A Win-Win: Companies Thrive, Communities Get a Boost With Supplier Diversity
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Despite the lingering economic slump, Berchet “Dottie” O’Daniel Mays was able to buck the trend and hire six new employees for her telecommunications firm earlier this year. The president and owner of Call One, Mays attributes the recent hires to a supplier contract that Wells Fargo awarded the company in April. Her Cape Canaveral, Fla.based business will supply and repair headsets throughout the banking giant’s call centers, on trading floors and throughout Wells Fargo. Wells Fargo is No. 33 on The 2012 DiversityInc Top 50 Companies for Diversity list.
Call One received the job by offering free shipping and increased efficiency. But that’s not the whole story. It’s one of a growing number of ways that corporate America is supporting minority- and women-owned business enterprises (MBEs and WBEs), and it’s having a ripple effect. When large companies obtain goods and services from traditionally underrepresented groups, both parties thrive and the local economy gets a boost. Everyone wins.
As these groups gain traction and visibility, more corporations are embracing the use of Black-, Latino-, Asian- and women-owned suppliers as a business strategy. Some companies have expanded their supply base to include companies owned by veterans, LGBT people and people with disabilities. Last year, the U.S. Census Bureau reported that business ownership by Blacks, Latinos and Asians is increasing at more than twice the national rate, and women-owned businesses have increased by more than 20 percent from 2002 to 2007.
‘Just Good Business’
“Supplier diversity is just good business,” says Ramona Blake, diversity and inclusion manager at Public Service Enterprise Group (PSEG), an energy company based in Newark, N.J. These suppliers bring unique insights and an entrepreneurial energy that helps companies retain a competitive advantage. Plus, contracting with MBEs and WBEs has a “multiplier effect” that increases spending and consumption and promotes job creation on a local level, says Blake.
At Cargillan agricultural producer with more than 2,500 suppliers including multinational corporations and farms in developing countriesa diverse supply chain is a chance to engage local markets and participate in community activities. “We’re a global company,” says John Taylor, Cargill’s director of supplier diversity. “We would like our supplier base to reflect that.” These vendors offer an added benefit to Cargill’s customers, adds Taylor. “At the end of the day, we’re talking about being able to enhance and create additional jobs within the communities that we live and work.”
Health Care Service Corporation (HCSC, No. 19 in the DiversityInc Top 50) sees direct benefits from its relationship with diverse-owned businesses as they in turn become local ambassadors of the company’s values. “We’re committed to our diverse community,” says Malinda Burden, HCSC’s director of corporate vendor management and system management. “We are committed to partnering with minority-owned, women-owned and other diverse businesses because it adds value to what we do, as well as promotes prosperity in the communities we serve.”
Wells Fargo has a similar appreciation for its supplier-diversity program, which expanded in 2009 to include veteran-, disabled veteran and LGBT-owned businesses. It has made employees more engaged, increased profits and reduced bid response time, says Sonya Dukes, Wells Fargo’s senior vice president and director of corporate supplier diversity.
“When our suppliers have different experiences, perspectives, cultures and backgrounds, we receive the most innovative, creative and cost-effective products and services available.”
At Minnesota-based SUPERVALU, a grocery chain with more than 2,500 retail stores nationwide, executives see supporting diverse businesses as a natural extension of the corporate mission. “From a macro perspective, working with diverse businesses provides increased accessibility and familiarity to the local community and stronger products and services, along with increased innovation and flexibility,” says Michael A. Byron, corporate vice president of supplier diversity. Byron is a board member of the Midwest Minority Supplier Development Council.
Any time demographics shift, executives hope that suppliers from traditionally underrepresented groups will offer new ways to reach populations whose buying power is on the rise. According to the Selig Center for Economic Growth, the combined purchasing power of Blacks, Asians and American Indians was $1.6 trillion last year. By 2015, these groups will represent a combined spend of $2.1 trillion, accounting for 15 percent of the nation’s total buying power. And last year, the U.S. Latino market had grown to $1 trillion, larger than the entire economies of all but 14 countries in the world.
With the rapid growth of a diverse populationroughly one of every six people living in the United States is of Latino originthese companies are recognizing the value of relationships with MWBEs that may have their fingers on the pulse of a multicultural consumer base.
For example, SUPERVALU’s partnership with Catallia Mexican Foods, a Latino-owned supplier, allows it to sell private-label tortillas to its customers at a competitive price. Highlighted in the company’s 2011 Corporate Social Responsibility Report, SUPERVALU notes that Catallia’s knowledge of Latino food trends is helping it provide “locally relevant” products.
“Additionally, this partnership led to cost savings for SUPERVALU in this product category, while also significantly growing Catallia’s business,” the report states. “It’s a true win-win for both companies.”
Cargill also benefits from partnering with a multicultural supply base. “MWBEs have very good insight with regard to the products and services that they are offering and can bring that market intelligence to Cargill,” says Taylor. Looking to capitalize on this market intelligence, this year the company has committed to increasing its supplier-diversity spend by 9 percent each year through 2015. Wells Fargo has a goal of spending $1 billion annually with diverse-owned business enterprises, starting in 2013.
Last year, PSEG spent 5.3 percent of its annual direct-contractor procurement budget with MBEs and 6.7 percent with WBEs. HCSC, which operates Blue Cross and Blue Shield plans in Illinois, New Mexico, Oklahoma and Texas, is spending 5.2 percent of this year’s direct-contractor procurement budget with MBEs and 7.4 percent with WBEs. That’s compared with an average of 8.5 percent spent with MWBEs by The 2011 DiversityInc Top 10 Companies for Supplier Diversity.
Economic Downturn Makes Diversity Imperative
In uncertain economic times, sometimes support is about keeping diversity in mind when making tough financial decisions. When Cargill recently reduced its number of select suppliers from 17 to 12 to improve efficiency, no Black-, Latino- or women-owned businesses were cut. All things being equal, says Taylor, Cargill would rather not lose a supplier from a traditionally underrepresented group.
Pat Hemingway Hall, president and CEO of HCSC, echoed these sentiments. “Having diverse and inclusive perspectives and practices in our organization will be even more crucial in the face of unprecedented economic challenges,” says Hall. “To be as innovative as possible, we must capitalize on the talents and skills of all of our employees. At the same time, we need to continue to anticipate and respond effectively to the needs of our increasingly diverse customer base who will be facing their own unique challenges during this difficult time.”
With the multicultural population experiencing such growth, it’s no wonder more and more businesses are embracing supplier diversity to stay competitive. DiversityInc reported a 50 percent increase in companies including supplier diversity in their RFPs between 2004 and 2009.
But the commitment to a diverse supply chain goes deeper than financial support. These companies are leading the charge with a host of innovative programs and resources to ensure the long-term growth of their supply base including mentorship, education and networking programs.
Wells Fargo’s Leaders of Change program takes a holistic approach to supplier engagement and development. It includes sponsorship of MWBE suppliers to attend leadership training at Dartmouth’s Tuck School of Business and Northwestern University’s Kellogg School of Management; partnership with industry advocacy organizations to provide classroom training to suppliers; one-on-one coaching and mentoring opportunities for MWBEs with expert consultants in business-strategy planning and operational improvement; and development of young and emerging entrepreneurs through university and organizational collaborations. The anticipation is that investing in these suppliers will have a ripple effect.
“To succeed in financial services, we must be committed to serving our diverse customers, team members and suppliers,” says Wells Fargo’s Dukes. “We believe that together with our diverse suppliers, we can contribute to the long-term economic sustainability of our communities.”
With an eye toward the community, many companies support the growth of these suppliers by investing locally. For example, PSEG fosters minority- and women-owned enterprises in its home state of New Jersey. Annually, the company pairs up with a member of the New Jersey Association of Women Business Owners to offer one-on-one mentorship, employee training, marketing contacts, shared tickets to industry events, and more. Similarly, Cargill provides tuition assistance to select suppliers through the Wisconsin Iowa and Central Illinois Minority Supplier Development Council’s business program.
In an effort to strengthen the regional economy, health insurer HCSC has joined Chicago United’s Five Forward initiative to mentor five area vendors from underrepresented groups over five years. To date, the company has reached platinum status in its efforts to build businesses of scale that reflect Chicago’s diverse demographics. HCSC requests that its prime vendors have a minority program and report Tier II spend on a quarterly basis. Today, at least 35 of the company’s top vendors report Tier II spend, says Burden.
SUPERVALU’s company mission hinges on what the company calls being “hyper local.” Through supplier diversity, the company is seeing firsthand how supporting businesses owned by traditionally underrepresented groups has a tangible effect on the local community. Of the company’s 2,800 registered MBE and WBE suppliers, 60 percent have a formal community-outreach program and nearly 20 percent have their own supplier-diversity programs.
Cargill aims to add Tier II requirements to new sourcing contracts in North America. If a supplier from a traditionally underrepresented group isn’t ready to contract with them directly, the company will try to partner them with a select supplier, says Taylor. The goal is that with mentoring and support, today’s Tier II vendors will become tomorrow’s Tier I suppliers.
This kind of long-term, goal-oriented support makes a huge impact on small-businesses growth. A Wells Fargosponsored training session on capacity building was a great opportunity for Alpa Patel, CEO of We Print, a minority- and woman-owned printing company in Orange County, Calif. “It taught me to work on my business, create strategic partnerships to build capacity to scale and grow,” says Patel. “The overall experience has been tremendous for me personally and for my business. It was the lifeline I needed to take my business to the next level.”
Yet financial and educational support won’t expand the reach of these suppliers unless they have access to company decision makers. Keeping this in mind, PSEG hosts annual supplier-diversity fairs at no charge, giving minority- and women-owned enterprises the access they need to begin a relationship with the company. As a direct result of these procurement events, PSEG has awarded more than 37 contracts to new MBEs and WBEs, says Blake.
In the fall, Cargill hosted the Twin Cities’ largest-ever supplier-diversity symposium. Nearly 250 MWBEs attended, free of charge. “It’s their opportunity to talk directly with our sourcing departments,” says Taylor. In addition to face time with Cargill staff, attendees were offered a number of business resources, which included a seminar on how to bid on government contracts and guidance about securing financing.
With so much invested in diverse businesses and so much at stake in the local community, corporations are taking pains to ensure the long-term success of their MWBE partners. Many of these companies use quarterly reporting, annual procurement goals and internal training to make diversity a priority. But one of the most important factors in nourishing supplier diversity is the involvement of company leadership.
At Wells Fargo, diversity starts with the board of directors, CEO and senior management and permeates the entire organization. Dukes says, “Increasing spend with minority- and women-owned businesses has been a corporate goal since 2006.”
At PSEG, internal goals are developed on the executive level and are tied directly to performance reviews and increases.
HCSC’s commitment to MWBEs extends from the board of directors, CEO and senior management to the entire organization. Regular reporting to the leadership team, establishing a corporate diversity goal and reporting yearly to the corporate board keeps HCSC’s supplier-diversity program on track, says Burden.
This kind of top-down commitment is crucial to creating a company-wide understanding of the value in diversity. “Our commitment to supplier diversity comes from the CEO on down,” says Cargill’s Taylor. “We report monthly, quarterly and annually all the way up to the C-suite.”
In order to better monitor goals and continue to tap diverse vendors, PSEG contracted with SciQuest to streamline its records and build an online supplier-management database. Thanks to the new system, they’re able to report that more than half of their 8,700 registered suppliers are diverse.
Cargill also brought in outside expertise, inviting leaders from the Women’s Business Enterprise National Council and the National Minority Supplier Development Council to meet with company executives and sourcing teams. As a result of these meetings, “there’s a heightened awareness of supplier diversity,” says Taylor.
In addition to bringing in external support and advice, most of the companies have in-house teams that ensure diversity throughout the supply chain. “Our best overall asset is our people,” says Blake, referring to PSEG’s teams that follow procurement contracts from start to finish to assure that MWBEs are sourced and included. Not only did the presence of these interdepartmental review teams increase spend with these suppliers, it “opened the lines of communication,” says Blake, resulting in a better understanding of diversity throughout the company.
Similarly, SUPERVALU has found that its communication has flourished because of its diversity program. Byron says, “Relationships are cultivated as a result of information sharing and awareness.” SUPERVALU has received awards from the Women’s Business Development Council, the Midwest Minority Supplier Development Council and the U.S. Hispanic Chamber of Commerce.
When diversity and inclusion permeate corporate culture, the results are tangible. While strategic procurement typically starts with an eye toward reducing costs and increasing value, companies are finding that a diverse supply chain leads to a healthy business. Women- and minority-owned business enterprises have the capacity to be real allies in a diverse and constantly evolving market. In addition, they act as regional ambassadors and proof that companies are making the sustainable growth of the populations in which they live and work a major priority. It’s imperative that contracting with diverse businesses remains a focus, says Blake: “It will ensure long-term success for our local economy, customers, stakeholders, employees and communities.”