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Strategic Sourcing is key to industrialisation in Africa

Since the industrial revolution of the 19th century, countries around the world continue to drive industrialisation as a core component of their socio-economic development. Notwithstanding significant industrialisation in African countries following independence, a continued lack of strong industries has resulted in a reliance on foreign imports, commodity exports, and a continuation of widespread unemployment, poverty, and inequality on the continent.

Understood as the large-scale value addition to raw materials and resources, industrialisation offers numerous long-term benefits including wealth creation, increased trade in non-commodity products, a rise in living standards, increased entrepreneurship, the generation of resources to upgrade and build required infrastructure, a reduction in inequality, and job creation, to name but a few. However, due to a lack of strong industries African economies and people are often placed at a disadvantage and are often held shackled to the ups and downs of foreign markets. In addition to a lack of strong industries, price focused procurement and sourcing practices have also had negative implications for widespread attempts to improve industrialisation.

De-industrialisation leading to long-term socio-economic decline

Short-term price driven sourcing practices are increasingly leading to a form of de-industrialisation on the continent. De-industrialisation in many African countries has resulted in increased unemployment, poor living standards, limited infrastructure development, a loss of skilled human capital, political, economic and social instability, inflation, a dependence on imports and the collapse of local industries. One of the major causes of de-industrialisation is that instead of supporting locally produced products and services – albeit slightly more expensive – African organisations continue to rely on cheaper imports to support their business functions. This is because, as with most acquisitions in Africa, unit price is often the first consideration before anything else. As such, despite local production of various goods and services, organisations continue to search the international market for cheaper alternatives.

Unnecessary imports negatively affect local value chains

For example, despite a number of local poultry value chains in South Africa, the agreement to allow the annual importation of 65000 tons of American farmed chicken pieces stands to have long-term negative implications for the poultry industry in the country. Commenting on the impact that such imports have on chicken production in the country, South African Poultry Association’s chief executive officer Kevin Lovell noted that “the threat [of such imports] to our existing producers, whether large or small is clearly quantifiable, as is the loss of jobs for local employees and the businesses of emerging farmers.” In relation to its impact on job creation, he argued that “for every 10000 tons of imports, 1000 job opportunities are lost.” To this end, while price-driven sourcing may lead to greater profits for select importers in the country, the unintended impact of such buying practices on African industries and SMME’s should not be overlooked.

Strategic sourcing helps to prevent short-term procurement practices

It is widely known that price-driven acquisition and sourcing is a common practice among many African organisations. However, in order to try and overcome current regional challenges surrounding the de-industrialisation of some of the countries on the continent, organisations and governments alike need to move away from a focus on short-term price gains and towards the implementation of long-term strategic sourcing agendas.

Strategic sourcing is a continuous, long-term business process which is focused on getting the best product or service at the best value while at the same time taking the total cost of ownership (customer needs, organisational objectives, and market conditions) into account. It is a procurement and supply chain management practice which is used to find and attain suppliers that add maximum value to an organisation’s product or service. It is not simply focused on finding the cheapest supplier, but takes the long-term value-addition of the supplier into account.

Local and regional alternatives

It is through the practice of strategic sourcing that African organisations and consumers can begin to support greater industrialisation initiatives on the continent. That is, instead of searching for the cheapest possible products and services on the global market, organisations must begin to look at locally and regionally produced alternatives. Although such alternatives may cost the organisation a bit more in the short-term, the long-term implications of such sourcing practices are significant when it comes to the protection and growth of local industries, job creation, and SMME development.

Public and private sector support for Africa-focused sourcing strategies needed

While business and consumers have an important role to play in improving industrialisation, governments and the private sector need to work together to implement initiatives and policies supportive of ‘Africa-focused’ sourcing strategies. As such, applying supply chain management techniques and processes that are conducive towards long-term improvements in procurement and strategic sourcing practices is becoming an increasingly important requirement. This is especially the case for organisations and governments in Africa who need to work together to support industrialisation and related socio-economic development imperatives on the continent.

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