The Drive to Increased Supplier Diversity

Studies show supplier diversity spend to rise in next two years

The biggest challenge with supplier diversity programs is finding quality suppliers, according to 70 percent of ISM Supplier Diversity Study respondents.
The biggest challenge with supplier diversity programs is finding quality suppliers, according to 70 percent of ISM Supplier Diversity Study respondents.

As 71.79 percent of organizations expect their total supplier diversity program spend to increase within the next two years, according to a recent study from CAPS Research, it comes as no surprise to the number of recent headlines touting company’s commitment to achieving increased supplier diversity spend.

In 2011, AT&T spent $12 billion with diverse suppliers, surpassing its corporate goal— to reach 21.5 percent of its total spend with certified diverse businesses by 2012—one year ahead of schedule. Others, such as transportation and supply chain management solutions provider Ryder System Inc., are recognized by major manufacturers—Toyota Motor Engineering & Manufacturing North America Inc. (TEMA)—for their Minority Business Enterprise (MBE) development efforts. Some reach even higher diversity spending goals, as the Kellogg Company spent $353 million on goods and services from diverse, first-tier suppliers in 2011.

So what’s driving this added spotlight to supplier diversity programs? While most companies justify having a supplier diversity program because “it’s the right thing to do,” (approximately 76.9 percent according to the 2011 ISM Supplier Diversity Survey) 61.1 percent of companies cite federal reporting regulations as another core reason; while 59.8 percent confirm that since their customers are diverse, so should they be as a business.

“The interest in supplier diversity is coming from a lot of different directions,” said Elizabeth A. Vazquez, President, Chief Executive Officer and Co-Founder, WEConnect International, Washington, D.C. “The fact that Dun and Bradstreet shone a light on what is possible, what the obstacles are and what some of the best solutions are in effectively implementing a supplier diversity program is critical because not all corporations understand its full value proposition throughout the organization. It has to start at the top. The top folks have to embrace it and then the ones who are responsible for implementing it have to have the resources to be able to sell it throughout the organization, track and measure it and ultimately earn the recognition for the good work that they are doing.”

Commercial information and business insight provider Dun & Bradstreet, Short Hills, N.J., provides its D&B Supplier Diversity Data Services via a database which includes more than 5.8 million socio-economic and diversity classifications from over 400 sources as well as over 20 million small businesses.

“You really have to have the certification organizations and the Dun & Bradstreet’s to make it easier for these corporations to find the right suppliers at the right time,” Vazquez continued. “It’s not a charity sale—it’s a competitive bid. The easier we can make it for corporations to source from diverse suppliers because we have really good databases, good events and initiatives that help to increase the chances to get that connection—that is where we can see a lot of impact going forward.”

No easy task

While many businesses possess successful supplier diversity spend, it’s important to understand that it is not achieved without hard work, committed efforts and the right team to not only run the program but find the right suppliers to make up the program. In fact, 71.8 percent of respondents in ISM’s Supplier Diversity Survey agreed that their biggest challenge was finding quality suppliers. Other challenges that topped the list included higher prices with diverse suppliers (32.8 percent of respondents) and the lack of budget to do outreach and training (27.2 percent).

To overcome such issues, corporations must identify what diversity groups and certifications they want to include in their program before reaching out to suppliers within each of those groups.

“There are a lot of groups that certify a minority or smaller organizations,” confirmed Greg Thomas, Vice President, Procurement Advisory, BravoSolution. “There’s The National Gay & Lesbian Chamber of Commerce, the Hispanic Chamber of Commerce, there are veteran-owned and Native American groups—you’ve got all these other groups besides NMSDC and WBENC. As a corporation, you have to define how broad your supplier diversity program is going to be—it could be all of these groups or it could be a subset of them. Underneath that strategy, there’s a pool of opportunity where you can pull up suppliers from any of those groups. And it’s very important that your supplier diversity teams are reaching out to all those groups within your pool to find the suppliers and the opportunities that make up that pool.”

Almost always included in the focus of a supplier diversity program are Minority-Owned (according to 94.2 percent of ISM survey respondents) and Woman-Owned (according to 93.7 percent of ISM survey respondents).

Non-profit WEConnect International is one such organization working to help find women in business, get them certified, develop their capacity and introduce them to actual contract opportunities to compete for corporate business. Started in the United Kingdom, WeConnect is now located as a resource throughout other parts of Europe, Canada, India, China and Peru—and is currently working to extend their services throughout other parts of Latin America and Australia.

“Historically, women and businesses outside of the U.S. haven’t been thinking big enough,” explained Vazquez. “On the demand side, they haven’t really thought about how to find more innovative, diverse suppliers that see the development of products and services a bit differently and know how to meet future demands of a changing, global economy. Women are well-positioned to provide those kinds of solutions but if they are missing as vendors to these corporate value chains, then those companies are not going to be as competitive as they could be.”

In fact, the number of women influencing the workplace, as both employees and business owners, is set to increase drastically in 2012 according to new book “Society 3.0: How Technology Is Reshaping Education, Work and Society,” by Tracey Wilen-Daugenti, PhD. What’s more, women control the majority of purchasing decisions in a household—and their influence is growing, according to Nielsen’s “Women of Tomorrow” study.

“It’s critical that women-owned businesses all over the world understand that the world really does need the products and services that they are either developing or even just thinking about,” said Vazquez. “Because women are directly involved in most countries in finding such resources as water and fuel and feeding, educating and clothing the community—they see what’s missing. We need to make it easier for them to want to develop those ideas into actual products and services. And the ones that are already doing it—we need to help them be better positioned for larger contracts—not just local contracts but regional and global—that will make it possible for them to do more in their communities.”

Open your door to stronger connections

While a small amount of focus is on locally-owned business (23.3 percent), 62.8 percent of ISM survey respondents’ supplier diversity programs do focus on small business to drive growth. Additionally so, 67 percent confirmed their membership to the National Minority Supplier Development Council (NMSDC). And while the challenge of finding diverse suppliers remains, organizations need to open the communication gateways to grow business for both parties involved.

“It’s important that we recognize that there are strong and qualified suppliers out there who can supply us goods and services,” said Thomas. “And while many of them are smaller, they are very competent and in most cases, those smaller businesses are the diverse businesses. Those supplier diversity programs help identify who they are and really open up some doors for those suppliers—and additionally open some pretty unique doors for corporations as well.”

Whether you have established connections with supplier diversity groups for decades or are just looking to strengthen those relationships and grow your network, businesses need to connect supplier diversity programs to business growth, instead of just adhering to a mandate. The supplier diversity has to be a part of a business’s overall culture to be successful.

“CEOs and company leaders need to understand that this isn’t just about reaching their target spend or their goal for inclusive sourcing—this is about impacting communities,” confirmed Vazquez. “It’s so much bigger than the policy of supplier diversity inclusion. It’s about wealth and job creation and creating the strong consumer base that we all need to have a sustainable and successful economically integrated world community. And it’s the impact that it has on the world that will make it a better place for everyone.”