Supplier diversity: Best practices in action
Just as global sourcing changes how procurement works, it changes how procurement looks at supplier diversity.
By Maria Varmazis -- Purchasing, 8/17/2006 2:00:00 AM
Cut spend. Consolidate the supply base. Increase supplier diversity? The first two might seem like a death sentence to supplier diversity efforts, but despite these pressures, many companies are stepping up to the challenge, determined to defy expectations. These corporations have refused to simply pay supplier diversity lip service—instead, they’re going beyond the basics, finding that their efforts to invest in diverse suppliers can resonate domestically even as corporations look at an increasingly global market.
Supplier diversity programs aren’t just socially responsible—they’re good business. We asked several companies to show us how.
Diversity goes global
Supplier diversity is inherently a domestic U.S. program, so when a company selects a supplier abroad, doesn’t the entire concept become irrelevant? Not so, says Robby Chinsky, senior manager of process, training and supplier diversity, procurement at Sara Lee. As companies look overseas for new suppliers, they are bringing their domestic supplier diversity initiatives with them.
“Certainly the U.S. laws are wonderfully advanced for supporting disadvantaged individuals or traditionally underemployed urban environments like HUB zones,” he says. “But obviously there are other countries that we do business in that do have similar types of social development programs and we participate in them and we want to be visible about it.”
Many foreign nations already have some legislative mandates for using diverse suppliers—the Aborigines of Australia, for example. Even though it can’t be reported as primary tier spending in the U.S., says Chinsky, Sara Lee still tracks that spend.
Australia isn’t the only nation where American companies are taking on the challenges of supplier diversity abroad. Hewlett-Packard is a founding member of both the Canadian Minority Supplier Council and the European Supplier Diversity Business Forum. Both areas present unique opportunities and challenges for American companies, says Brian Tippens, supplier diversity program manager at HP. For instance, while the focus in Canada is on buying from the Native Canadians or First Nations, legislation in England to include diverse suppliers is rudimentary at best.
“There’s a growing consciousness of supplier diversity in Europe, but it’s not nearly as mature as it is here in the States,” says Tippens. “Where it’s been primarily exploratory, strategic for the last couple of years, we’re just getting to the point where a lot of companies [in Europe] are beginning to take that next step to include diverse suppliers in our bid opportunities…and track that spend.”
Even if bringing supplier diversity overseas sounds a bit too ambitious to some, the domestic impact of global activities can bring opportunities back home for diverse suppliers. “We need access to professional expertise in the communities that we serve all over the world, and very small firms are best equipped to fit that niche,” says Judy Glazer, director of global operations and social and environmental responsibility at Hewlett-Packard.
Chinsky agrees: “As more things are sourced outside of the U.S., there are ancillary support services to that sourcing process that may be domestic U.S. and may qualify under the guidelines of being a minority business yet are effectuating a global sourcing strategy.”
Even if a diverse supplier is not yet working beyond a local or national scale, when given the chance to expand their capabilities, they step up to the challenge. “Our greatest concern with diverse suppliers in the general procurement area is scale,” says Cassandra Charles-Gerst, manager of corporate supplier responsibility and diversity at UTC. “As we increasingly seek cross-divisional general procurement solutions, we need suppliers that can handle the volume to meet our global needs.” Through UTC’s Minority Business Exchange event, the company shares scale-augmentation strategies with diverse suppliers so they can compete in a wider market.
Tim Dolan, group manager of direct materials and purchases at Gillette, also advocates developing diverse supplier potential. “When we’ve identified some great diverse suppliers, often we’ll have them bet on business outside of the U.S.,” he says. With the mentorship and partnership of Gillette, several diverse suppliers that Dolan worked with in the past now function on a global level. “That’s real supplier diversity and development—taking a supplier that may only have regional capabilities and expanding them so that they can service outside of the U.S.”
Push the status quo
To really push a supplier diversity program to higher results, it’s not enough to simply have diverse suppliers on contract. All of the companies interviewed for this story are a part of some sort of diversity council. The National Minority Supplier Development Council and the Women’s Business Enterprise National Council are two that purchasing executives frequently cite. Strong supplier diversity programs reach out to suppliers through the trade shows and business matchmaking forums those councils hold. The organizations also participate in business mentoring.
“In many cases, we have procurement managers at events, and where that procurement manager is the right one for the business, the supplier can immediately initiate a direct conversation,” says HP’s Glazer. Even if the diverse supplier isn’t a good match for HP at the time, says Glazer, the company brings in some of their prime contractors, still giving the diverse supplier a chance to earn some business.
First-tier suppliers can boost a company’s diversity efforts, says Deborah Silverman, manager of global purchasing and supply chain communications at General Motors. “We encourage our tier one suppliers who are not minority suppliers to source on a tier-two basis from minority companies,” says Silverman. GM asks its tier-one suppliers to make at least 8% of their purchases from certified minority suppliers.
“We’ve definitely stepped up our efforts to push down supplier diversity requirements at first tier and tried to influence their use of diverse suppliers,” says Tippens. Both he and Glazer cite the strong executive commitment to supplier diversity goals as key to getting tier one suppliers to show the same enthusiasm for those goals.
“Supplier diversity has never been a side program,” says Glazer, and when suppliers sense that diversity is a priority, they respond accordingly.
Add visibility
When smaller businesses fill the services gap between huge global suppliers and the local service level, it can be tricky to track that indirect spend. Half the battle of increasing diverse supplier spend is finding exactly where it’s gone, especially in indirect, says Chinsky of Sara Lee. The key? Be as transparent as possible, set clear goals, and centralize, centralize, centralize.
Chinsky says that the largest amount of diverse spend at Sara Lee goes to copack—the manufacture and packaging of food products—and raw materials. Sara Lee wants to increase its diverse spend in fiscal year 2007 by 5%. But first, you have to properly track it. The company established specific spend targets for each spend category—copack, logistics, packaging, indirect, to name a few—and then the next step was to step up tracking and centralizing the indirect spend, which comprises 7% of the aggregate spend.
“We are looking in our centralized procurement organization to drive our diverse supply base, and when you start looking at things like MRO, which have a tendency to be decentralized based upon your plant location, by centralizing MRO procurement you really have a lot of opportunity to reach out to some diverse suppliers in that field,” he says.
ON THE WEB
Supplier perspective:
STAPLES
Tracking diverse spend is just as important for a supplier like Staples as it is for purchasing executives. “One of my major goals as director of diversity initiatives is to try to identify that diverse suppliers spend at a corporate-wide level,” says Tara Spann, director of Staples’ Diversity Supplier Program. The key priority for the Diversity Supplier Program, says Spann, is to make it easy to do business with diverse suppliers, and the effort is two-fold. In Staples’ Diversity One program, purchasers directly connect with MWBE office suppliers through their eDiversity network, and orders go directly to the MWBE supplier. The Diversity Two program marks all MWBE-manufactured products in the Staples contract catalog and e-commerce website. Mentorship for key suppliers is also a priority, says Spann, citing Roxbury Technology, a toner remanufacturer. “We’ve been mentoring them for many years now, and one way that we do that is by identifying sales opportunities for them to grow,” says Spann. “They’ve actually grown their employee base three-fold since our relationship began and doubled their sales last year.”
Diversity links
Here are the links that can help your procurement organization get in touch with minority-, women-, and veteran-owned businesses and business councils.
National Minority Supplier Development Council
Women’s Business Enterprise National Council
Center for Veterans Enterprise Vendor Information Pages
U.S. Small Business Administration Program
U.S. Small Business Administration HUBZone Program
Online resources:
Strategic Sourcing: Reducing Cost and Supporting Diversity Goals by Tim Dolan and Karen Fidele
Corporate Plus—NMSDC resource for identifying MBEs with national capabilities
“You can’t separate the fact that business is done on a global basis but you have a lot of tools that are domestically qualified for minority supply, they’re wrapped around each other.”
—Robby Chinsky, senior manager, process, training and supplier diversity, procurement, Sara Lee
“Even if there’s not a match at the end of the day between that potential supplier and HP, that supplier is still able to walk away with some good quality advice about what they might do differently, what they might do better, how they prepare themselves to deal with a company like HP in the future.”
– Brian Tippens, supplier diversity program manager, Hewlett-Packard
“ Customers continue to ask for solutions where they can see the impact on their business and what it’s having on minority- and women-owned business enterprises.”
—Tara Spann, director, diversity supplier program, Staples
“ We’re developing the experience of what [supplier diversity] would mean in another country and building from that to strengthen our business.”
—Judy Glazer, director, global operations and social and environmental responsibility, Hewlett-Packard
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Its too bad race is still a factor.
John Price - 5/20/2009 5:04:00 PM EDT -
Why do race, ethnicity, and sex need to be considered at all in deciding who gets awarded a contract? It's fine to make sure contracting programs are open to all, that bidding opportunities are widely publicized beforehand, and that no one gets discriminated against because of skin color. But that means no preferences because of skin color, etc. either--whether it's labeled a "set-aside," a "quota," or a "goal," since they all end up amounting to the same thing. Such discrimination is unfair and divisive; it costs the taxpayers money to award a contract to someone other than the lowest bidder; and it's generally illegal to boot (see 42 U.S.C. 1981).
Roger Clegg - 5/19/2009 3:44:00 PM EDT -
The emphasis on supplier diversity, global sourcing, supplier rationalization, etc are all focussed on simply making our business more competitive. None of them can be viewed in isolation, and generally, all of them can be collaborative. None of these programs work by themselves or resolve all issues. Until we recognize that each of these is just another tool in the box to be used at the appropriate time, we will continue to think we are at war amongst ourselves.
Marc Ensign - 8/17/2006 10:00:00 AM EDT
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