Supplier Development Contributions

[TDon]

Hi All,

Our company is in the process of setting up strategies to increase our BEE score.

With regards Supplier Development, we know that, as a QSE, we need to make a contribution (a donation for example) that is 1% of our NPAT to a supplier that is more than 51% black-owned, but because we need to achieve a sub-minimum of 40% for this sub-category, does that mean the contribution must be a minimum of 40% of the 1% of our NPAT? Obviously the larger the contribution, the more points will be scored but I just need to find out if this is correct.

And does the same apply for Enterprise Development?

[Greig Whitton]

Yes, as a general rule that is correct (i.e. 40% of the 1% NPAT target is needed to satisfy the sub-minimum requirement and this applies to enterprise and supplier development separately, so satisfying the sub-minimum requirement for just one of them will still result in a rating penalty).

That said, there are mitigating factors, like the industry that you are operating in (some industries have sector charters that may prescribe different targets) as well as the extent to which your company's NPAT compares to the industry as a whole (a NPAT that is consistently lower than the industry average can necessitate applying the industry norm instead). For these (and other reasons) it may be helpful to work with a specialist who can ensure that your contributions are calculated correctly as well as identify the most cost-efficient compliance activities for achieving an acceptable rating.

[TDon]

Hi Greig,

Thanks very much for the information. We are receiving assistance regarding the Ownership element, as well as assistance with Skills Development.
It is only the Management Control, ESD and SED elements that I am in control of, so I just wanted to make sure.

[Greig Whitton]

It is only the Management Control, ESD and SED elements that I am in control of, so I just wanted to make sure.

In that case, do your homework on NPAT thoroughly. Here is a real life example from one of my clients:

My client has a bona fide NPAT of <1% due to the nature of their business model, and this is typical for similar companies. Their verification agency categorised them as operating in the "real estate and business services" industry. According to the latest Stats SA quarterly financial statistics report, this industry has an average NPAT of ~11%. So the verification agency concludes that the industry norm has to be applied for the purposes of calculating ESD and SED contribution targets since the client's actual NPAT falls below one quarter of the industry norm. As a result, the client's contribution targets were deemed to be much higher than what they ought to be.

Technically the verification agency is correct, but what they fail to appreciate is that the "real estate and business services" industry comprises a host of sub-sectors with vast variance in financial performance. Fortunately, we were able to source a report that Stats SA published several years ago which highlights this and can be used to validate the client's actual NPAT (which means that they can save money while achieving an acceptable rating).

[Greig Whitton]

It is only the Management Control, ESD and SED elements that I am in control of, so I just wanted to make sure.

With respect to management control, check with your verification agency how they will be determining whether employees are managers or not. Will they be relying on employment equity returns? An organogram? A list of employees with job titles? The classification methodology has a huge impact (e.g. I've seen verification agencies classify unskilled workers as "management" even though they clearly aren't managers from an operational perspective).

[TDon]

Thanks for this new information.

BEE homework is all I seem to be doing nowadays.
With regards the NPAT and Management Control, I have been in contact with our verification agency and they are assisting us where needed. (Not giving advice, as this is not allowed, they are only telling us how they would conduct the verification for us)

I have another question, but it's about Enterprise Development. I read online that a beneficiary could be a hawker or a vendor as they are survivalist enterprises. Is this true? As an example, there is a young man near our work factory and he has been making and selling wors rolls and chips etcfor the whole day, every day for the past few months to earn a bit more money for his family. If we were to make a donation to the value of 1% of our NPAT, in the form of a new braai and a proper stand, would this count?

Or could a donation be made to a 100% black owned charity, to the value of 1% of our NPAT for items that they need in order to better the organization?

Your advice is greatly appreciated.

[Greig Whitton]

BEE homework is all I seem to be doing nowadays.

Hence my recommendation to work with a specialist Your time and skills are almost certainly more profitably deployed elsewhere.

I read online that a beneficiary could be a hawker or a vendor as they are survivalist enterprises. Is this true?

Yes, so long as they are black. It would also help if they have a sworn affidavit verifying that they are a 100% black-owned Exempt Micro Enterprise, but your verification agency may not insist on that.

As an example, there is a young man near our work factory and he has been making and selling wors rolls and chips etcfor the whole day, every day for the past few months to earn a bit more money for his family. If we were to make a donation to the value of 1% of our NPAT, in the form of a new braai and a proper stand, would this count?

Yes, that would work. Just check your NPAT calculations carefully (I know I'm repeating myself here, but I really can't overstate how important this is - it's a mistake that often gets made and can easily make the difference between compliant or non-compliant status).

You could also give the guy a contract to supply employees at your business. This way, your contribution would count as Supplier Development, not just Enterprise Development (assuming you don't already have a Supplier Development beneficiary).

Or could a donation be made to a 100% black owned charity, to the value of 1% of our NPAT for items that they need in order to better the organization?

This would fall under Socio-Economic Development.

[TDon]

Thanks again Greig,

We are working closely with consultants and we know all the rules and what our company needs to do to comply with the new codes. But because we are still fairly new to BEE and BEE consultant fees can be outrageous, we are only working with them on the more difficult elements, being Ownership and Skills Development, we know what we need to do but the implementation for these is more tricky and time consuming. Not to blow my own whistle, but I am handling the other elements pretty well.
And people like you who share expertise here and there certainly increases my knowledge and ability to handle BEE. And to be honest, I actually enjoy this challenge.

Any way, back to the important stuff.....
We have all the details from our verification agency as to how we will be verified, what sector we fall under, how the NPAT is calculated etc and we are basing our strategy on this information.

The information you have given me regarding the street vendor certainly helps a great deal, as we feel it is a 'start-up company' that we would like to support on an on-going basis.

Regarding the donation for the charity, I thought as much but just wanted to make sure. We already make substantial donations to charities that have 100% Black beneficiaries, for Socio-Economic Development.

Thanks again for your input.