When I graduated from Wharton in 1995 and decided to pursue a career in management consulting at AT Kearney, I had grand visions of being assigned to an engagement helping one of our multinational clients grow revenue through a high-profile M&A transaction or other top line growth strategy. Instead, I was assigned to a global strategic sourcing engagement for one of the most recognizable corporate brands in the world. I didn’t know what strategic sourcing was, but quickly learned that it was an approach to supply chain management that enabled an organization to leverage its consolidated purchasing power to optimize the value it received from suppliers. This is when I realized that procurement was an, often overlooked, area of hidden corporate value.
I had no idea that that first assignment would play such a key role in shaping my career. In the 20 years that have passed since then, I have remained in supply chain & procurement including stints with other global consultancies including Accenture, as Chief Procurement Officer at Cincinnati Bell and now as Founder & CEO of ConnXus where our software helps create more inclusive & sustainable supply chains. My cumulative corporate and entrepreneurial experience has certainly provided me with a unique view of procurement. This view has helped me realize that inclusive procurement can truly change the world. It certainly changed my world.
Statistics That Should Matter to Procurement Professionals
As a sourcing & procurement professional, I have experienced that by including a broader set of suppliers in a supplier portfolio, you create more competition for innovation, efficiency and value.
Consider these statistics supported by the chart below (from a prior blog post):
99.9% of all U.S. firms are in the small business category.
Women- and minority-owned companies represent more than 50% of the total small business population.
More than half of the American workforce of about 142 million people is employed by small businesses.
Small businesses have generated more than 65% of new jobs over the past 20 years.
The number of minority-owned businesses grew nearly 50% between 2002 and 2007 – almost three times the rate of all firms in the U.S.
As noted in the chart above, nearly 60% of the more than $30 trillion in annual revenue generated by U.S. firms is produced by a small group that represents less than one-tenth of 1% of the national business population. Although minority and female-owned firms represent more than 50% of today’s total U.S. business population, they generate just over 6% of total revenue.
As one of the fastest-growing sectors of the small business sector, minority-owned businesses, in particular, demand our attention. Together, they generate over $500 billion in sales each year, comprise 21.3% of all non-farm businesses in the country, and provide 5% of total employment.
The data and statistics above are a key driver of the work we do at ConnXus. Here are some of the key ways that I believe inclusive procurement can change the world:
It is no secret that start-ups are disrupting multi-billion dollar industries. The top five publicly-traded companies didn’t even exist 25 years ago. These companies all introduced innovative solutions to the market that delivered value in the form of lower cost or enabled enhanced revenue. I recently spoke at a P&G corporate innovation event and shared an example, from the food & beverage industry, where 96% or $17B of the four-year industry growth came by way of start-ups. Corporate procurement professionals are often the gatekeepers positioned to first discover these new companies.
When I was head of purchasing or otherwise in a position to influence, I made it a point to identify spend categories where we could introduce new innovative suppliers into the supply chain. This was important to me because I knew that awarding a contract to an innovative, rapidly growing company would have much greater impact on local job growth than simply sticking with the status quo. ConnXus now boasts an enterprise customer list that represents a significant portion of the Fortune 1000. This was made possible because one major corporation was willing to buck the status quo. That contract alone doubled the size of our company in year three of ConnXus’existence. The supply chain professionals at this company now take great pride in the fact that they played a key role in the development of an innovative start-up that has created 21 new jobs, attracted $10 million in growth capital and is now serving customers in eight countries.
An inclusive supplier portfolio enables supply chain and procurement professionals to leverage spend strategically in the supplier selection process. For example, we were recently able to help a customer look back to see that the $30M spent with 55 diverse suppliers in a major urban market was directly responsible for supporting over 4,000 jobs. This company is now questioning how they can leverage this sort of information during future supplier selection decisions. Think about the positive impact that this can have on unemployment.
Every supply chain is at risk of slavery and child labor. Organizations like Made In A Free World (MIAFW) are doing something about it. MIAFW has built software—FRDM (forced labor risk determination & mitigation)—that locates and addresses these risks. This innovative software solution enables procurement and supply chain professionals to play a key role in creating a world free of illegal child and slave labor.
Organizations such as EcoVadis are making it easier for companies to monitor and measure environmental practices of suppliers. This makes it possible for procurement professionals to help build more environmentally-friendly supply chains.
I know increasing profits and enhancing shareholder value are not exactly world changing. However, it is worth emphasizing the value that procurement plays in controlling the cost of goods sold. For many companies, total external purchases represent a third of total revenue. That means every purchasing dollar saved falls directly to the bottom line. This could represent a 14% increase in earnings for a billion-dollar company. This is before considering the additional benefits (reputation, loyalty, innovation, new market access, etc.) associated with a more inclusive network of suppliers. The work of procurement & supply has direct impact on increasing shareholder value. This makes it possible for corporations to reinvest into the communities in which they serve.
Procurement and supply chain is positioned to have the most broad-sweeping impact of any other role within a corporation. You would be hard pressed to name an area of the company not impacted by procurement. From being on the front-end of identifying new innovative game-changing suppliers that enable revenue enhancement or selecting suppliers that maximize local economic impact, procurement professionals are positioned to pull the levers that create an optimal supplier mix that delivers the ideal combination of economic, environmental and social value.