Taking Supplier Diversity to the Next Level
Despite shrinking budgets and more stringent regulations, corporate supplier-diversity programs are thriving. Here's how several companies are making a significant economic impact through leadership commitment, more efficient practices and innovative ideas.
"Small businesses are the backbone of our economy. They are central to our identity as a nation. They are going to lead this recovery."
It was the perfect match. Marriott International was in the market for unique in-room products to offer guests traveling with small children; entrepreneurs Allison Costa and Amy Feldman were seeking clients for their newly patented Coverplay, a stylish slipcover that fits over a child's play yard. But it wasn't until last year, when several executives at Marriott hotels brought Coverplay to the attention of leadership, that the business connection was made and a deal struck. Today, Costa and Feldman's Coverplay products are available at 2,500 Marriott-owned hotels, and the California-based women-certified enterprise has grown more than 300 percent over the past year.
"It was a win-win-win," says Feldman, "and every step of the way, Marriott was right there helping us."
Fostering business growth isn't new to Marriott International and the other corporations that earned a spot on The 2012 DiversityInc Top 10 Companies for Supplier Diversity. Started 83 years ago as a root-beer stand in Washington, D.C., Marriott has been transformed by its leadership into a global hospitality giant that currently spends 15 percent of its annual procurement budget with companies owned by veterans, LGBT people, women, Blacks, Latinos, Asians and other businesses owned by traditionally underrepresented groups. Marriott is No. 21 on The DiversityInc Top 50 Companies for Diversity list and No. 1 on The DiversityInc Top 10 Companies for Supplier Diversity.
"We really want to move our supplier-diversity program to the next level," says Stéphane Masson, Marriott's recently named vice president of global procurement. Having spent $2.3 billion with diverse suppliers in the United States alone over the past five years, "we now want to leverage our [North American and global supplier-diversity] efforts as one and show our commitment to the vendor community," he says.
Best Practice No. 1: Have Top-Down Commitment
Key to supplier-diversity success is unwavering leadership commitment. Among The DiversityInc Top 10 Companies for Supplier Diversity, all:
• Have CEOs who personally sign off on supplier-diversity goals and metrics, compared with 86 percent of the DiversityInc Top 50 companies
• Audit their supplier-diversity numbers
• Mandate that supplier-diversity metrics be included in every request for proposal (RFP)
These leaders also spend an average of 13 percent of their Tier I (direct contractor) spend with minority-owned business enterprises (MBEs) and 11 percent with women-owned business enterprises (WBEs).
The reason: MWBE procurement has a direct and positive economic impact on the communities where corporations do business, as diverse suppliers tend to hire more Black, Latino and other underrepresented employees than their white, male counterparts.
For locally driven companies, such as service provider Cox Communications, "having a diverse vendor base in the communities we serve has tremendous value for us," says George Richter, vice president of supply-chain management. Cox Communications is No. 25 in the 2012 DiversityInc Top 50 and No. 8 in The 2010 DiversityInc Top 10 Companies for Supplier Diversity.
California-based utility PG&E concurs. "We very much see ourselves as part of the economic community," says Supplier Diversity Director Joan Kerr. PG&E, No. 7 in The DiversityInc Top 10 Companies for Supplier Diversity, spends 25.6 percent of its total annual procurement dollars, or nearly $1 billion, with Tier I and II MWBEs, up from 23.9 percent in 2009.
DiversityInc's Top 10 Companies for Supplier Diversity also realize that business opportunity is a two-way street, with MWBEs helping corporations build brand loyalty. With women making about 85 percent of all household purchasing decisions (Adweek) and the buying power of Blacks alone expected to hit the trillion-dollar mark next year (Selig Center for Economic Growth), "it's our responsibility to show that we value them," says Pamela Prince-Eason, vice president of worldwide procurement at Pfizer (one of DiversityInc's 25 Noteworthy Companies) and board chair at the women-certification organization Women's Business Enterprise National Council (WBENC).
As a result, the number of minority- and women-owned businesses—and the number of people they employ—is steadily rising. The U.S. Census Bureau's recently released report found that minority-owned businesses jumped 45.6 percent to 5.8 million between 2002 and 2007—more than twice the national growth rate of all businesses. Their annual receipts increased 55.6 percent over the same five-year period with receipts of $864.2 billion in 2007. And the 768,147 minority-owned companies with paid workers in 2007 employed nearly 6 million people. In contrast, the number of white-owned businesses rose by just 13.6 percent, to 22.6 million, with annual receipts of $9.4 trillion in 2007.
In 2007, for the first time in history, the Census Bureau began collecting data on veteran-owned businesses. A formidable force, they accounted for 2.4 million companies and had receipts totaling $1.1 trillion in 2007, with the largest percentage of businesses in the professional, scientific and technical-services and construction sectors.
The number of women-owned businesses increased as well, up 20.1 percent since 2002 to 7.8 million in 2007. Women-led companies "significantly contribute to our tax base and to employment," explains Dr. Marsha Firestone, president and founder of the WBE-certification group Women Presidents' Educational Organization. In 2007, there were 911,285 women-owned employer firms, employing 7.6 million people with a total payroll of $218.1 billion.
In the latest Women Presidents' Organization survey of the 50 fastest-growing women-led companies in North America (those whose annual revenue grew by $30 million between 2005 and 2009), researchers found women business owners are innovative, nurturing and tend to:
• Recruit top talent—78 percent say "hiring the right people" contributed to their company's expansion
• Be growth driven—71 percent agree or strongly agree that their goal from the start has been to build a large company
• Inspire others—64 percent report that their "ability to motivate employees" is a key characteristic for success
• Be adaptable—More than half (61 percent) say they weathered the economic downturn by shifting business strategies
In addition, "it has been our experience that diverse suppliers are very creative," explains a company spokesperson for Eastman Kodak Co. "[They] have a different perspective of how to get things done."
Given the current economic climate, how else can corporations open contract-bidding opportunities to vendors from all backgrounds?
Best Practice No. 2: Set Metrics to Ensure Accountability
Among The DiversityInc Top 10 Companies for Supplier Diversity, all audit their supplier-diversity numbers and have the head of supplier diversity report to the chief of procurement to ensure accountability. At Marriott International, for example, targets are set for diversity metrics and measurements are reported quarterly to a board-level committee.
To avoid the cookie-cutter approach, Cox Communications sets individual goals that differ for each of its business systems based on size. "Then we incent [through performance bonuses] against those supplier-diversity targets, which are reported monthly and quarterly," says Richter, noting that the supplier-diversity department, which he oversees, shares the report with the diversity council that President Pat Esser sits on. Beyond mandating that supplier diversity be part of the competitive-bidding process, Cox has created a sophisticated scorecard that "makes sure we're putting the appropriate weighting as it relates to … diverse vendors … to measure the benefits of selecting them," he says.
Best Practice No. 3: Integrate Supplier Diversity Throughout the Organization
This is standard operating procedure for all of The DiversityInc Top 10 Companies for Supplier Diversity. Take PG&E's "line-of-business champion" program: After each business-unit leader establishes realistic annual goals that are signed off by senior executive leaders, an internal champion for each unit ensures that supplier diversity is integrated throughout the team. This way, "we have an entire officer corps with supplier-diversity commitments," says Kerr.
In addition to working hand in hand with the sourcing team, Indianapolis-based WellPoint's supplier-diversity department works closely with sales and marketing throughout the RFP process. Also, WellPoint (No. 34) has begun identifying enterprise-wide commodity champions "who will serve as the eyes and ears of supplier diversity," says Supplier Diversity Director Brenda Burke. "They will keep their finger on the pulse of opportunities, serve as liaisons between [the supplier-diversity department] and their commodity stakeholders and assist with diverse spend targets for those areas."
To raise awareness and understanding, Eastman Kodak Co. provides internal employee supplier-diversity training; all individuals who are involved in making purchasing decisions go through the program. WellPoint, which has set annual supplier-diversity spending goals of 10 percent in 2010, 12 percent in 2011 and 14 percent in 2012, plans to roll out a "supplier diversity 101" program for all associates that will answer basic questions such as "What is the value of supplier diversity? What's the business case? Why is it important to WellPoint?" explains Burke.
Some companies are tapping resource groups to help integrate supplier diversity. To begin sourcing products/services from LGBT-owned businesses, PepsiCo's global procurement and supplier-diversity teams partnered with EQUAL@PepsiCo to jointly sponsor a supplier-diversity roundtable in Chicago produced by the LGBT-certifying organization National Gay & Lesbian Chamber of Commerce.
"We want to make sure our supply base is as diverse as our internal talent," says PepsiCo's Supplier Diversity Director Chris Knox. "And when supplier diversity is integrated into the strategic-sourcing process, it makes it much more sustainable." In 2009, PepsiCo's annual supplier-diversity spend was $1.3 billion (Tier I and Tier II), up 4 percent from the previous year.
Best Practice No. 4: Invest in MWBE Education/Training
PG&E is strengthening its investment in its suppliers and helping them gain a competitive edge by educating MWBEs about sustainability. The utility includes MWBEs in not only new green-building project opportunities but also in sharing information about green trade shows and providing online and in-person environmental courses to reduce their carbon footprints. "These are the kinds of requirements that corporations are putting in their RFPs and scorecards," says Kerr. "PG&E has set an internal goal for 75 percent of RFPs to have a green component." PG&E sees this as an investment to make sure MWBEs "aren't getting left behind," says Kerr. "Sustainability is a global trend … and it will very soon become a table stake."
Companies often sponsor select suppliers to attend executive-education programs, available at Dartmouth's Tuck School of Business or Northwestern University's Kellogg School of Management, or Lean Six Sigma seminars. After PepsiCo invested $4,000 to send two suppliers through Sigma Six, the companies have seen a benefit of $1.2 million in savings by eliminating inefficiencies in their operations.
Best Practice No. 5: Share In-House Expertise With MWBEs
Kodak's suppliers have free access to the know-how of its quality engineers, who will review vendors' processes and make money-saving recommendations. Cox experts, working through the Georgia Minority Supplier Development Council, offer member vendors workshops on, say, the best ways to respond to RFPs or what to know about legal contracts. Chicago-based Health Care Service Corp. (HCSC) (No. 19) began providing marketing and procurement-software training to its suppliers. "One of the challenges … they were having was providing the right feedback when they were bidding for a particular job," says Director of Supplier Diversity Malinda Burden. Since initiating the program, seven new MWBEs have been awarded contracts from HCSC (No. 20 in the DiversityInc Top 50) in the past year.
Best Practice No. 6: Protect Your Investment, Provide Financial Support
Many companies nowadays are adjusting payment terms from 30 days to 45, 60 or 90 days to keep suppliers in business. Until lawmakers pass some version of the Small Business Bill, companies such as Minneapolis-based Cargill are coordinating loans with MWBEs so they can secure additional lines of credit.
"We've had some diverse suppliers that, unfortunately, didn't make it through the financial crisis," admits North American Procurement Leader Roger Larsh. "So one of the things we've had to do is put more rigor around … putting stronger plans in place to successfully … support our suppliers and help them grow with us." Over the past year and a half, the agribusiness has worked closely with a new WBE to develop a strategic plan that's helped it expand to the point where it's now doing $2 million a month in business with Cargill and employing between 30 and 40 people.
Financial support can also come in the form of expertise. At Atlanta-based Cox, as part of the one-year Georgia's Mentor Protégé Connection program, an MBE has been paired up with Cox's finance and accounting teams with the goals of improving the company's financial infrastructure and sharing metrics.
Best Practice No. 7: Tap Suppliers for Solutions
By listening to advice from one of its hardware suppliers, Cox was able to improve the way in-store customers are directed to the next service representative when waiting in line. Similarly, PepsiCo gets cultural feedback from MWBEs during taste tests to determine flavoring preferences among various racial/ethnic groups.
Many companies report that Tier I vendors will often make suggestions to use Tier II diverse suppliers, and Cargill is heeding the call. This year, Cargill reached out to these suppliers and brought in a mix of new MWBEs into the fold, representing $8.5 million to $9 million in new spend. "Hopefully, these second tier will turn into first tier," says Larsh.
Best Practice No. 8: Consider Consortiums
Often, MWBEs don't individually have the clout to win large contracts, but when combined with other MWBEs, they do. And supplier-diversity consortiums help them build capability so they can take on larger contracts. Companies often host supplier-diversity events to help vendors form collaborative contracting relationships, and purchasing managers can tap contracting consortiums. Example: When 23 information-technology companies wanted to bid for portions of the U.S. Air Force's $24-billion NETCENTS 2 contract, they joined forces under the Minority Information Technology Consortium (MITC), whose members are classified as either an SBA 8(A), HUB zone, business owned by veterans with service-acquired disabilities, WBE, small disadvantaged business or veteran-owned business. Although the deal is still pending, the consortium has opened the doors of opportunity for these businesses.
"A company would have great difficulty winning a contract even twice its annual revenues, [but] a consortium translates into strength in numbers and is a way of formalizing how we pool our collective capabilities," says Dr. Randal Pinkett, chairman and CEO of MITC-member company BCT Partners and the fourth-season winner of "The Apprentice."
Best Practice No. 9: Partner With Regional or Industry-Focused Groups
Several years ago, HCSC partnered with Chicago United in the Five Forward Initiative, a local MWBE-development commitment to work with five companies over a five-year period. As a result, the initiative has helped HCSC bring aboard a new law firm and staffing agency—and moved its supplier diversity to the next level.
Industry-focused groups such as the Financial Services Roundtable Committee on Supplier Diversity (FSR-SD) also move the dial. This 10-year-old peer group of National Minority Supplier Development Council (NMSDC) members consists of 43 of the largest financial-services companies in the United States. FSR-SD is creating a supplier-diversity spend accounting standard to help better benchmark the financial industry, and it has hosted a capital summit to facilitate relationships with private equity and venture capital firms, among other initiatives.
In addition, Cargill, which spent close to $300 million with North American MWBEs this past year (or 15 percent of total spend), regularly hosts the local supplier-diversity council events at its facilities while sharing information about its sourcing initiatives. "This is much more productive than saying 'Go look at our website,'" says Larsh.
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