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Let’s bring it home

Despite increasing pressure on margins and a growing number of cheap foreign supplier options, the start of a movement to support local suppliers is gaining momentum in South Africa. The current business and political environment have made it imperative that local businesses start supporting home grown suppliers. It’s not easy competing with cheap global suppliers, but local manufacturers are starting to get creative to support the local industry.

The move back to local procurement seems to be in part triggered by a realisation that South African manufacturing can be competitive on many levels and by a keen sense that if locals don’t support local, there will be devastating consequences. Over 300 000 jobs have been lost in the manufacturing sector since the global financial crisis, while government has failed to provide adequate solutions to enable the country to fulfil its manufacturing potential.

Twenty years ago, the manufacturing sector accounted for about 22% of GDP, which has subsequently shrunk to half that figure. The sector is still, however, the second largest of the economy, employs 1.6 million people and is one of the top three contributors in terms of job creation, export earnings and revenue generation.

But, how do local suppliers support local while remaining competitive?

Brent Andreka

Johan Smith

Managing director, Brent Andreka, from local electronics manufacturer and supplier to the security industry, RDC, says it is possible in many instances. “We have found that we can bring the procurement of many of our raw materials and parts back home if we get creative.” Working with RDC procurement manager, Johan Smith, RDC has set targets in relation to local supply.

Buy local again

“It’s simple to import large volume items from the East, but we also need low volume and even once-off items on an ongoing basis. Without local suppliers, procuring these items would be almost impossible. If we take a long-term view, and want our local suppliers to be around in the future, we simply don’t have a choice,” says Andreka.

Smith, agrees. “With the never-ending pressure by customers to reduce prices, the most logical reaction was to start importing, but at what cost to our local economy? Our ‘bring-it-home’ philosophy wants to reverse these actions. We must be honest with ourselves that manufacturing in SA is generally more expensive, but we shouldn’t blindly stare at this hurdle. We must find ways to overcome it. ‘Save SA’ should not be an exclusively political slogan, we can also Save SA by supporting local businesses, which in turn support communities, and most importantly, South African families.”

Andreka says that this is possible because RDC has already started doing it. “Getting creative isn’t easy, but we have found that looking at the basics in new ways produces the best solutions. Our best tool so far has been re-examining the total cost of ownership (TCO).” A perfect recent example relates to RDC’s printed circuit board sourcing. Large volume PCBs were previously sourced in China, with top notch quality and seemingly good pricing, while smaller runs and prototypes were being supplied by local supplier, Bosco.

Bosco MD, Peter Verheul, regularly faces questions why locally produced printed circuit boards (PCB) prices are less competitive than other global sources such as China. Economies of scale are a simple reality for any manufacturer. “To give an idea of the effect this has had on us,” says Verheul, “approximately 18 years ago, Bosco was producing 3 500 to 4 000 square-metres of PCB per month, operating three shifts, six days per week.

The cost of downtime

“Unfortunately, increased pressure on prices forced us to later import from China. The impact was inescapable and traumatic. Initial retrenchments included 36% of the workforce and, sadly, a further 24% in 2014. Forty years ago, South Africa enjoyed a healthy PCB industry with at least five or six fair-sized manufacturers, and perhaps 12 small firms serving the industry. Today there are only two sizeable manufacturers and a handful of small firms that survive.

“Not having our manufacturing facility operating on a continual basis has a major knock-on effect on pricing,” Verheul continues. “Working shifts and a continual output minimises shut down and start-up costs. Today we endure repeated start-ups which have become a major cost factor as our processes require various chemical and solder tanks to be ready, while multiple areas require air controlled environments that require expensive filtered ventilation. Start-up processes also create high maximum electricity demand spikes, which inflate electricity bills even exponentially.

Making a plan

To leverage economies of scale locally, Bosco looked at the viability of supplying RDCs total long-term requirement at competitive rates. The results were surprising, according to Andreka. “We are prepared to pay a reasonable premium to support our local guys, but with unprecedented pressure on margins, we have to also remain fiercely competitive.

“The Bosco scenario is a perfect example. Our PCB supply will cost us marginally more over the next 12 months, but we get other major benefits from sourcing locally. We free up cash flow by doing away with advance shipments from China and we can easily work with our local guys on product changes and refinements with no delays due to communication barriers.

Where to from here?

Andreka says RDC has some other ideas in the pipeline. “RDC mainly imports custom, non-electronic parts from the East, such as bespoke enclosures, brackets etc. The jigs and moulds which are produced abroad are top quality. Our plan is to bring our jigs and moulds back to local suppliers in SA. This does however depend on negotiating viable local pricing.

“Another plan is to set up some of our talented employees, who we believe could start up their own local manufacturing firms, to supply us. This could serve as a springboard for previously disadvantaged entrepreneurs to grow their own businesses. Our aim is to sufficiently reduce imported raw materials to a point where we can do away with the cost of regular trips to the East, which are needed to maintain a regular, quality supply.”

RDC is challenging other companies in the security industry to actively do the same. “It requires some work and out-of-the-box thinking, but I encourage other firms to make the effort. Manufacturers, distributors, consultants and end-users alike can actively support local business.”

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