[From iSource Business, August 2001] Richard Green, Jr., sums up his philosophy on e-procurement and supplier diversity with the kind of economy of words and clarity of purpose that one might expect from the CEO of a $29 billion company. "Technology should enhance inclusion and promote the true innovation that comes from diversity," says Green, who heads UtiliCorp United, an international electric and gas company based in Kansas City, Mo.
It falls to Brett Carter to put Green's vision into practice at UtiliCorp. Supplier diversity and e-procurement have been the stuff of Carter's days since he began leading both initiatives at the utility earlier this year, having been director of supplier diversity at the company since January 2000. And Carter has had his work cut out for him: UtiliCorp does business with 450 minority-owned businesses (MBEs) and set a goal to double its spend with diversity suppliers by mid-2001. Meanwhile, the company has also begun pursuing an e-procurement initiative to reduce costs and streamline business processes.
Can the two initiatives get along within the same company? Carter believes they can, and more than that, he asserts that his company must combine diversity and electronic procurement to survive. "The smart companies have already figured diversity into their e-procurement plans," he warns. "UtiliCorp doesn't want to find itself in the Ice Age."
UtiliCorp's challenge in pursuing supplier diversity and e-procurement exemplifies the dilemma facing many corporations today. With profitability and market share at stake, supplier diversity in the e-business age clearly represents a dangerous opportunity for stakeholders on both sides of the supply chain equation.
The dangers are real for the MBEs, because they risk getting left behind as business goes "e"; and for corporations, because they risk inadvertently alienating minority communities. But the opportunities are equally real, since nimble MBEs can get a jump on their competition by becoming enabled; and corporations can use e-procurement to build closer ties with their minority suppliers, opening up new opportunities for MBEs and giving them an edge in winning loyal customers among minority communities.
To address this challenge, several minority-owned businesses have carved niches for themselves by helping corporations track their minority spend, enabling other MBEs and integrating minority suppliers with buying organizations. At the same time, corporations are taking steps to ensure their supply base remains diverse, even as they move toward greater adoption of e-procurement. Practitioners and solution providers are already offering best practices for both corporations and MBEs.
The Facts about Diversity
The corporate perspective on diversity versus procurement goes something like this: Your company spent the last 20 years squeezing costs out of manufacturing and suppliers, but Wall Street and your e-procurement team continue to breathe down your neck, causing you to turn to cost cutting's next frontier: a smaller supply base leveraged through e-procurement with larger, tech-savvy trading partners.
At the same time, the marketing department tells you the company needs to focus on the country's fastest-growing population segment: minorities. Fortunately, your company's supplier diversity initiative taught you that the best way to appeal to minority consumers is to partner with more minority-owned business enterprises. However, MBE suppliers are typically small and medium-sized enterprises, most of which are at the early stages of getting on the Internet — a situation at odds with your e-procurement initiatives.
If you read this magazine with any regularity, you probably know that e-business is reshaping the way companies leverage their supply bases, but you might not have the facts on supplier diversity initiatives. Here's a primer to get you up to speed.
Minorities currently constitute about 29 percent of the U.S. population, according to year 2000 projections from the U.S. Department of Commerce, which classifies minorities as everyone but non-Hispanic Whites. The Commerce Department projects that over the next 50 years the share of the minority segment of the population will rise to about 47 percent, and by 2025 minorities will constitute majorities or near-majorities in many states.
More to the point — and to the corporate bottom line — minority buying power in the United States, already at $1.33 trillion, will rise to between $4.32 trillion and $6.08 trillion over the next 45 years, according to the government. "The minority population," a Commerce report states, "may contribute to ... as much as 70 percent of the total increase of purchasing power from 2000 to 2045."
According to a joint report from the Milken Institute and the Commerce Department's Minority Business Development Agency (MBDA) entitled The Minority Business Challenge: Democratizing Capital for Emerging Domestic Markets, business-ownership trends are set to follow a similar pattern. The authors point out that the number of minority-owned firms, currently at 3.25 million, is growing at a rate of 17 percent per year, six times faster than the growth rate for all firms. Also, sales at minority firms are growing 34 percent per year, or greater than twice that of all firms; and sales per employee at MBEs are growing at a rate of 16.5 percent annually, versus 7.9 percent for Fortune 500 companies. "Minority businesses are a driving force behind growth and will be a major segment of the U.S. economy in the 21st century, as a transition to a more diverse demographic majority emerges," the report concludes. However, minority business owners are still underrepresented compared to all businesses, and MBEs have less access to investment capital, the report notes.
These trends have prompted a range of corporations to examine supplier diversity initiatives as a way of increasing their market share among minority communities. By 2000, U.S. corporations were buying nearly $45 billion in goods and services from MBEs, according to the National Minority Supplier Development Council (NMSDC), which is a 29-year-old organization that links Corporate America to minority businesses.
Admittedly, these initiatives, which got their start in the late 1960s, have been, for the most part, slow to spread. A 1997 study by the Center for Advanced Purchasing Studies revealed that U.S. corporations were directing just 3.5 percent of their purchases to MBEs. Reginald Williams, CEO of Procurement Resources Inc., a 28-year-old consulting firm that advises corporations and U.S. government agencies on diversity initiatives, puts the figure at about 4.3 percent today (including purchases from women-owned businesses). Williams calls that level "abysmal," and he cites data showing that 80 percent of America's corporations have yet to introduce a supplier diversity initiative.
"Companies must generate a pool of suppliers that mirrors the customer base that purchases their products and services," says Williams. By partnering with diversity suppliers, Williams explains, corporations "are able to infuse economic stability into their own markets. The companies that have not yet understood this are going to be behind the curve, because market leaders are leveraging these relationships in supplier diversity as a means of enhancing market share."
The e-Procurement Conundrum
Even as corporations have looked (to whatever extent) to supplier diversity as a possible tool for expanding revenues, recent years have also seen a move to cut costs by implementing e-procurement programs. These e-commerce initiatives have presented diversity suppliers with a host of new challenges.
First, e-procurement, like strategic sourcing, has put an emphasis on long-term agreements, preferred suppliers and strategic partners, therefore benefiting primarily larger suppliers with broader offerings and more robust services. But U.S. Census data show that the overwhelming majority of MBEs are small or midsize firms, with just 1.2 percent of MBEs bringing in greater than $1 million in annual revenues in 1992 (the most recent year for which data is available). "Minority businesses typically don't have anything to leverage to become a strategic partner," says Kenton Clarke, president and CEO of Computer Consulting Associates International Inc. (CCAII), an MBE that supplies contract information technology (IT) staff to large corporations.
The size issue presents a dilemma for corporations pursuing supplier diversity. Clarke explains: "It's tough for a Fortune 500 company to have a small supplier in its supply chain. But Fortune 500 companies have recognized they need to have diversity suppliers. So what they are attempting to do is grow the larger suppliers." Strategic sourcing has therefore been a boon for larger, better-established minority businesses that can handle the volume and scale of business generated by a major corporate customer. As a result, a company purchasing $1 billion from minority suppliers may be channeling 60 percent of that spend through a handful of large MBEs. Meanwhile, as a study from the U.S. Department of Commerce's MBDA concluded, "Most MBEs do not have adequate size, capital, expertise and infrastructure to compete for these selective supplier positions."
The problem with concentrating corporate spend on fewer, larger MBEs, Clarke asserts, is that this thwarts the social benefits of supplier diversity. "Your smaller minority firms tend to have minority staffs, tend to be in minority neighborhoods and tend to spread the wealth within that community," he says. Larger MBEs, in contrast, may have fewer minority employees, subcontractors and executive-level managers. Thus, when larger MBEs capture the spend, Clarke argues, "the process that we are trying to enable — economic flow-down — doesn't happen."
A further consequence of MBEs' size is that these smaller firms may not have the resources necessary to get themselves connected to their customers. The statistical evidence in this regard is mixed. For example, Dun & Bradstreet's 19th annual Small Business Survey, conducted in 2000, not only showed that seven out of 10 U.S. small businesses have Internet access, but also that minority businesses use the Internet for business research more than small firms as a whole (64 percent versus 54 percent). It also showed that MBEs are more likely to have a Web page or site (40 percent, versus 38 percent for all small businesses). Moreover, 29 percent of MBEs surveyed reported that the Internet helped their business, against just 1 percent who reported it had hurt their business (58 percent said the Internet had no impact, and 12 percent didn't know).
Confirming the moderate level of minority enterprise involvement in the Internet, preliminary results from a survey conducted by the Tomas Rivera Policy Institute, targeting 1,673 MBEs with annual sales of about $500,000, showed that about 49 percent of the responding firms had a Web site, but only about 12 percent were actually selling products or services online. Speaking at an MBDA event in September 2000, Dr. Waldo Lopez-Aqueres, director of economic research for the institute, cited several major reasons MBEs gave for not selling online. Included in these were: the MBE's product did not readily lend itself to e-commerce; the company felt that it didn't need to sell online; the MBE lacked the necessary e-commerce infrastructure; the firm felt that it faced too much online competition; and the MBE sold services rather than goods.
"From a minority perspective, there is still limited exposure to the Web," says Eric Newton, president and CEO of InfoServices, a minority-owned information technology (IT) service provider and systems integrator for tier-one suppliers in the automotive industry. According to Newton, InfoServices and other IT-oriented MBEs have been savvy about preparing for e-business, but non-IT-oriented diversity suppliers, like small firms in general, tend to focus on their own core businesses and may lack the human resources, technology awareness and finances necessary to get enabled.
A further challenge to diversity suppliers and other small businesses is the proliferation of disparate e-procurement systems among major corporations. An MBE's customers may use different procurement platforms and different independent Net markets, and each customer may want to connect to the diversity supplier in a different way. "For a small business that has eight or 10 customers and has to interface with them through their private marketplaces, it becomes a nightmare," says Clarke.
Finally, the very nature of the Internet works against diversity suppliers because of the anonymity of the World Wide Web. "On the Net, there is no color or gender," explains Procurement Resources' Reginald Williams, adding that, as a result, "absent a focused effort to ensure the inclusion of diverse sources, most companies, when sourcing through the Net, are unable to identify whether or not they are reaching a diverse pool of suppliers."
The risk for MBEs of not getting enabled is substantial, advises Reggie Dunlop, co-founder, president and CEO of Expansionet, a Chicago, Ill.-based minority-owned B2B consulting and supplier enablement firm. The risk, of course, is simply getting left behind as corporations move toward automated procurement. "When [companies] try to reduce their supply chain, they are definitely going to get rid of the guys they are dealing with manually," Dunlop says.
Dunlop tells of meeting in late 2000 with the diversity procurement directors of major food industry companies to discuss minority supplier enablement. All the corporations had bought e-procurement platforms, and all planned to join an industry-sponsored marketplace. At the meeting, the directors worried out loud that their companies' Internet initiatives would make it impossible for them to do business with diversity suppliers. "We have spent five or 10 years building our supplier diversity programs, and this e-business initiative is going to kill those programs," Dunlop says the executives told him. One company, for example, was using an online reverse auction site to bid out contracts, but the volumes sourced through the site were so large that MBEs and other small companies could not realistically compete. Other companies reported that diversity suppliers could not afford the technology that is necessary to be able to connect to customers.
That a group of diversity directors from Fortune 500 companies would sit down to address this issue is indicative of the seriousness with which Corporate America is taking the challenge of mixing supplier diversity and e-procurement. Companies are mindful of the need to ensure that their supplier base mirrors their customer base for the reasons discussed above, but many companies also face diversity spending mandates from corporate customers or government clients. "Our own customers are putting those demands on us," says the purchasing manager at one automotive industry supplier. "They are telling us we have to do this in order to do business with them."
In addition, corporations risk missing out on the innovations MBEs bring to the table as one of their key value-adds, according to UtiliCorp's Carter. "Our supplier diversity initiative has always been about competitive advantage and enhancing our operations," Carter says. He points out that Small Business Administration statistics show a high percentage of innovations coming out of the small business sector. With minority-owned firms making up the majority of the growth of the small businesses segments, "It's not difficult to do the math," Carter says. "I want to make sure we don't exclude the players that offer innovative solutions to our company."
Opportunities on Both Sides
Challenges and risks aside, both MBEs and buying organizations have much to gain from e-business. First, the Internet has provided tools that allow certain smaller companies, including MBEs, to operate outside their immediate geographies and to compete with much larger firms. "e-Procurement has allowed minority suppliers to grow by truly leveling the playing field," says Clarke of CCAII. Clarke should know, because his 20-year-old consulting company has used the Web to recruit IT talent nationally to meet clients' localized requirements in 18 states across the country. Boasting this kind of expanded reach, CCAII can now compete for business from national clients that demand service in multiple locations.
The Tomas Rivera Policy Institute survey indicates that other business executives at MBEs engaged in electronic commerce share Clarke's view of e-business' benefits. Among African American executives, 24 percent cited "bigger market/global reach" as an e-business boon (as did 19 percent of Latino and 18 percent of both Asian American and Native American executives). Between 14 percent and 18 percent of the minority executives cited "increased profits/sales" as a benefit.
Second, those MBEs that do invest time and resources to connect to e-marketplaces can accrue the same supply chain benefits as other participants. For example, Thomas Hill, a spokesman for Covisint, says the industry-sponsored marketplace for the automotive industry provides MBEs and other members with a low barrier to entry into supply chain management, collaborative commerce and e-procurement. The opportunity is for all suppliers — minority or otherwise — to get connected and see what is happening up and down the supply chain, regardless of the supplier's size or location. Thereby, suppliers can generate new revenue streams, better manage inventory, develop more effective business processes and drive inefficiencies out of their businesses. Interestingly, however, only 4 to 6 percent of the MBE executives responding to the Tomas Rivera Policy Institute survey cited "cost reductions" or "speed/faster" as benefits of e-business.
e-Business can also be beneficial for corporations pursuing diversity initiatives. The opportunities to increase market share by doing business with minority suppliers and to benefit from the innovations that MBEs can offer have been discussed above. But a company can also use e-business technologies to achieve cost savings by bringing diversity suppliers into its "extended enterprise."
For example, Reginald Layton, minority business development director at Johnson Controls Inc. (JCI), cites several circumstances in which JCI could potentially leverage MBEs to achieve cost savings and efficiencies. The company, which reported 2000 sales of $17.2 billion, might find it more efficient to outsource the manufacture of certain components to a diversity supplier, rather than build a new facility of its own. Or JCI might choose to replace an incumbent supplier that won't participate in cost reductions with an MBE with a lower cost structure. In each case, JCI's challenge of making its own internal operations more efficient provides an opportunity to a diversity supplier, Layton says, and e-procurement provides the tools for JCI, as well as other corporations, to connect cost-effectively with these more efficient suppliers.
New Tools for Diversity
Those tools include new solutions for automating the back-office side of managing a corporate diversity initiative, for identifying and connecting with MBEs, and for e-enabling diversity suppliers.
Johnson Controls, for example, is implementing software called DivTRAK to automate its diversity program. JCI, which supplies automobile interiors, facility management and building control systems, works with more than 900 diversity suppliers across most of its 60-plus commodity categories, generating $465 million in purchases from MBEs. The company internally created a minority business development Web site two years ago that provided an overview of the JCI program and allowed suppliers to register with the company. The site also allowed internal users with Johnson Controls to declare what they planned to buy so they could be matched with diversity suppliers in a particular commodity category. And it has let JCI electronically receive information from its prime contractors and key suppliers regarding their diversity spends.
Using the functionality available through DivTRAK, JCI is now looking to achieve a greater degree of automation in its diversity initiative. The software, from Somerset, N.J.-based Applied Information Services (itself a minority-owned company), is intended to allow corporations to "manage, measure and market their supplier diversity programs," according to John Lau, AIS president. DivTRAK expands the functionality of the JCI diversity Web site by adding additional automation and by providing a single platform for managing JCI's diversity-related information. For instance, it ties into Johnson Controls' accounts-payable financial system, identifies diversity suppliers in the system automatically and reports the amount spent with those suppliers across Johnson Control's divisions. This allows Layton to collect and relate information on the company's diversity spend more quickly and precisely, as well as to break out the spend by types of MBEs, track the spend over time and monitor the spend of JCI's own suppliers.
Other DivTRAK clients have included Pfizer, AVIS, Novation, Prudential Insurance, Lever Brothers and the New York Metropolitan Transit Authority. In a similar effort, CCAII created software called Supplier Diversity Application (SDA) to manage the diversity process for such clients as Pitney-Bowes and Deloitte & Touche. Like DivTRAK, the software includes an online supplier registration feature. When Clarke saw that all the SDA client companies were collecting the same information from suppliers, he realized that a single, comprehensive database would meet the needs of buying organizations and prevent MBEs from having to register with multiple corporations.
That realization prompted Clarke to establish Div2000.com, a nonprofit Website CCAII developed. It now features a database with some 1,500 corporate contacts and 10,000 diversity suppliers that Clarke describes as a central portal for diversity-owned businesses to make corporate contacts. MBEs can register once on Div2000.com and send their profiles to multiple corporate diversity contacts with the click of a mouse, while corporations can identify diversity suppliers that fit their requirements. Clarke says CCAII will continue to operate Div2000.com on a nonprofit basis because the site displays his company's competencies in Web development, one of CCAII's core offerings.
Expansionet, meanwhile, has targeted the enablement side of diversity. Until May 2000, Expansionet was working to establish an online B2B exchange for diversity suppliers. But following the closure of the first such exchange, M-xchange.com (which had been founded by former General Motors executive Roy Roberts and lasted less than four months), Expansionet had second thoughts about the value an exchange model offered to buying organizations. "These companies don't need a B2B marketplace of diversity suppliers," Expansionet's Dunlop says. "They need the suppliers enabled so that someone using Ariba Buyer or the Commerce One or Oracle's e-procurement solution can electronically connect to their diversity suppliers."
As small businesses, diversity suppliers frequently feel they cannot afford the cost of connecting electronically to their customers, Dunlop reasoned. On the other hand, large corporations would be unable to fully realize the potential of their enterprise procurement platforms until their smaller suppliers became enabled. Dunlop's solution: provide a relatively inexpensive solution that would allow large buying organizations to enable their small suppliers. Dunlop says his company initially focused on enabling MBEs with its SupplierConnect solution. However, after American Management Systems (AMS) approached Expansionet to participate in a bid to provide e-commerce services to the state government of Virginia, which deals with more than 50,000 suppliers, AMS suggested using SupplierConnect for all the small firms in the state's supply base.
The cost of enabling a single supplier using SupplierConnect includes a software licensing fee of $600 to $700 annually and a monthly fee of $100 to $200 for Expansionet to host the supplier's catalog at an IBM data center in downtown Chicago. A supplier that has $5 million to $10 million in revenue will pay between $2,000 and $3,000 annually, Dunlop estimates. Expansionet's strategy is to entice buying organizations to cover the cost to enable their suppliers on the theory that automating those connections will result in substantial cost savings for both sides, more than covering the necessary fees and accelerating the return on investment (ROI) in an enterprise procurement platform. SupplierConnect will also help buying organizations track diversity spend.
Another alternative for minority-owned businesses is to sign onto an MBE-focused online marketplace. Minority-owned start-up DiversityeCommerce offers a site that will allow MBEs to respond electronically to requests for quotes (RFQs) posted by buying organizations. A second company, mwSupplier runs an e-marketplace called miwOve.com, which provides a forum for small to mid-sized minority-, women- and veteran-owned businesses to set up Internet storefronts. Recognizing that MBEs frequently do not have IT staff to focus on e-commerce, mwSupplier used technology from the now defunct OrderFusion to provide its supply-side customers with the tools they need to get started quickly. For buyers, the site aims to provide a one-stop location for diversity purchasing, including reporting on expenditures through the site.
Best Practices for Suppliers
New tools notwithstanding, with so much conflicting information about e-business, its no surprise that Harriet Michel, president of the National Minority Supplier Development Council, has seen a growing level of concern among the council's 15,000 member MBEs about the impact that e-commerce will have on their businesses. At the same time, many of the NMSDC's 3,500 corporate members are talking about the inevitability of e-procurement. Consequently, the first step that minority business owners must take in responding to e-commerce is to accept that business is moving inexorably online. "If procurement is going to be done electronically now, minority suppliers have no choice but to try to respond," Michel says.
Having accepted that change is necessary, minority business owners must educate themselves about what e-business will mean for their industry and then plan accordingly. Expansionet's Dunlop recommends that MBEs look to their client base. "Find out what your major customers are doing and what you need to be doing to keep them satisfied," he advises. "Go to the buyer and say: "I want to be e-ready. What do I need to do to connect to you?'"
Corporate executives working on supplier diversity initiatives second that view. For example, Walt Jennings, manager for minority supplier development at Delphi Automotive Systems, a $29.1 billion tier-one auto industry supplier, says for MBEs, as for other companies, "Smart business is knowing all you possibly can about your customers and their needs." Linda Hamlet, purchasing manager at Delphi, adds that MBEs can look at e-procurement as a tool for possibly getting closer to customers: "I don't think they should try to win one big order from Delphi. They should look a little further than that and ask, 'How do I become a strategic partner with a company like Delphi?'"
William Harper, global contracts manager at Delphi, recommends that minority businesses look for a customer that can assist them in making the transition to e-business. At Harper's company, for instance, each of the purchasing teams working in a particular commodity line has the responsibility of mentoring a minority supplier. Part of the mentoring process includes making sure the suppliers have the necessary training to become enabled to the extent necessary to continue to do business with Delphi, which currently mentors 19 diversity suppliers (including InfoServices), from a total of 360 MBEs in the company's supply base.
Diversity suppliers should also make sure they understand the technologies involved, choose their solution providers carefully and make the best use of e-commerce sales channels, advises James Davis, a sales manager at the Kansas City, Mo., office of Chicago-based diversity supplier Sayers Group, a $300 million computer reseller. Davis, whose office sold about $7 million of computer equipment, software and services to UtiliCorp last year, further recommends that MBEs check that their own supply chains have the capacity to handle whatever volume of business comes in through an e-business sales channel.
But Davis also warns that while e-commerce technologies allow suppliers to automate certain processes once handled by customer service reps, the technology cannot take the place of old-fashioned, person-to-person contact between suppliers and clients. UtiliCorp's Carter echoes that sentiment, saying his company shifted business to Sayers from a much larger, non-MBE supplier at the beginning of 2000, because of the high level of service the computer reseller provided, as well as Sayers' ability to beat the incumbent supplier on price by as much as 5 percent.
For his part, Carter notes that his company has seen a trend toward partnering among MBEs looking to achieve the greater size that will allow them to compete in an e-business environment. "The push is going to be for the [minority suppliers] to get larger to create some scale for themselves in order to be able to serve a company like UtiliCorp," Carter says. The utility company sponsors a specialized course in its hometown, Kansas City, to explain and promote the partnering concept to minority suppliers.
MBEs should also look to ally themselves with larger organizations to leverage the geographic reach, expertise or resources of a better-heeled partner, advises John Walker, president of another UtiliCorp diversity supplier, Kansas City-based Perfect Output, a document management and print services provider. "In this day and age, Corporate America is looking for people who can supply solutions to them on a global basis," Walker says. In 1997, Perfect Output became the first minority-owned business to establish a strategic partnership with Xerox. Under the alliance, Perfect Output can represent any of the products or services that Xerox offers, but it also can work through the document giant to offer services throughout most of the United States and in Canada. This extended reach has proved a key competitive advantage: since Perfect Output began providing services to UtiliCorp in January 2000, the supplier has expanded into multiple locations for the utility company across the country and in Calgary, Alberta. Carter attributes more than half-a-million in hard-dollar savings to his company's use of Perfect Output.
Pondering the question of how a corporation can ensure that its supplier diversity initiative and e-procurement activities complement each other, Carter offers: "The simple answer is to make sure both [initiatives] have strategies that tie back to the corporate strategy. All of the business unit strategies within UtiliCorp have to complement the overall strategic direction of the company." This has been a key issue for UtiliCorp, which has undergone tremendous growth in the past 15 years, expanding from $243 million in revenues in 1985 to the $29 billion in 2000. This growth, largely through acquisitions nationally and around the world, has not been conducive to centralized procurement, prompting the company to begin examining e-procurement as a way to both reduce costs and streamline purchasing processes. Carter is heading the company's e-procurement initiative as well as its supplier diversity program, so he is in a unique position to ensure that the two strategies proceed along complementary tracks.
Of course, having a functioning minority supplier initiative at all is the best place to start when considering how to mix diversity and e-procurement. "Corporations have to have an established minority business development program," asserts Layton of Johnson Controls. "You can't automate something that isn't there. If they don't have policies and procedures regarding minority suppliers, signed and supported by senior management, it won't work. If there is no minority coordinator, it won't work. If there is no way to track the dollars, it won't work. If there is no way to report the dollars to customers or the minority community, it won't work."
Carter, too, points to the importance of top management support for diversity, noting that he took on the responsibility of director of supplier diversity in January 2000, with a charge from company CEO Green to revitalize UtiliCorp's minority supplier development efforts. Carter, who reports directly to Green, further notes that Jim Miller, a senior vice president in the company, serves on the board of the Kansas City Minority Supplier Development Council. "Immediately, the status of supplier diversity goes a notch higher when you have that kind of senior management buy-in," Carter says.
With a diversity strategy in place, corporations must carry their awareness of diversity issues with them as they enter into new e-business relationships. Reginald Williams, from Procurement Resources, cites an example from the automotive industry, which he lauds as a leader in the diversity field. When the corporate founders of the industry-sponsored Covisint launched that exchange, they at first did not include supplier diversity as an element of that business, Williams says. After Williams and the Michigan Minority Business Development Council raised the issue with the exchange, the founding companies responded that Covisint would indeed include some aspect of supplier diversity. The problem, Williams says, was that the staff setting up the exchange was primarily from the IT departments of the companies involved and therefore simply was not aware of the diversity issue. Queried in this regard, Hill, the Covisint spokesperson, said that, while the exchange does not currently have any specialized technology that would pick out an MBE among other suppliers, Covisint has set up a 15-member customer council that includes a minority supplier.
Michel, of the NMSDC, cites a similar example involving a coalition of brick-and-mortar utility companies. All the member companies individually had supplier diversity policies in place, but, as they were putting the consortium together, diversity was not part of the conversation until some of the minority-supplier coordinators from the individual companies raised the issue. Subsequently, the consortium established a diversity coordinator position. "My overall thought," Michel concludes, "is that, in order for the system to accommodate the commitment to include minority suppliers, it has to be an up-front consideration."
Corporate diversity coordinators agree, adding that education is the key to ensuring that a diversity initiative remains vital in the e-business world. That includes educating internal constituencies as well as the MBEs themselves. Johnson Controls holds training sessions for buyers, contract agents, program managers, sales people and program specialists to raise awareness of the importance of diversity to the company's business. JCI also has training available for key suppliers. Delphi annually hosts more than 200 MBEs at Delphi's Automotive Matchmaker Conference, a minority supplier conference in Dayton, Ohio, to bring purchasing agents from major automotive manufacturers and suppliers together with minority business enterprises. And UtiliCorp has initiated e-business-related dialogs with community organizations representing MBEs to communicate the important role that e-commerce will play in the company's supplier-selection criteria. UtiliCorp also works closely with suppliers, including MBEs, that bid unsuccessfully on RFQs to educate them on why the suppliers lost the bid. For his part, Green has continued to set the tone for UtiliCorp's diversity efforts, even as the company has moved toward e-procurement by promoting the philosophy that the diversity aspects of the utility's e-procurement solution are as important as the solution itself. Other steps that corporations can take to ensure that diversity suppliers don't get left behind include:
- Automating their diversity supplier initiative. This ensures the collection of accurate, real-time information on how much is being spent with which suppliers, giving a corporation the opportunity to better track its diversity spend and better report the results of its initiative to customers and minority communities.
- Tracking opportunity. Not only does UtiliCorp track its diversity spending, it also follows which suppliers are bidding on RFQs to ensure that the company is providing MBEs with opportunities to compete for business. Currently, Carter estimates minority suppliers are bidding on as much as 70 percent of the company's RFQs.
- Lowering the cost of entry for diversity suppliers. Michel points to General Motors and Boeing as examples of companies that have helped their first-tier MBE suppliers become Internet-enabled or waived fees for participation in online marketplaces.
- Being realistic. Corporations must recognize the challenges that e-business presents for their minority suppliers, indeed for all their suppliers, and set goals and expectations accordingly. "Companies have to be realistic in their approach to doing business with all of their suppliers," says Carter. "We don't want to set unrealistic expectations for any company that strives to do business with us."
Keeping the Business Focus
e-Commerce is still a work in progress, says the NMSDC's Michel, and therefore it is still not clear what the eventual impact will be on supplier diversity. "While the general feeling is that this could be detrimental to a lot of minority business efforts on the part of corporations, who knows? Everybody suspects, but nobody knows."
Ultimately, all the stakeholders involved in a supplier diversity initiative must bear in mind that, at the end of the day, it's a business proposition, and both corporations and MBEs must benefit for the diversity efforts to be effective. Minority suppliers want to expand their market share with current and potential customers by leveraging whatever advantages they have at their disposal, including their low-cost structures, agile business models and MBE status. Corporations want to ensure that, with minority spending power rising rapidly, they capture the loyalties of minority consumers. As JCI's Layton puts it, "The way we look at it at Johnson Controls is that if we keep it in a business paradigm — meaning what can we do to help our customers reach minority consumers and, by helping our customers, exceed their expectations and get more business — then you end up with more jobs being created, more opportunities for minority individuals and more opportunity for minority companies."