Take a walk on the cyber side
Is the move to online buying helping or hindering supplier diversity efforts?
By David Hannon -- Purchasing, 8/17/2004 2:00:00 AM
There are two trends in the purchasing world today traveling parallel but separate roads. On one hand, buyers at major corporations are moving rapidly to online technologies to streamline the sourcing, bidding and procurement processes while consolidating the supply base and leveraging spend better. That typically results in larger contracts going to larger suppliers that can handle the business.
At the same time, many of those corporations are increasingly recognizing the importance of including diversity in their supply base and striving to not only award more business to diverse suppliers, but help them grow and prosper in today's tech-heavy economy.
Technology and supplier diversity are not completely at odds and can, in fact, complement each other. The challenge for buyers is to figure out how to balance these trends for a stronger overall supply chain in the end.
Stage I
When it comes to using technology for improving supplier diversity efforts, there are two stages that most buying organizations fall into today. The first stage involves the use of web sites and e-mail to recruit and register a broader selection of diverse suppliers that can then be included in bidding events. Fred Lona, supplier diversity manager at New Jersey-based telecommunications giant AT&T, says online registration has streamlined the diverse supplier recruitment and communication process significantly.
'When I first started the job six years ago, I was flooded with paper every week from suppliers,' Lona says. 'Since then, we have tried to educate the suppliers and they are learning that mailing their information is not the most efficient way to get in touch with us. They now e-mail information or register online and that is the fastest way to get back and forth with us. I can answer e-mail much easier than paper mail.'
Steven Lyons, vice president of purchasing and administration at Caesars Entertainment in Las Vegas, says supplier diversity efforts in the hotel and gaming industries go back to the mid-1980s and for much of that time, diverse suppliers have been asking for better communication with buyers. Lyons says the web has gone a long way to improving those communications.
'In the past we would go to a physical location and meet with the diverse suppliers in a particular area and interview people and put them into the system,' he says. 'That can now be done online. The technology also lets us quickly disseminate the suppliers' information to different regions so our buyers in those markets are aware of what suppliers are available and meet with them.'
The importance of such technology is definitely affecting the way diverse suppliers think today. As a small, woman-owned distributor of electronic components, Crestwood Technology Group (CTG) in Tuckahoe, N.Y. recognizes the need to leverage the Internet for its own growth and has made steps in the direction.
'For us, the key is our interactive and searchable web site,' says Joe Santora, CTG's director of sales and marketing. 'We have almost 5,000 users doing part searches, getting rapid quotes, and getting things shipped from stock on our web site.' So far, leveraging the power of the Internet is working for CTG. The company has grown from three employees to 33 in a little over three years and its sales for 2004 are estimated to be at $6 million, a 33% growth over last year.
Stage II
The second more advanced stage of technology's role in supplier diversity involves a deeper electronic connection with diverse suppliers through EDI, e-sourcing and e-procurement tools. It's this stage that presents a more difficult challenge for both buyer and supplier and is getting much less attention from purchasing organizations and minority business groups as a whole. Diverse suppliers, like many small suppliers, feel online sourcing events are targeted at large suppliers and exclude them.
AT&T is seeing more diverse suppliers participate in its e-sourcing and online reverse auctions, and sees the level of technical expertise growing in the diverse supply base. 'But many of the smaller diverse suppliers are still not interested or do not participate in [the online sourcing] events,' Lona says. 'It's the suppliers that want to grow their businesses that show up in these events. They want to provide us with more for less.'
At the same time, Lona cautions that sometimes diverse or smaller suppliers are not ready to participate in reverse auctions. He says some of the smaller suppliers often do not know enough about both AT&T's requirements as well as their own margins to participate effectively in online sourcing events. 'Suppliers have to understand their margins,' he says. 'If not, they might win a contract that will cost them money as a supplier.'
Tools you can use
For diverse suppliers and OEMs looking to help diverse suppliers accelerate on the information highway, there are some niche technology and service providers catering to those needs. Esource Systems and Integration, a minority-owned business in Huntersville, N.C., work to connect smaller or diverse suppliers with buying organizations electronically.
'Buying organizations and major corporations have made it known that their strategy and direction is go to an electronic environment,' says Eric Chapman, president of Esource. 'They also want to do business with small and diverse businesses but sometimes there is a technology divide between the two strategies. The corporations may have big IT infrastructures, but the supplier may not have that same level. That's where we come in, by going out to diverse suppliers and web-enabling them; by providing tools to allow them to be visible and transact with buying corporations electronically.'
Chapman says the level of technical competence among diverse suppliers varies widely today. Esource uses applications service provider-based (ASP) technology to 'shield the supplier from most of the technology and use our hooks to connect with the larger buying corporation.'
For the most part, Esource is approached by OEMs looking to connect with smaller suppliers. For example, Esource has been working with pharmaceutical giant GlaxoSmithKline since Chapman met GSK's procurement vice president Gregg Brandyberry at a supplier diversity conference last year. Esource set up an ASP interface that allows GSK to connect directly to diverse suppliers through online catalogs. At the same time, GSK is also using e-sourcing tools to hold online sourcing and auction events.
'GSK buyers will find diverse suppliers with our tool and then invite them to the online sourcing events on our existing e-sourcing tool,' says Chapman. 'So we're helping some of these diverse suppliers get into these e-sourcing events. For corporations to take hold of this, they have to make an investment in supplier diversity. They have to first make the commitment and then follow it up with actions and put people around it to make it happen.'
Dude, you're getting a Dell (contract)
Texas-based Dell Computer is one example of a company that is driving more online sourcing into its purchasing processes but is also looking to include diverse suppliers in its events. Leslie Campbell, vice president of procurement at Dell, says the company now requires that every RFP—online or otherwise—include a diverse supplier on its distribution list. Dell's diverse suppliers register online and are listed in a centralized database to allow buyers quick access when setting up RFPs.
Campbell also hears concerns from small and diverse suppliers that online negotiations are going to put them out of business. She says Dell's purchasing staff works to assure its suppliers that online purchasing is a means to streamline the process, but not drive suppliers of any size out of business.
To help diverse suppliers participate in online sourcing events, Dell holds dry-runs of all online contract negotiations to allow new suppliers to get used to the process.
'We'll send out an RFP and let all invited suppliers know we're doing an Internet-based negotiation and then run through a practice round,' says Campbell. 'It's a great way for small or diverse suppliers to get into the tool and understand it by practicing the bidding, and understanding how we communicate with them during the negotiation.'
In some ways online sourcing tools may work in diverse suppliers' favor because they allow better capture of specific supplier data, including current diversity status. 'The more data we can capture in a tool, the better we can document and share the information internally before and during an event,' Campbell says. 'Some of these diverse businesses don't stay in the diverse category. So our supplier diversity team is always working on our pipeline for new suppliers and the web site is helping us with that.'
Like many OEMs, Dell struggles to get diversity into certain spend areas because certain industries have very few, if any, diverse suppliers. While Dell is a high-tech company, much of its diversity spending comes in nontechnology related areas where suppliers are not necessarily tech-savvy.
'I think buyers are all in the same boat in our desire to consolidate suppliers,' Campbell says. 'It's a tenet of good procurement. But that doesn't have to exclude smaller or diverse suppliers. In fact, it provides them with a strong opportunity for growth.
Download the extended version of this story here.
Supplier diversity: Best practices in action
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