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Supply Chain

Creating a disruption-proof supply chain in Africa

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The impact of the pandemic on global supply chains has prompted governments around the world to look at ways to fix the broken links. In Africa, the launch of African Continental Free Trade Area (AfCFTA), has provided the continent with new opportunities to strengthen its regional supply chain.

Virusha Subban, Head of Indirect Tax at Baker McKenzie in South Africa, explains that there were massive breakages in key links in global supply chains during and after the pandemic, with issues including, among many other things, route congestion and blockages, manufacturing shutdowns, a deficit of skilled labour, a global shortage of key logistics components including shipping containers, a lack of space in warehouses, a spike in transportation costs and substantially increased demand for goods around the world, post-lockdown. As a result, countries have been looking at ways to relink broken chains.

In February 2021, President Biden addressed this issue by signing an Executive Order on America’s supply chains. He ordered federal agencies to review and identify vulnerabilities in key US supply chains and develop policies to ensure those supply chains would be more resilient to future shocks.

Similarly, the  European Union Policy Department for External Relations issued a report on Post Covid-19 value chains: options for reshoring production back to Europe in a globalised economy. The report noted that, against the background of both supply shortages due to the pandemic, and the shift in global trading patterns, reshoring of production, the process of bringing production activities home, had become a topical issue in recent EU policy debates.

Last year, the African Union African Peer Review Mechanism 2020 published a report on Africa’s governance response to COVID-19,  which highlighted Africa’s supply chain challenges and overreliance on foreign trade and suggested that the continent boost its manufacturing capacity to build a strong African supply chain that could not be weakened by global blockages.

Marc Yudaken, Partner and Head of the IMT Sector Group at Baker McKenzie in Johannesburg, notes that supply chains in Africa were already under pressure before the pandemic, due to inadequate infrastructure, corruption and security issues, poor trade logistics, overreliance on foreign imports, onerous regulatory requirements and complex customs procedures.

He explains that a recent Baker McKenzie report – A License to be Bold: Transforming Industrials outlined areas of post-pandemic focus for supply chains in the IMT sector, which included being able to adapt to new markets, embrace digitalisation and enable the disruption-proofing of supply chains. The report noted that disruption arising from COVID-19 accelerated trends already apparent in the industrials market, particularly digitalisation and trade volatility, and transformation has now gone from a “nice to have” to a necessity.

Yudaken notes that due to the global supply chain disruption, many African countries have begun looking at ways to improve their manufacturing capacity so that they can produce local components that don’t need to be imported and that can be traded within the continent.

“Reliable transport and utilities infrastructure is vital in terms of ability of the IMT sector to scale up production for regional export and to develop its manufacturing bases. To improve transport infrastructure in Africa, large projects have been announced or are in progress, including, for example, the Trans-Maghreb Highway in North Africa and the North-South Multimodal Corridor, connecting extensive parts of Southern Africa, as well as the Central Corridor project and the Abidjan-Lagos Corridor Highway project.

 Further, Africa needs an adequate supply of water and electricity to increase production capacity and incentivise foreign companies to set up facilities on the continent – energy and utilities infrastructure is direly needed across African jurisdictions. Domestic policy changes that address these issues are therefore playing a crucial role in disruption-proofing Africa’s supply chains at present.”

Subban agrees that improving manufacturing capacity is a key way to remove reliance on global supply chains. A Baker McKenzie report, with Oxford Economics,  AfCFTA’s US$ 3 trillion Opportunity (AfCFTA report) looked at African imports from outside the continent and revealed that manufactured products  industrial machinery and transport equipment constituted over 50% of Africa’s combined needs. Currently, Africa’s external imports account for more than half of the total volume of imports, with the most important suppliers being Europe (35%), China (16%) and the rest of Asia including India (14%). By contrast, imports from other parts of Africa account for only 16% of total merchandise imports. Manufacturing GDP represents on average only 10% of GDP in Africa. This means that limited production capabilities within Africa are currently being compensated for through foreign imports. This manufacturing deficit could be eventually satisfied within the continent and enabled by AfCFTA.

“Further, in terms of rapid global digitisation, a sophisticated legal and regulatory framework that enables digital transactions is vital for full participation in global digital trade, which is expected to play a leading role in a post-pandemic trade environment.

“The trade in services, for example, is an especially pertinent area of focus for all countries in Africa and could represent a way to overcome the current production and supply chain limitations that threaten to hold up the Africa-wide trade in goods. Because a service can either be traded directly or serve as an input into the production process of a product, the liberalization of trade in services is not as hindered by current infrastructural or logistic deficits as the trade in goods. In this way, Africa’s service trade sector can benefit from bypassing the industrialization phase,” she says.

The AfCFTA report shows that the trade in services in general currently accounts for over half of gross value added in Africa. In order to fully realise its benefits, however, there needs to be a better understanding among policymakers of the important role that services can play in regional value chains. This will allow the continent to address the structural constraints on growth in these sectors. The report notes that easing restrictions on foreign government policy throughout the continent will increase the flow of service trade between countries. For example, allowing more access to the information and telecommunications systems would encourage companies to enter new markets. Further, lowering the cost of access and usage of communication and fortifying network security will encourage businesses to set up or ramp up operations in the continent

“Addressing infrastructure shortfalls, boosting manufacturing capacity, and leveraging the benefits of digitisation will add strong links to Africa’s regional supply chain, ensuring it can withstand breakages and disruption,” adds Subban.

Supply Chain

Today’s biggest business challenge: Bringing simplicity and efficiency to a complex environment

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By Leon Steyn, CEO at Dante Deo  

The world is changing swiftly, and the Fourth Industrial Revolution (4IR) is ushering in a new era of innovation and technology. From how we manufacture and consume products and services to how we experience life and work, 4IR is transforming and enhancing every facet of modern life. Digitalisation has become critical for businesses to remain competitive through greater productivity, asset reliability and advanced process control, and there is a huge emphasis on doing things simply and quickly to drive business growth and success.  

When a task or transaction is complex, it involves a significant investment of resources, and usually, this ends up being time. The age-old adage of ‘time is money’ comes into play here – organisations can no longer afford to waste time, especially considering the rate of technological change. Ten years ago, it took more than a year for technology to change, but today, it’s anything between three and six months. If a business is stuck in a complex procurement process, your business requirements will most probably evolve so much that you no longer need that specific technology. That’s why organisations need procurement simplicity that enables businesses to be agile and adapt quickly. Finding and prioritising simplicity in an ever-changing, increasingly complex business landscape is key and can set your business apart.  

Responding to complexity starts with understanding risk   

Increasing complexity is making life more difficult for businesses of all sizes and across all sectors. Considering how quickly our world is shifting, if business owners and leaders don’t have a clear handle on what they’re working through because of complexity, their business risk position increases exponentially.  

If you look at software, the major risk five years ago was compliance, with businesses asking themselves if they were consuming the right amount of software and licences versus what they procured and licensed. Today, in the Software as a Service (SaaS) space, the value proposition has become the focus. Businesses should look at software as a consumable – using only what is needed, when it’s needed and by whom it’s needed.  

At Dante Deo, we’ve seen many implementation projects fail because organisations don’t understand the risk position or the protection that exists within the contract. Most people don’t even understand the licencing conditions on their phones, let alone the complex transactional conditions, which creates massive risk for most businesses today.  

The link between simplicity, efficiency, and agility  

The ultimate goal for any business transaction with a vendor is to obtain a benefit that will improve your margin, sustain your margin, or grow your revenue. If your organisation gets stuck in a complex environment, you’re at risk of ‘analysis paralysis’, where you either do nothing and lose the benefit you’re seeking, or you never actually optimise that benefit. Therefore, all businesses need to cut through the complexity and focus on a few critical things that will ultimately deliver the core benefit – that’s where simplicity sits.  

More so, finding and prioritising simplicity translates to increased efficiency, optimisation, and risk management – the three core outcomes of every commercial transaction. Simplifying business processes and transactions also allows companies to be agile in the face of change. If you lose your ability to adapt quickly, the odds are your competitor will grab that initiative.  

Practical examples of bringing simplicity to complex commercial projects  

In my years at Dante Deo, we’ve helped other companies reduce complexity and clarify their own simplicity. During our work with National Treasury, we looked at the incredibly complex IT category across many different spheres of government, bringing everything together with a unified, standardised contractual agreement structure. This simplicity allowed for a consistent, predictable process of obtaining goods and services, saving the taxpayer money in the process.  

Similarly, during a reorganisation conducted for one of our multinational customers, we took complex transactions and unified them under a global framework agreement, focused on standardised terms and conditions, and defined processes and risks. In turn, this enabled the business to turn around the procurement transaction in just three to six weeks, instead of the usual months it previously took to put an agreement in place.  

We also play a role in the mergers and acquisitions space, dealing with very complex environments and complicated transactions. In this industry, businesses must understand what supply contracts they have and the various details of these contracts. As such, we’ve developed a robust methodology to give these companies an overarching picture of the most critical components and risks in their agreements, and have built repositories of how these details affect mergers and acquisitions in a short space of time. This allowed us to lift, shift and split over 1000 contracts in eight weeks from when the transaction was announced to the market to the listing date on various stock exchanges in SA and Europe.  

For us, simplicity comes from the knowledge we have gained over many years of harnessing the power of experience to drive business growth and success for our clients. 

Many business leaders may cringe when they read this, but processes, procedures and policies don’t add simplicity to an organisation, instead, they elevate complexity. I’m not disputing that these three Ps are not critical to a business; however, the truth is, they don’t manage risk, don’t offer efficiency, and don’t result in simplicity – they offer predictability, though. 

Businesses should focus on understanding the information that is available to them, and most importantly, invest in partnering with the right people who will understand the environment that they need to operate in exceptionally well. Many procurement practitioners just stick to tick-box procurement and don’t have the skill set to understand the complexity of the business. You need to find people who know the commodity and the environment in which that commodity is utilised in order to translate the business complexity to simple, cost-efficient and optimised supply ecosystems where the risks are managed as well. I rarely look for a procurement expert – instead, I opt for specific technical skills in the relevant market. Identifying the gap between the business need and the specific transaction is key – you need to hire people who can fit in this gap.  

Pick your partners in this space in the same way you would choose your spouse. Consider that it’s a lifelong commitment; the wrong partner can destroy your business – just look at Eskom today. Put real-time and effort into creating and nurturing a team that will move your organisation forward by offering simple solutions to complex business requirements. 

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Supply Chain

39% of businesses increased productivity with remote work during covid restrictions

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New report by The Economist Intelligence Unit into productivity and remote work

Two-thirds of business executives believe that remote work will continue in some form beyond the pandemic, despite a clear divergence in views over employee productivity when working from home, according to a new report, Reshaping Productivity, by The Economist Intelligence Unit.

While 39 per cent of survey respondents witnessed an increase in productivity in their organisations since the pandemic forced the adoption of remote work practices, 32.6 per cent reported a decline in productivity, and the remaining 28.5 per cent saw no change.

The global survey of more than 360 business executives was conducted in May 2021 by The Economist Intelligence Unit and sponsored by Kyocera Document Solutions to investigate the implications of remote work on organisations, employees and productivity. In-depth interviews were also conducted with experts in the field from companies such as Google, Mercer and the Human Capital Leadership Institute.

The study found a strong positive correlation between increased productivity and employees’ support for the uptake of digital tools, such as collaboration tools, digital workflow solutions and online project management applications.

“This supports what we’ve been seeing amongst our own clients managing the effects of the pandemic on their workplaces,” said Gareth Fletcher, Corporate Sales Manager at Kyocera Document Solutions South Africa. Case studies of Kyocera clients and interviews with senior leadership within the global company provide further insight into the report results and the role of digital solutions in driving business growth.

“Even before the spread of covid-19, companies had been trying to create more flexible working styles,” said Hironori Ando, the president of Kyocera Document Solutions.

“Those that have invested heavily in the right tools to enable their employees to work from home are definitely benefiting in terms of productivity gains, business continuity and resilience, and innovation in the current environment,” added Fletcher.

In fact, one in five executives who witnessed a decrease in productivity in the study said that it was because they hadn’t fully implemented the remote working capabilities needed for their staff to work from home effectively.

The report concludes that it is the companies that have adapted quickly and built their capacity for flexibility throughout the pandemic who will benefit most in the future workplace, whatever it looks like.

“Our view is that the future of work is hybrid, and this report goes a long way to providing businesses with actionable insights to help them make a successful transition to a permanent remote or hybrid work model set-up,” concluded Fletcher. Discover more insights into remote work productivity and download the full report by visiting the Reshaping Productivity ebook download page.

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Supply Chain

Adapting Supply Chain Strategy

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Supply chain strategies create competitive advantages for operations in a digital world. Optimized supply chain operating models are strategic differentiators and business process transformations are a major value lever for businesses.

Operational strategy

Operational strategies assist companies to identify the ideal positions of working capital, costs, and service levels. Based on these positions, actions are defined and implemented within processes, people, assets, and information systems to improve the cost-effectiveness and services in a company’s markets. 

Outsourcing

Focusing on core competencies reduces efforts for non-core activities and drives efficiency.

Labor and force optimization

Operational locations use performance metrics to plan activities, benchmark internal performance versus other locations, manage staff, and decide on individual compensation. Reviewing how this information is used enables companies to identify ineffective performance metrics.

Network strategy and design

The goal of strategic design and optimization of supply chain networks is to find a balanced and robust structural solution for the tradeoffs of low cost, excellent service, and minimal inventory.

Africa presents unique and evolving challenges for supply chains. Even companies with long track records in the region are being forced to find new and creative ways to maintain growth and extend their reach into new countries and markets. While some of the lessons learned in other emerging regions are also applicable to Africa, it is likely that they will be only part of the solution. The rest will come from unique approaches tailored solutions and adjustments to current supply chain strategy.

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