Value adding supplier – Preferential Procurement
Please note! The concept of a value adding supplier is no longer in the B-BBEE Codes. View our news & resources for up to date info.
Value adding supplier
A value adding supplier is a BEE compliant company that the measured entity (the company whose scorecard is being worked on) acquired goods/services from whose total labour costs plus the Net Profit Before Tax is more than 25% of annual turnover.
The total amount procured from such a value adding supplier is multiplied by a factor of 1.25.
|Company B (the supplier)|
|Annual turnover||R10 000 000|
|25% of Turnover||R2 500 000|
|Payroll spend||R1 000 000|
|Net Profit Before Tax||R2 000 000|
|Sum of payroll spend and Net Profit Before Tax||R3 00 000|
|Since the sum of payroll spend and the net profit before tax is more than 25% of annual turnover company B is a value-adding supplier.|
|Benefit to company A (the measured entity)|
|Total procurement from company B||R50 000|
|Company B’s BEE recognition level (for example)|
|Recognised BEE spend with company B||R50 000 X 1.25 = R62 500|
Thus, it is of more benefit to company A to acquire goods/services from a company like company B.