The objective of procurement and supply chain management is to secure supply while balancing the competing objectives of lowering the total cost of ownership and ensuring the quality, timing and safety of our purchases, while at the same time meeting Eskom’s Asgisa objectives. These include broad-based black economic empowerment targets and the initiation of competitive supplier development programmes. (Refer to page 43 for the Asgisa objectives.)

Strategic sourcing strategy

Eskom launched a strategic sourcing initiative during 2006 in support of our objectives of maintaining quality and continuity of supply, capacity expansion and building sustainable supply chain security.

Supply market volatility has seen suppliers struggling to meet demand and an increase in prices, quality concerns and delivery lead times. As supply tightens, many of Eskom’s traditional suppliers are increasingly declining to tender for work, thereby increasing the need for global sourcing for new suppliers¹.

Within this volatile climate, multiple long-term contracts have been placed, ranging up to 10 years, and additional commodity strategies are at various stages of development to ensure that long-term requirements and savings targets are met.

Actual savings from the strategic sourcing initiatives were R3,1 billion, against the target of R1,5 billion for the year. This brings the total inception-to-date savings to R3,9 billion against the overall savings target of R7,8 billion over the five years to 2011.

¹ Source: Power Advocate Market Intelligence Report March 2008.

Competitive supplier development programme

Eskom has implemented the competitive supplier development programme (CSDP) of the Department of Public Enterprises, which aims to increase the competitiveness, capacity and capability of the local supplier base in South Africa. The CSDP obliges suppliers with import contracts exceeding USD10 million, to invest 30% of the imported contract value within the power industry and related supplies.

In line with this programme, Eskom will select established equipment manufacturers that are willing to develop local factories. By having equipment manufactured in South Africa, we will benefit from the improved competitiveness of the products and the securing of long-term local supply options with local industry.

The improvement in the capacity and competitiveness of our local supplier base will contribute to the Asgisa goals of shared growth, employment creation, poverty reduction, skills development, and broad-based black economic empowerment (BBBEE). South African partners will participate in Eskom’s expected R1,3 trillion spend on power infrastructure up to 2025 and create about 66 000 jobs.

Black economic empowerment (BEE) performance

Eskom makes a significant contribution to black economic empowerment by supporting black-owned businesses and black women-owned businesses. This is reflected in the group procurement spend of R25,4 billion against a target of R19 billion, being 67% of discretionary spend. (This excludes procurement from Eskom group businesses, public enterprises and state departments, as well as costs relating to human resources such as salaries and wages. It includes expenditure on coal and demandside management.)

The 2009 target is that 70% of all discretionary expenditure should be with BEE businesses, and 20% of that with black women-owned businesses. Eskom will continue to empower black women-owned businesses to accelerate their participation in the mainstream economy.