South African businesses and entrepreneurs face a multitude of challenges , which means their focus is typically on sheer survival – implying issues of ethics and sustainability are typically viewed as something esoteric and frankly just not relevant in the business environment .
AUTOMATION & TECHNOLOGY
INCORPORATING COLD CHAIN
Ethics and sustainability not ( yet ) top concerns of SA business By Fred Albrecht , chief executive officer of Logistics Systems Engineering
South African businesses and entrepreneurs face a multitude of challenges , which means their focus is typically on sheer survival – implying issues of ethics and sustainability are typically viewed as something esoteric and frankly just not relevant in the business environment .
All photos by Logistics Systems Engineering
Though corruption looms large as an issue in South Africa , the reality is that this country ranks only middling in global corruption listings , neither particularly bad but certainly not good . In many countries to our north , doing business invariably means being asked to pay bribes fairly consistently . South Africa is not that bad when seen in this context .
However , this is not the standard the South African business community should be measuring itself against . Domestically , we have many other business practices – which while not classified as illegal – nonetheless blur the line as to ethical and are certainly not sustainable . These primarily stem from a common obsession with cheapest price and short-term performance measures .
As an example : a procurement manager can opt for the cheapest tender for equipment rather than looking at the entire lifecycle cost , earning themselves a bonus for ‘ good performance ’. That manager most likely will no longer be around when the higher maintenance costs begin building up . His replacement may implement a good maintenance regime , but at an invariably higher cost – after four years he may leave with a poor performance record , and no bonus , despite having done a reasonable or even great job . His replacement then
“ Ethics and sustainability are important to us as a representative of an international company .” abandons all pretence of maintenance , also earning bonuses for keeping overheads down , thereby embarking on a dwindling spiral leading to the early ruin of the plant and equipment .
This unfortunately does not stop with procurement as in many cases the business cases start with the Engineering or Logistics Departments , or even just project managers whose brief is to save money .
Nothing in this scenario was dishonest perhaps , but certainly not sustainable .
Another variation we frequently come across is companies which win a tender , not unethically by paying a bribe , but simply because of the old-boy network – giving the job to a friend or company they ‘ always use ’ notwithstanding their performance , to a company which entertains them with overseas trips ( or customer tours ) or gifts . We have experience of performing thousands of hours of work on a tender in the assurance we were the only company with a track record of performing the project or meeting the strict demands of the tender , only for the tender to be awarded to a company which was sent our full tender documents and asked to cut the cost by 10 %, or a certain small percentage , to deem the process to be fair . They had invested no preparatory work in preparation and had no experience in the type of project in many cases . Usually , none of the people involved in this charade would even consider it unethical – they did their required job of cutting the cost and ensuring the lowest project cost . This is a cultural characteristic whereby most people who behave in this manner convince themselves that it is not wrong , and even right . However , the result of such behaviour is manifested in the fact that over the past 36 months we have been called in to consult on more than 15 collapsed racking systems . Over the last 60 months , we have seen more than 30 collapses and failures due to someone who pushes the material to such a degree , or oversells the ability of their system , that it eventually just cannot withstand the loads imposed ; or meet the required throughput .
A company which has a policy on corporate governance , ethics and / or sustainability would outlaw such practices . That is for good reason – it affects the sustainability of an organisation . For the sake of perhaps a 5-20 % saving on the capex , the plant may last a fraction of the lifespan of more sustainable capex – but the individual who authorised the tender is typically long gone by that time .
We have had many discussions where the customer merely states it was the right decision at the specific time . I disagree that
“ After a 12-month training programme in Ethics and Sustainability , our growth is based on the sustainability of the systems we operate according to and the business proposition rather than a cult of personality .” this can be the view , as the due diligence of the total cost of ownership is inevitably overlooked and should be vital to the company ’ s decision .
Our company has rigid rules . We will not pay a bribe crossing the border or indeed any bribes at all – and often end up having drivers stuck at the border for days as a result , or having to detour 650km to reach a site 5km across the border . Furthermore , our company will not trade with countries embroiled in war – on principle we ceased cross-border trade with Russia and Ukraine even though Russia ’ s economy and our Russian factories are thriving .
These choices may imply we ’ d lose business , but the opposite in the long term is the reality . Companies that do not have such rigid rules typically fall foul of the law or financial rules in other ways – while we are experiencing 100 % growth year-on-year . For instance , our policy is to demand payment as each section of a project is complete with no exceptions . Others justify late payment ( excusing it because of their own many indiscretions ) and often can go insolvent when a customer goes under . We see many competitor companies embroiled in litigation to only hear of an out-of-court settlement , or a customer who had to concede , as to not lose the investment already made ; and this is just not sustainable .
Ethics and sustainability are important to us as a representative of an international company , but that is not really the case with many South Africans . Here , the attitude is one of ‘ What is your price ?’ When dealing with some customers ‘ which I identify as shoppers ’, we will send them a 31-page Ethics and Sustainability Report , but these customers do not even open the attachment because it ’ s too much to read .
Even in instances where distribution centres ’ racking system collapses at huge cost , it is often not enough for management to recognise the error of their ways – that a policy of awarding tenders based entirely on lowest price is not sustainable in the long run . This is because typically insurance pays them out 80 % to 100 % of the loss , and the balance not received from insurance , is a manageable loss to them . Incredibly , many companies even go back to the same contractor whose system collapsed . They are not analysing the real loss , which is reputational loss and even permanent loss of clients who find alternative suppliers when their existing supplier is unable to deliver for months . In every single case we have seen , the customer ’ s representative cannot acknowledge the incorrect decision as it will cost them their own reputation and future , and therefore , a third variation is to convince themselves of an
8 www . coldlinkafrica . co . za COLD LINK AFRICA • May 2023