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SCRC Article Library: Minority-Owned Supplier Contracts: The Right Smart Thing to Do!

Minority-Owned Supplier Contracts: The Right Smart Thing to Do!

Published on: Jan, 13, 2003

by: Rob Handfield

SCRC

Programs to stimulate growth of minority-owned businesses have existed in the United States since the late 1960s. The term minority-owned suppliers is used by the U.S. federal government to describe a company that is at least 51% owned by minorities such as a African Americans, Hispanic Americans, Native Americans, or Asian-Pacific Americans. Women-owned businesses and firms that are owned by physically disabled people are separate classes of firms with unique designations. The following federal actions were carried out to promote minority-owned businesses:

Executive Order 11485 (1969): Established by the U.S. Office of Minority Business Enterprise within the Department of Commerce, for the purpose of mobilizing federal resources to aid minorities in business.

Executive Order 11625 (1971): Gives the secretary of commerce the authority to implement federal policy in support of minority business enterprise programs, to provide technical and management assistance to disadvantaged businesses, and coordinate activities between all federal departments to aid in increasing minority business development.

Public Works Employment Act (1977): Requires that at least 10% of federal construction contracts be awarded to businesses owned by minorities.

Public Law 95–507 (1978): Mandates that if a buyer’s firm is awarded a federal contract that exceeds $10,000, the buyer is required to make “maximum efforts” in awarding subcontracts to small minority businesses. If the federal contract exceeds $500,000 ($1,000,000 for construction projects), prior to contract award the buyer’s firm must submit an acceptable buying plan that includes percentage goals for the utilization of minority businesses. The plan must also detail procedures for identifying and dealing with minority businesses.

Supporting minority suppliers is not only the right thing to do; it is also the smart thing to do. As the nature of America’s demographics and workforce is continually changing, organizations will need to hire and train people with multi-cultural backgrounds, and promote relationships with suppliers and customers from diverse backgrounds.

At the same time, it is important to recognize that minority suppliers are a special class of supplier. As such, they face many problems that are unique to their special status, while also facing many of the same problems that confront non-minority suppliers. Several factors lie at the core of these problems: lack of access to capital; large firms’ efforts to optimize their supply bases; inability to attract qualified managers and other professionals; and minority suppliers’ relatively small size, which may lead to over-reliance on large customer firms.

Many companies often deploy supplier diversity programs that are aimed at increasing the representation of minority-owned suppliers in their supply base. For some companies, supplier diversity programs are based on social considerations. However, an increasing number of companies have focused on supplier diversity simply because it is good business. Minorities now represent the largest sales growth markets, especially in consumer goods, and companies realize that increasing the amount of business with minority businesses may mean increased sales for their own firm over the long term.

Click here to see the list of “America’s Top Organizations for Multicultural Business Opportunities,” according to a poll sponsored by DIV2000.com, an organization that provides business connections and resources for small businesses and large organizational buyers. The online poll was completed by over 150,000 women and minority-owned suppliers, who rated the best companies who provided business opportunities to minority and women-owned suppliers. We hope that all of the companies within the consortium will eventually windup on this list, and consider minority suppliers as a component of their supply management strategies.

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