through its suppliers. An independent study undertaken by Quantec Research found that Eskoms direct impact on the South African GDP as a result of its operational and capital expenditure is of 3%, taking into account only initial impacts and first-round effects in the economy (Eskom, 2012:4b). Denel is the key contributor in the manufacturing sector, which contributes about 15% of the South African GDP. The Denel group employs about 3 500 people and sustains about 30 000 technical jobs in the manufacturing industry. Transnets contribution to the GDP is 3%, which translates to about R29.9 billion per annum. 3. PUBLIC-SECTOR SUPPLY CHAIN MANAGEMENT PRACTICES IN SOUTH AFRICA 3.1. Global perspective of public-sector supply chain management Public-sector SCM is that part of government process that deals with the provision, procurement, delivery and allocation of goods and services to and by the government or its citizens. As an international best practice, SCM in the public sector aims at enhancing efficiency (Abebe, 2008:54). Public-sector SCM, through its procurement, has realised the need to reduce costs, strive for customer satisfaction, and reduce time to satisfy its customers and contract optimisation (Callende & Matthews, 2009:717). Therefore, SCM practitioners must ensure that the process is efficient, transparent, equitable and fair. Efficiency in SCM has become an urgent issue in the public-sector environment. In a public-sector environment, efficiency means gaining value for money . To ensure transparency thesis required to produce policies, procedures and practices governing their purchases; such documents must be able to pass through audits and court cases . Public-sector expenditure through SCM accounts for a significant amount of total general government spending. In 2011, on average, the general public-sector procurement spending of the OECD countries represented 29% of total general government expenditure, or 13% of GDP (OECD, 2011:2). The US governments purchasing power is considered to be the largest in the world, with its overall spending estimated at R48 trillion it is important that public SCM be mainstreamed and well integrated into the public sector governance system. Due to its importance, public-sector SCM is embedded in most countrys Risk Governance & Control: Financial Markets & Institutions / Volume 6, Issue 4, Fall 2016, Continued - 3 382 policies. Most public-sector institutions have realised the importance of developing strategic partnerships with their suppliers, customers, and other stakeholders to achieve the efficiencies gained from collaborating with the major role players . It is believed that collaborative relationships create an environment for leveraging on skills, expertise and resources, information sharing and complementary strength, thereby saving time and costs. Countries such as Malaysia, the UK, South Africa, the US and Canada began implementing SCM a long time ago and have since realised the benefits of an effective SCM. An efficient public-sector SCM clearly exhibits the ability of government to transform taxes and other revenues into consumption by public institutions at all levels, allegedly for the common good 3.2. SCM in the South African public-sector environment The governments SCM was designed to add value at each phase of the process and includes the main elements of demand management, acquisition management, logistics management, disposal management, risk management and regular assessment of the supply chain performance. Figure 1 presents an overview of the key performance areas of public-sector SCM. Figure 1. South African public sector SCM model Source: Adapted from National Treasury Guide (2005:10). The implementation of SCM in government and its entities is decentralised, thereby granting public sector managers authority and powers to make decisions in line with the PFMA and other Acts governing SCM. 3.3. Supply chain management regulations and policies in South Africa Public-sector SCM in South Africa is highly regulated. A highly regulated environment minimises discretion, corruption, and political risks. Government SCM laws and regulations are the most important pillars of a sound SCM system . SCM in South Africa is anchored in Section 217 of the Constitution and has evolved towards being fair, equitable, transparent, competitive and profitable. There are more than 80 different legal instruments governing South African public-sector SCM. Key legislation influencing SCM in government and SOEs is: Public Finance Management Act 1 of 1999 (PFMA): Establishes a regulatory framework for SCM which includes procurement within the government. Preferential Procurement Policy Framework Act 5 of 2000 (PPPFA): sets the manner in which preferential procurement policies are to be implemented. Broad-based Black Economic Empowerment Act 53 of 2003 (B-BBEEA): lays down a code of good practice to inform the: development of qualification criteria for the issuing of licenses or concessions, the sale of SOEs and for entering into partnerships with the private sector, and development and implementation of a preferential procurement policy. SUPPLY CHAIN MANAGEMENT INFRASTRUCTURE SYSTEMS SUPPLY CHAIN PERFORMANCE CENTRALISED SUPPLIER DATA BASE GOVERNMENT PREFERENTIAL PROCUREMENT POLICY OBJECTIVES DEMAND ACQUISITION LOGISTICS DISPOSAL Risk Governance & Control: Financial Markets & Institutions / Volume 6, Issue 4, Fall 2016, Continued - 3 383 Construction Industry Development Board Act 38 of 2000 (CIDBA): establishes the means by which the board can promote and implement policies, programmes, and projects, including those aimed at procurement reform, standardisation and uniformity in procurement documentation, practices and procedures within the framework of the procurement system of government. Preferential Procurement Framework Regulations (2001) and National Treasury Regulations (2005) The PFMA (76[4]) permits the National Treasury to make regulations or issue instructions applicable to all institutions to which the Act applies concerning the determination of a framework for an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost-effective Each organ of state has to determine its procedures and policies, which must be consistent with the legislative framework .National Treasury regulations reinforce the provisions of the PFMA, finalise the decentralisation of the SCM function to the accounting officer, and formalise the integration of various functions into a single SCM. In addition to the legislative framework for government SCM, in 2004, the National Treasury released SCM guidelines for accounting officers and from time to time issues practice notes and circulars that guide the implementation of SCM in all spheres of government, including SOEs. 3.4. SCM practices in state-owned entities in South Africa The supply chain management practices (SCMP) are defined as the set of activities undertaken by an organisation to promote effective management of its supply chain.Thate identified SCMP in the form of strategic supplier partnerships, customer relationships and information-sharing. Among the components constituting the practice of SCMP, there are such elements as: supply chain integration, information-sharing, Just-in-Time delivery system, strategic partnership with suppliers, relationships with customers, quality of information and lean internal practices. In reviewing and consolidating the literature, the following SCMP were identified in the South African SOE environment and are briefly discussed below.3.4.1. Supplier development Government economic development policies such as the National Development Plan, New Growth Path and the Industrial Policy Action Plan have increased the focus on how procurement at state-owned companies can be leveraged to achieve the national goals of reducing unemployment, ensuring industrialisation and developing local suppliers. Leveraging procurement to influence the development of the local supplier industry is key in realising governments objectives relating to growth, employment creation and equality. Currently, SOEs largely depend on foreign suppliers of equipment and machinery needed for the maintenance of its infrastructure. After all, the country is experiencing severe skills shortages in areas such as engineering, medicine, and accountancy, while many qualified professionals leave the country for better