IBM says diverse suppliers are good for business

Big Blue targets $2B in diverse spend

James Carbone -- Purchasing, 8/11/2005

Companies should do business with diverse suppliers, not so much for social reasons, but because it makes good business sense, says the head of IBM's supplier diversity program

IBM expects to spend about $2 billion with diverse suppliers in 2005. About 60% are ethnically owned and 34% are owned by women. The company has about 300 diverse suppliers in the U.S.

"It's important to have diverse suppliers," says Theo Fletcher, vice president of security, compliance and diversity of IBM's Integrated Supply Chain Group. "We don't think of it in terms of social benefits although there are a lot of them. But it really is a business imperative. It is important that we have a supply base that looks like our employee base and that looks like the market we are trying to attract," says Fletcher.

In addition, as diverse suppliers develop and grow, they become customers for IBM's products and services. "Using diverse suppliers is good business because we want to be viewed as the vendor of choice for the things we sell," he says.

IBM sets objectives for the number of diverse suppliers and the amount it spends with the suppliers each year. Last year it spent about $1.6 billion.

The number of suppliers and the amount spent with the suppliers is determined by IBM's 32 commodity councils.

Fletcher says that one challenge is finding diverse suppliers in certain commodities. For instance, there are a number of minority-owned businesses for commodities such as plastics or electronics. However, it is more challenging to find gay and lesbian suppliers of such parts. However, for technical and staffing services it is easier to find gay and lesbian suppliers.

To find qualified suppliers of commodities and services, IBM works with a number of organizations that develop and certify diverse suppliers. Those organizations include the National Minority Supplier Development Council, the Women's Business Enterprise National Committee and the National Gay and Lesbian Chamber of Commerce. IBM sits on the board of each of those organizations.

Big Blue also looks to identify potential new diverse suppliers by including them in requests for proposals and requests for quotations.

Fletcher says a challenge some OEMs face in developing a diverse supplier base is overcoming the myth that if a company uses diverse suppliers, it sacrifices quality or competitiveness.

"Getting over the myth is critical," he says. "The quality of the products, services and support we get from our diverse suppliers stacks up against any of our other suppliers."

However, IBM works closely with its diverse suppliers to make them better. "We have a tremendous amount of knowledge on how to improve businesses, says Fletcher."

One way IBM works with its diverse suppliers is through its supplier mentoring program.

Under the program, an IBM executive works with the CEO of the diverse supplier. The idea is to identify the strengths and weaknesses of the supplier and turn its weaknesses into strengths.

"The key thing is for the supplier to take a close look at its business and for the leader of the supplier to get together with our professionals and analyze the supplier's business," says Fletcher. "They need to agree on where improvements need to be made and what plans should be put in place."

In many cases, changes need to be made to the supplier's organizational structure, says Fletcher. He says a company may have strong sales leadership and finance skills, but lack operational leadership.

"One supplier we worked with felt that if it had a strong operational leader, the supplier could drive efficiencies in manufacturing that would allow them to provide products and services to their customers quickly and more price-competitively," says Fletcher.

One minority supplier that IBM has worked with and developed is Springboard Technology in Springfield, Mass. Springboard used to buy parts for IBM. IBM worked with the company and now Springboard handles repairs for IBM products as well as manages its supply chain for repairs.

"We manage order-fulfillment work, take defectives in, manage the supply chain and have technicians who do repairs on the devices," says Tony Dolphin, CEO of Springboard.

IBM helped develop Springboard, and now the company has a variety of customers, including Kodak, Unisys and Hewlett-Packard. The company has annual double-digit growth, says Dolphin.

Dolphin says Springboard took part in several IBM executive management training programs that helped Springboard improve its operations and grow its business.

Besides developing suppliers, IBM also has a second-tier program under which IBM's prime suppliers agree to use diverse suppliers in products that are sold to IBM.

"It's a contractual agreement that we put in place where we require prime suppliers to do business with diverse suppliers and we track it," says Fletcher. "We look for our prime suppliers to grow spending with diverse suppliers over time."