Enterprise development should build suppliers, not dependants

Every year, in the last weeks before a company's financial year-end, a familiar thing happens. The enterprise development target has not been met, so a cheque is written to a small Black-owned business the company has little to do with. The contribution is recorded, the points are claimed and the beneficiary banks the money. Twelve months later, the same thing happens again, often to a different business.

It is easy to see why this happens, and hard to defend. The company buys a year of points at full price. The beneficiary receives cash with no market attached. Nobody is better placed for next year. I believe enterprise and supplier development should work the other way: as a pipeline that turns today's beneficiary into tomorrow's supplier.

The scorecard already describes the pipeline

Enterprise and supplier development is the largest element on the generic scorecard: 42 points, plus 4 bonus points. It is easy to read its three parts as separate budget lines. They are better read as stages of one pipeline.

• Enterprise development (5 points, target 1% of net profit after tax) supports Black-owned businesses that are not yet in your supply chain.
• Supplier development (10 points, target 2% of net profit after tax) supports Black-owned suppliers who are inside it, helping them grow and meet your standards.
• Preferential procurement (27 points) recognises what you actually buy, and from whom.

Each part carries a 40% sub-minimum. And the bonus points tell you what the Codes are hoping for: one for graduating a beneficiary from enterprise development to supplier development, and one for jobs created through your programmes. The bonus points reward progress, where the base points reward payment.

Read that way, a business you support through enterprise development should, if things go well, become a supplier you develop and then a supplier you buy from on merit. The same relationship earns recognition at each stage, and the points follow the progress.

Why the one-off donation fails both sides

A once-off contribution can be recognised in the year it is made. That is not the problem. The problem is what it leaves behind.

For the business, it is a recurring cost with no compounding return. You will pay again next year, and the year after, because nothing you funded moves you closer to the target. The money does not reduce your procurement gap, strengthen your supply chain or build a relationship you can verify easily. It is also harder to defend if anyone asks what it achieved.

For the beneficiary, the damage is quieter. A small business that receives money without a customer learns to look for the next grant rather than the next contract. Its owner spends time writing applications instead of improving the product. When the funding stops, as it always does, the business is no closer to standing on its own. That is not development. It is dependency, created with good intentions.

A donation buys points for a year. A supplier you helped to build earns them with you for years.

What a pipeline looks like in practice

A good programme starts with your own procurement, not with a list of worthy causes. Look at what you buy, what you will keep buying and where your spend with Black-owned and Black women-owned suppliers falls short of the targets. That gap is the brief for your enterprise and supplier development.

Then choose beneficiaries who could plausibly supply some of it. Not only the largest or the most polished, but businesses with a credible owner, a real product or service and a reason to believe they could meet your standard with help.

Then be honest about what stands between them and a contract. It is rarely just money. It may be a quality certification, a safety file, insurance cover, working capital to carry a large order or simply knowing how your procurement process works. Mentorship, business support and access to funding through registered funding partners should be aimed at those specific gaps.

And finally, there should be a door at the end: a realistic first order, sized so the supplier can deliver it well, followed by a second one if they do. Without that door, supplier development becomes a training course with no job at the end of it.

What a good programme measures

Most programmes measure what they spend. That is what verification needs, and it must be recorded properly. But spend tells you nothing about whether the programme is working. I would want a programme to track, at least once a year, for each beneficiary:

• Whether its revenue and its staff numbers have grown since it joined.
• Whether it has moved from enterprise development into your supply chain, and how much you now buy from it.
• How much of its revenue comes from customers other than you.
• Whether it is keeping its tax, registration and B-BBEE documents current without being reminded.
• Whether it would survive if your support stopped tomorrow.

The third measure deserves a word. It is tempting to celebrate a supplier who now earns most of its income from you. But a business with one customer is fragile, and so is your supply chain if that business fails. A good programme helps its beneficiaries win other customers too. The aim is a strong supplier, not a captive one.

The last measure is the hardest and the most honest. If the answer is no for most of your beneficiaries after several years, the programme is subsidising businesses rather than developing them, and it needs a different design.

Patience is part of the design

None of this happens in one financial year. A beneficiary may need two or three years before it is ready for a meaningful contract. That asks something of the sponsoring company: a multi-year commitment, a named owner inside the business and the willingness to keep supporting a supplier through its first difficult order.

It also asks the business to treat enterprise and supplier development as part of procurement strategy, not as a corporate social investment line managed far from the people who buy things. The strongest programmes involve the buyers from the start, because they are the ones who will eventually place the order.

The reward is a scorecard that gets easier to maintain each year, because the work compounds, and a supply chain with more capable, more independent businesses in it. That is the outcome the Codes are reaching for, and it is the one worth paying for.

If you would like to look at your own enterprise and supplier development spend through that lens, and see which beneficiaries could become suppliers, write to us at sales@bsvision.co.za. We would be glad to start with what you buy.