IBC’s blog series on supplier diversity programs has explored what supplier diversity is, and why it’s important to OEMs. In our third post, we’re sharing tips and considerations for implementing a supplier diversity program.
As one of the fastest growing sectors of the economy, minority-owned businesses demand our attention. They generate over $500 billion in sales each year, comprise 21.3% of all non-farm businesses in the country, 5% of total employment, and they are growing each year. In order to remain competitive, demonstrate social responsibility and consciousness of the changing demographics within all consumer markets, companies of all shapes and sizes will need to continue to invest in ways to strengthen their supplier diversity initiatives.
When considering if a supplier diversity program is right for your company, you must first identify the benefits and goals your company wants to achieve:
1. Understand the investment.
Pursuing supplier diversity is an admirable goal, but it is not an easy one. In order to run a supplier diversity program, companies must make a committed effort that requires both time and money. It is also requires strategy. Avendra, a provider of supply chain management services to the hospitality industry, suggests three strategies for investing in a long-term, successful supplier diversity program. These include 1) Identifying success metrics: Clearly outline the business benefits and quantify the ultimate goals; 2) Reaching out & qualifying: Set up an outreach system that both identifies and qualifies appropriate diversity suppliers for the given business goals; 3) Measuring & enhancing: Keep track of the successes and the challenges, and look to constantly evolve your program to meet your unique goals.
2. Build the business case.
In presenting the business case for supplier diversity, the first argument to make is that everyone benefits—minority communities, MBEs, suppliers, manufacturers, and the economy in general. By working with OEMs’ diversity programs, MBE companies have the capital to hire new employees, strengthen their communities, and contribute to philanthropic causes. When companies commit to supplier diversity, they gain a competitive edge in an increasingly multicultural marketplace and build customer loyalty. For Phillips 66, an energy manufacturing and logistics company, supplier diversity “stimulates local economic development and enhances our long-term business performance by improving supplier responsiveness, competition and sustainability” (Phillips 66). As a consequence, Tier One and Tier Two suppliers are often chosen for business partnerships based on the strength and success of their diversity programs.
3. Secure top management commitment.
To successfully run a program, the direction must come from the top of the organization. Senior management needs to be involved in establishing strategy and aligning the goals of the program with overall corporate strategy. Some company executives are compensated based on the performance of supplier diversity goals. This top-level engagement should flow down throughout the company, so supplier diversity becomes a priority at all levels. Increasingly, companies are realizing supplier diversity applies beyond the procurement department. There are other opportunities to support minority businesses within other departments, such as legal, marketing, accounting, consulting, transportation, and beyond.
4. Staff the program appropriately.
Ensuring a company adheres to its supplier diversity standards is not a minor responsibility, nor is it a job for only one person. Instead, companies need to specifically hire staff to manage these programs and ensure efficient operations. There are a variety of ways to structure a supplier diversity program. The size of a company will often determine the organization of staffing. For example, Johnson & Johnson, a major corporation, created a Corporate Office of Supplier Diversity, which works with a supplier diversity team comprised of representatives from its operating companies. The senior management team from each company has primary responsibility for “endorsing and achieving supplier diversity targets” (Johnson & Johnson). Smaller companies may not have multiple senior level executives managing the program, but they should consider having a “point-person” who holds diversity outreach as a goal. It is also important to communicate your diversity goals to your entire company, ensuring that everyone is on board with the program.
5. Develop data tracking systems.
In order to track spend with certified minority businesses, companies need to set up corresponding data systems and processes. These tracking systems will allow companies to create accountability, make strategic decisions and communicate impact. If the company is responding to the needs of a large manufacturer, it will be important to provide solid data regarding the strength (or progress) of the supplier diversity program. For companies who are just beginning supplier diversity efforts, there are resources (such as the National Minority Supplier Development Council (NMSDC) or the Women’s Business Enterprise National Council (WBENC)) that can provide assistance in developing tracking systems. There are also data tracking tools like Supplier Central that provide end users with information on suppliers with the best diversity programs.
6. Do your research.
Supplier diversity does not mean sacrificing quality. Each minority-owned business should be solving a problem for the company. A minority status should not stand as its sole competitive advantage, but it should be an added benefit on top of its business value proposition. Manufacturers want to find quality diversity suppliers that are competitive, so they can plug them into their supply chain to meet their goals. In order to find high quality, credible minority-owned businesses that meet your supplier diversity needs as well as your product and service requirements, you may need to do some research. When you are vetting minority-owned businesses as potential suppliers, here are some suggestions to keep in mind:
- In vetting the quality of a minority-owned business, you should ask the following questions:
- What is their track record with customers?
- Is their business sustainable? Is their business growing?
- Perform targeted research on individual minority-owned business. The National Minority Supplier Development Council (NMSDC) is an excellent resource for finding certified minority-owned suppliers.
- Perform a web search for news, media coverage, and consumer reports on the company to find out what others are saying.
- Seek out third party websites that assess the reputation of companies with minority programs. These include general sites like the Better Business Bureau, Google Finance, and Yahoo Finance.
- The Minority Business Development Agency has resources for finding minority contracts and information.
- Data tracking systems like CVM Solutions, a Kroll Company, offer technology platforms for assessing the suppliers with the best diversity programs.
The time to launch a supplier diversity program is now. The U.S. Census estimates that, by 2042, demographic segments classified today as minority populations will be the majority. Take advantage of the buying power these minority populations have by launching a comprehensive program.