“Thinking about it more broadly, we should call it business diversity. So that includes not just the products that come through the supply chain to the procurement office, but also business services such as legal, investment, marketing, accounting and professional services, everything that’s generated out of the CFO’s office.”
– Gloria Castillo, executive director, Chicago United
Supplier diversity incorporates minority, women and disabled veteran owned companies into corporate supply chains. Social unrest around parity in the 1960s made it a corporate imperative to ensure access to business opportunities is available to everyone.
Today, supplier diversity professionals and the organizations where they work understand that as our country’s demographics change, supplier diversity is a consumer-driven necessity. When demographics and buying power are tied to the supply chain, the impact is obvious. Supplier diversity provides a measurable return on investment for companies.
Supplier Diversity Programs
There are several levels of supplier diversity programs. In a rudimentary program someone simply answers the phone and directs it internally. According to Sheila Hill, president of the Chicago Minority Development Council (CMBDC), “a world-class program has senior-level commitment, buyers are engaged, measured by their performance, people are developed both internally and externally, there are scholarships and training for minority companies, and compensation is tied to performance. Companies with a world-class program understand that supplier diversity provides them with a return on investment. It is not a social initiative, it is business necessity.”
“Products procured though the supply chain or generated from the chief financial officer, and business services that represent a significant amount of corporate spending such as legal services, investment services, marketing services, accounting services are included. The best business diversity programs include full integration into the supply chain and professional services,” said Gloria Castillo, executive director of Chicago United.
At U.S. Cellular “it is just one piece of our overall diversity strategy. Whether it’s sales and marketing, operations, engineering, or finance, we locate the minority businesses that can fulfill those needs and partner with them on contracts” said Noel Hornsberry, Director, Diversity Strategy and EEO Compliance.
Values and Benefits of Supplier Diversity Programs
The first layer of supplier diversity is within the community’s diverse suppliers. MBEs hire from their own communities. They create jobs, economic vitality, and education in communities of color.
“Minority suppliers of scale at a national level pursue large corporate contracts, and bring innovative practices. Diverse suppliers bring different experiences and relationships to the table. So the second layer is the value they bring to the corporate arena,” Castillo said.
The third layer is global connectivity. Diverse suppliers have relationships with other suppliers and businesses worldwide. Latino supplier firms use relationships throughout Central and South America to open new markets in other countries.
Sheila Hill, President of CMBDC recently visited China in an effort to help the major MBEs to develop a global strategy to do business internationally. Two of the cities she visited are Shanghai and Shenyang, sister cities of Chicago since 1985. “Supplier Diversity is about growing your business, so it is imperative you have an international strategy in order to be competitive,” she said.
Supplier Diversity Best Practices
Supplier diversity initiatives work best when they’re part of an overall corporate strategy and not simply centered in procurement. Ideally, they should be tied to the sales process, since sales drives the economy. In fact, understanding how supplier diversity affects sales revenue is a quantifiable tool for selling more products. Interviews of corporations and certifying organizations revealed the following six best practices.
- Have support from the top. Your president and CEO need to embrace the concept for it to be successful. Have a strategy like US Cellular where according to Noel, “diversity is part of the organization’s core competencies and is a section which fits in with how we use our ‘Dynamic Organization Business Model.’” Large companies such as BP “have supplier diversity embedded inside the procurement department so that the Chief Procurement Officer or your Vice Presidents embrace it as part of the strategic sourcing process. It’s very important that your program is integrated into your policies and procedures and is part of the process. You need leadership buy in; it must be integrated into the supply chain along with established goals that are monitored and tracked” said Debra Jennings-Johnson, Director of Supplier Diversity, BP International. So set targets and goals and report on them periodically with your executive team.
- Educate both internally and externally: Working to educate women and minority owned businesses at every opportunity on how they can better position themselves to do business with your organization. “At US Cellular we educate both procurement professionals and other people within the organization so that they are aware of supplier diversity and how they can increase the minority and women owned companies that are recruited into the supply chain,” said Noel Hornsberry. You should also provide the education so that they understand the benefits
- Have opportunities clearly outlined: Having clearly outlined supplier diversity opportunities increases awareness within the organization and helps to implement more changes. Demonstrating the value that diverse vendors bring such as reduced costs, and innovative thoughts and ideas, help companies realize that diversity of thought helps to increase corporate efficiency.
- All goods and services should be on the table: “Nothing in regards to the things that organizations buy is excluded. This means that professional services such as mutual funds, hedging, financial services are not off the table” said Sheila Hill, President, CMBDC. Minority vendors provide more than widgets and janitorial services. The program should be tied to your sales process. It should be holistic.
- Participate in outreach to certifying organizations: Become involved with community organizations that promote, support and certify MBEs and WBEs such as CMBDC, NMSDC, Chicago United, to meet suppliers who have the scope and capability to meet your organization’s needs. That means building the relationship, and informing them of your requirements, and just being in the right place to meet the kind of supplier that you want to bring into the organization. . Those organizations really champion the efforts of small, women, minority and veteran owned businesses.
- Monitor and measure purchasing department’s use of diverse suppliers: According to Debra Jennings-Johnson, “BP International has three vice presidents of procurement and they all embrace it and have plans with set goals. We monitor the activity and report out on it quarterly so we know how many women and minority companies are in our supply chain. We know what the market sectors and commodity groups are, we know where MBEs are being used, where they’re not being used, and invite our procurement people to meet potential suppliers at the trade shows like CMBDC’s CBOF. Then we monitor the results. In 2008 we will be able to track the number of outgoing bids and how many of those minority and women participate on.”
- Companies with second-tier programs often include a direct link between the second-tier suppliers and the ultimate customer. This ensures connectivity is maintained between the minority businesses and the largest corporations. The fundamental goal of a world-class program is to help second-tier MBEs build capacity to advance into first-tier positions. Participating in programs like the National Minority Supplier Diversity Council’s (NMSDC) Circle of Excellence helps to develop suppliers who are serving the economy by employing people from their own community.
How Small Businesses Can Participate
Small companies must find opportunities of scale and build relationships with potential corporate customers. People do business with people they like and trust. Participating in committee or volunteer work creates and fosters supplier-customer relationships.
Good corporate initiatives encourage people to work with diverse businesses, so that small businesses have equal opportunities to participate in the process. MBEs should embrace strategic alliances by collaborating with other MBEs to pursue larger contracts.
A Note to Corporations
CEOs who have direct interaction with minority business owners and leaders understand the challenges MBEs encounter, and comprehend the value of inclusion. Strong engagement of the CEO, chief operating officer, president, and other senior managers is essential for program success. If a CEO visits the issue of supplier diversity only on a quarterly basis, the program will fail. It must be a business imperative that drives value for the larger corporation and benefits for the minority business. The program must be tied to compensation; when greater inclusion of minority businesses is part of the compensation package, it will become a greater priority. In those situations, risk aversion decreases as goal achievement is rewarded, and the result is greater supplier diversity action at all management levels.
Yvonne F. Brown is president of JAD Communications International (www.jadcommunications.com); a firm that helps companies improve communications. She is based in Chicago, IL.