The changing face of supplier diversity
Procurement and diversity groups work together to win support, increase spend
By Paul Teague and David Hannon -- Purchasing, 8/11/2005 6:00:00 AM
More and more businesses today are realizing and leveraging the business case for increasing their spend with minority and women-owned suppliers. In a recent Purchasing.com poll, 65% of respondents said such supplier diversity was either a mid-level or high-level priority to them. But as the goals for supplier diversity and the organizations managing those goals grow in size and complexity, it becomes more crucial to manage the relationship between procurement, supplier diversity and corporate leadership.
Establishing the business case
Clearly the first step to successful coordination between supplier diversity and top-level procurement/supply chain executives is buy-in. "This is not a charity," says Rick Jacobs, vice president of supply chain for Cleveland-based industrial manufacturer Eaton Corp. "We have found some very good businesses owned by minorities." Adds Theo Fletcher, vice president of security, compliance and diversity in IBM's Integrated Supply Chain Group: "It's a business imperative because we want our supplier base to look like our employee base…and the market we are trying to attract." (See page 27.)
And, says Deborah Pickens, Jacobs' deputy for supplier diversity at Eaton, minority and women-owned businesses are serving Eaton's needs better than some of their former suppliers were, in both direct and indirect procurement. In one case, Eaton is benefiting from the reliability of Aerospace Fasteners, a woman-owned distributorship that stocks and supplies fasteners for hydraulic units the company sells into the aerospace industry.
"We won [Eaton's] business not because we are minority-owned, but because we maintain a large inventory of fasteners that others would need maybe a year to get," says Johnny Elfar, vice president at Aerospace.
Eaton uses temporary staff for information-technology (IT), financial, administrative and general industrial functions. The company decided to go to bid for a supplier that could manage all its temporary-service providers, working through the National Minority Supplier Development Council and other organizations. It found Bartech Workforce Management, a division of the minority-owned Bartech Group, which has years of experience in providing staffing for the automotive industry. In addition to its aerospace, electrical, fluid power and automotive businesses, Eaton designs and manufactures heavy-duty truck transmissions, off-highway equipment and engine-economy systems, among other goods.
"Bartech is a strategic partner of Eaton's and adds significant value to our entire organization," says Leo Diaz, director of supply chain managment for the truck group at Eaton. In total, says Pickens, 6.5% of Eaton's total spend will go to minority-owned businesses this year and 2.9% will go to women-owned businesses. "Deb Pickens and the entire team at Eaton has done a great job in finding world-class diverse suppliers. You can see the difference in our financials," says Jacobs.
"Bartech showed it could not only manage our temporary-labor hiring but also had an IT solution to tie all aspects of the process together," says Pickens. "They were the only supplier that had the management and software capabilities."
The supplier helped Eaton design its human-resource policies on temporary labor, centralizing a formerly decentralized process and implementing standard hiring practices enterprise-wide. Bartech embedded some of its own management and administrative staff at Eaton locations, and set up a dedicated off-site staff to manage the Eaton program. Then, Bartech tied the whole process together with software from Fieldglass. Through the software, Eaton managers request the temporary labor they want and get approvals from their own managers.
Organize for collaboration
Once a strong business case is accepted by senior management, making sure the organizational structure is set up to foster communication and collaboration is key to setting and meeting goals. For the majority of companies, the supplier diversity team reports up through the procurement organization. But as the goals of a supplier diversity organization grow and morph into independent efforts, it becomes more important for the leaders of both organizations—procurement and supplier diversity—to keep an open dialogue.
Ford Motor Co., one of the largest spenders with diverse suppliers in the world, has had a supplier diversity organization for 25 years. And for the entire time, supplier diversity has been part of the procurement organization. According to Steve Larson, manager of supplier diversity development at Ford, goals in this area are set by his organization in close collaboration with procurement.
"Typically the vice president of procurement tells us what trends he wants to see. And he sets dollar amount goals or percentage increases. Then our office—the supplier-diversity office—works with the procurement councils and commodity councils both in production and nonproduction to set more specific goals and work towards them."
Meetings are held every other week with business managers assigned to commodity councils to update supplier diversity initiatives and results.
Waste Management's CPO Brad Holcomb says supplier diversity was one of the major tenets he had in mind when the Houston-based company's new procurement organization came into being four years ago. He says the goals for the supplier diversity organization are set through a collaborative effort, with procurement taking the lead. Holcomb has meetings every two weeks with Betty Banks, head of the company's supplier diversity organization, to set and update each other on goals and projects.
"Betty has specific numeric goals for her report card tied to her compensation and bonus," Holcomb says. "We are part of the same organization. Supplier diversity is integrated into everything we do. When anyone sends out an RFP, they are required to engage diverse suppliers in that process. Buyers go to Betty and ask for a list of diverse suppliers in the category being put out to bid. Everyone in procurement overall has three goals: reducing costs, increasing supplier diversity and hitting our budget."
But the interaction goes beyond one-on-one meetings. Holcomb holds an "all-hands" meeting where his entire procurement team meets on supplier diversity. Waste Management also has a supplier diversity steering committee that includes vice presidents from various business units. Holcomb has goal sheets for each business unit with the available spend in each business area, what the diverse spend was last year in that area in terms of percentage and then established draft goals for 2005-2008 by year.
"By the end of 2008 we will have moved from under 5% [spend with diverse suppliers] to 10.5% as a company," Holcomb says. "It's that 10.5% we put as a stake in the ground. We've identified the corresponding goals in each area so everyone is carrying a part of the load and it all adds up at the end of the day."
Banks and others in her organization then meet with various members of the company's senior leadership team to discuss how they can increase spending with diverse suppliers.
Meeting the same goal
There are areas where the goals of supplier diversity and procurement differ. The most obvious example is supplier consolidation and rationalization. Procurement organizations in most companies are working tirelessly to reduce the number of suppliers they work with while supplier diversity organizations are often charged with growing their supply base. But while the two goals may seem like they conflict, they can in some ways work together. Indeed, says Eaton's Pickens, supplier diversity programs enable companies to expand their supply base initially so they can narrow it more strategically later.
Waste Management undertook a spend analysis project two years ago to scrub its data, says Holcomb. That process in itself is a good chance to drive business to diverse suppliers while consolidating the overall number.
"We have found that there is an underutilization of diverse suppliers in some of the more corporate spend areas like human resources, IT and legal, mostly because they have not had to think about it or had training or education in the past," Holcomb says.
"They used other suppliers that are not certified so we can use them and get their suppliers certified if needed."
Perhaps the biggest challenge for Waste Management comes in identifying the smaller, more regional or local diverse suppliers the company is doing business with. Banks relies on local buyers to help point out possible diverse suppliers they are doing business with that may not be certified and counting towards the company's overall supplier diversity goals. She also leverages the supplier diversity database offered by the DIV2000 organization to find new diverse suppliers or help target existing supplies for certification.
Another area where the two functions may take different approaches is in supplier management strategies. Ford's Larson says, "Buyers have to be more careful with minority suppliers or any small business because you may be a very high percentage of their business, compared with a larger supplier where you might only be 3% of their business. You have to be more judicious in the negotiating process."
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