For many busy supply-chain and procurement leaders, supplier diversity falls near the bottom of the list when budget time rolls around. That’s partly because supplier diversity programs may seem more like a regulatory requirement or a corporate social responsibility than a genuine business opportunity.
This misguided perception is rooted in three facts about supplier diversity in the United States:
- The federal government is still the single largest customer for minority- and women-owned suppliers and vendors.
- State and local governments generally require that a certain amount or percentage of their budgets must be spent with minority- and women-owned businesses.
- Many corporations and other organizations – especially those with large government contracts – must also comply with similar requirements.
Given all the many government requirements and regulations every company must follow, there’s more to the story than simple compliance. Want to know the real reason why are more and more top corporations investing so heavily in supplier diversity? The answer is simple – a more diverse and inclusive supply chain is helping them to grow and expand.
Not Easy, But Worth the Effort
For public- and private-sector procurement managers, many of whom are also coping with budget cuts, meeting all these layers of diversity requirements can be challenging. To fulfill their fiscal and diversity obligations, managers need not only organizational buy-in, but also strong procurement processes that help support a more diverse supply chain.
But does a business case exist for establishing programs that actively recruit qualified minority- and women-owned suppliers? An increasing number of supply-chain thought leaders say yes. Manufacturers and other organizations with robust supplier diversity programs are benefitting from:
- Stronger relationships with their supply base,
- New business opportunities, and
- A more agile supply chain.
Consider this statistic: The combined “buying power” of African American, Hispanic, and Asian American-owned businesses is now about $3 trillion dollars. With the multicultural population experiencing such amazing growth, it’s no wonder more and more businesses are embracing supplier diversity to stay competitive.
Good Times, Bad Times
Any procurement manager who has experienced a few business cycles understands that it can be tough to keep diversity in mind during periods of economic downturn or uncertainty. But it can be done. For example, a few years back Cargill had to cull back its select suppliers from 17 to 12 to improve efficiency. Because the giant manufacturer made it a strategic priority not to eliminate suppliers from traditionally underrepresented groups, no Black-, Latino- or women-owned businesses were cut in the process.
In fact, “Having diverse and inclusive perspectives and practices in our organization will be even more crucial in the face of unprecedented economic challenges,” says Pat Hemingway Hall, president and CEO of HCSC. “To be as innovative as possible, we must capitalize on the talents and skills of all of our employees. At the same time, we need to continue to anticipate and respond effectively to the needs of our increasingly diverse customer base who will be facing their own unique challenges during this difficult time.”
Diversity as a New Business Generator
Executives at Milwaukee-based Johnson Controls Inc. say they can directly trace more than $6 billion worth of business to its commitment to supplier diversity. A Tier 1 supplier to General Motors and other automakers for years, the company’s notable focus on diversity helped the company gain business from GM in the late 1990s.
To differentiate itself, Johnson Controls approached GM and offered to form a joint venture with a minority-owned firm to help GM meet its minority-produced content targets. Now known as Bridgewater Interiors LLC, this joint venture has expanded over the years to supply components to several other major carmakers.
Smaller Can Be Better
Like many other defense contractors to the federal government, Lockheed Martin must search for certified minority-owned or small businesses to provide a percentage of its content. The federal government’s definition of a minority-owned business includes small businesses and companies owned by veterans or service-disabled veteran.
This has proven to be a competitive advantage rather than a handicap, because smaller companies are often more agile and flexible than their larger competitors. “What these small businesses do is really bring innovation to our corporation in a much faster method to market than a real large corporation like Lockheed Martin,” said Nancy Deskins, Lockheed Martin’s director of corporate agreements and supplier diversity.
There is also huge untapped potential in reaching out to women-owned suppliers. While women control a tremendous amount of purchasing power worldwide, women-owned vendors typically represent less than 1% of sales to large multinationals.
Corporations interested in partnering with women-owned businesses can find potential leads through WEConnect International, a nonprofit organization that collaborates with various international agencies, including The World Bank Group and the U.S. State Department, to identify and certify women-owned businesses globally.
Still think you can’t afford to build a world-class supplier diversity program into your annual budget? It’s high time to rethink your priorities – and calculate the potential benefits of greater inclusion.
STAY TUNED! Next time, we’ll show you how supplier diversity can help your company navigate today’s competitive landscape.
Did you make any New Year’s resolutions this January? Okay, how many of those commitments have already fallen by the wayside? Here are some important reasons you shouldn’t let implementing a diverse supply chain program become one of those “should have, could have, didn’t” items on this year’s to-do list.
While supplier diversity (SD) is just one element of modern supply chain planning, it’s becoming increasingly important to private companies, government agencies, and not-for-profits alike. “Supplier diversity” means a strong commitment to creating and maintaining a diverse supply chain that ensures the inclusion of diverse groups in their procurement plans, including women- and minority-owned businesses.
MORE THAN QUOTAS
It’s a mistake to think of supplier diversity as just a quota system or a social program designed to help selected social groups, while adding minimal value to your supply chain. In fact, a commitment to meaningful SD can give your organization a measurable competitive advantage in several ways:
- Greater return on investment (ROI). A major study by the Atlanta-based Hackett Group showed actual financial benefits from business relationships with diverse suppliers. Based on a study of 50 companies from both the service and manufacturing sectors, the research demonstrated that companies with a strong SD focus generated a 133% greater procurement ROI than the average comparable business, driving an additional $3.6 million to their company’s bottom line.
- Lower operating costs and higher profits. These same companies spent an average of 20% less on their buying operations, and reported procurement staffing levels less than half of similar companies without SD programs. The statistics also showed that companies who actively pursue a diverse supply chain are more profitable than companies who don’t.
- Other benefits. A strong commitment to supplier diversity can also:
- Promote innovation by introducing new products, services, and solutions
- Expand your range of procurement channels for goods and services
- Drive increased competition (on price and service) between current and potential vendors
- Open up new opportunities for business expansion by highlighting new consumer needs driven by shifting demographic trends
- Display your organization’s commitment to doing business in multicultural markets with rapidly growing consumer groups
REAPING THE REWARDS
Progressive-thinking companies are leading the way in a multicultural marketplace by finding creative new ways to incorporate supplier diversity into their business processes. Two of these have developed particularly strong relationships with minority business owners — and are enjoying the benefits.
- In 2007 alone, Wal-Mart spent more than $3.9 billion with nearly 2,000 minority-owned suppliers, using community outreach to help develop their network. As Hispanic businesses scale up, Wal-Mart is using them to meet customer needs. For example, Ruiz Foods, the largest Mexican frozen food company in the United States, is one of Wal-Mart’s largest domestic product suppliers.
- IBM was the first IT company to pass the $1-billion mark with minority suppliers, spending $2.3 billion with diverse companies in business services, facility management, travel, and technical subcontracting in 2007.
Many companies and organizations set out to implement a diverse supplier group with no real expectations of a tangible return on investment. They may even anticipate increased costs and a greater administrative burden.
The pleasant surprise is that a robust SD program doesn’t have to cost more … and can bring unexpected business benefits that help your bottom line.
STAY TUNED! In the next installment, we’ll explore some simple guidelines that can help you navigate today’s changing competitive landscape with the aid of supplier diversity.
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Author: ConnXus Founder and CEO Rod Robinson
When we launched ConnXus 5 years ago this month, we had no products, no customers, no supplier database to speak of, and two employees, including yours truly.
Today, we have more than a dozen employees, and our growing list of enterprise customers include some of the most recognized corporate brands on the planet. ConnXus provides a suite of technology-enabled solutions that help them better manage their supplier relationships as well as collect & manage data, track, monitor and report diversity spend activity at multiple levels of the supply chain.
The growth of our enterprise SaaS (software-as-a-service) business model has led to us building a database of nearly 2 million of the approximately 15 million diverse businesses in the United States.
But, how useful is it to have information on 2 million diverse suppliers when most major corporations only have 5,000 – 10,000 total active suppliers at any time?
This is when a new a way thinking can create change. Through our work, we’ve learned more about the many great diverse suppliers that serve our enterprise customers. Those suppliers are capable of real growth by serving even more of our customers.
Growing a Diverse Supplier Base: Pick a Category
One of our enterprise customers recently launched an initiative to increase diversity spend across numerous professional services categories including Information Technology (IT), a category worth tens of millions in annual spend. They realized that of the nearly 100 IT firms they were doing business with, only 5 were diverse.
With a database of nearly 2 million diverse suppliers across hundreds of spend categories, our IT category consists of 12 subcategories, including staff augmentation, consulting, software, information management and data services.
A quick search of the ConnXus database revealed a total 1,035 diverse IT providers nationally. After applying search filters based on our customer’s requirements, we ultimately identified nearly 300 firms qualified to do business with this specific customer, as well as for several others with similar requirements.
Our customer is now positioned to more competitively bid out IT projects to a broader set suppliers. That will ultimately lead to increased diversity spend, higher quality and lower cost.
It was truly gratifying to later learn that our enterprise customer has already started to engage with a handful of these firms regarding future opportunities. We look forward to replicating this across other high value categories. As I reflect back to the beginning of ConnXus, such value creating “ConnXions” was always the ultimate goal.