Success in Diversity Supplier Programs

Many organizations are striving either to establish or to improve diversity supplier initiatives. These plans aim to increase corporate purchasing from companies that are at least 51% owned, operated, and controlled by one or more female or minority individuals.

The rationale for improving relationships with these businesses varies. For the most part, successful programs are created as a result of understanding the effect that working with women and minority-owned businesses could have not only on one organization’s profitability, but also on the economy as a whole.

Minorities represent approximately 28% of the United States population, while minority businesses represent only 15% of total businesses, 3% of gross receipts, and 4% of total corporate purchases (1). It is estimated that by 2012, minorities will constitute 40% of the nation’s population (2). By following a plan to work with diversity businesses, organizations are not only sharing economic resources with the fastest-growing segments of the US population, but they are also encouraging long-term economic growth and other positive results (3).

Some well-known organizations have successful plans in place. One characteristic all of these companies share is CEO commitment to the program and employee understanding of the importance of the program. Many companies have a mentor relationship with the diversity suppliers as well. Examples of some programs are listed below.

Coca Cola
At Coca Cola, education is the most important part of the process. Every member of the procurement staff is required to attend training to understand why diversity business is important to the organization. “Our approach to Supplier Diversity is simple … it’s inclusive! Minorities are the fastest-growing segment of the U.S. population, and women make most purchasing decisions involving consumer goods, including our products. Including minorities and women as our partners is a business imperative at The Coca-Cola Company” (4). Because of the scale of operations, Coke encourages its Tier 1 suppliers to follow the same guidelines (3).

Bristol-Myers Squibb Company (BMS)
The Global Strategic Sourcing organization at BMS has made procurement from diversity suppliers a priority. The company aims for 5% of business to go to minority owned small business, 5% to go to women-owned small business and 23% to go to all small business categories. This is in line with the U.S. Small Business Administrations goals (5). To achieve these goals, BMS has established a Supplier Diversity Council, composed of 22 representatives from all spend categories. Through this council, everyone in the procurement organization has been trained on tools to identify small and diverse suppliers. All certified, potential suppliers can register online and this list is used to develop a database used in generation of Requests for Proposal. BMS is also able to use this database to track spending in each group (3).

Hewlett-Packard
At Hewlett-Packard, the internal audit process includes supplier diversity goals. Each business unit creates its goals for spending and is held accountable to these goals. In addition, any unit that discontinues business with a minority supplier has to make up the difference in another contract (3).

For companies requiring large volume orders, such as Coca-Cola or the automakers, matchmaking is one way to encourage supplier diversity. DaimlerChrysler holds matchmaking events for its Tier One suppliers and diversity businesses. At these events, the two groups are able to meet and determine how minority suppliers can meet business needs (3).

Programs encouraging growth in these sectors began in 1968 with the Small Business Association establishing a program to increase government spending with small businesses owned by either women or minorities. Since that time, there has been significant improvement. The National Minority Supplier Development Council (NMSDC) has tracked spending of its corporate members and found that from $86 million in 1972, spending has increased to $72 billion in 2002 (1). Currently, the NMSDC has over 3,500 corporate members. It assists these members in finding certified diversity suppliers to do business with. There are also tools to help companies develop plans for increasing diversity spend. For more information, visit http://www.nmsdcus.org/ or the U.S. Small Business Administration at http://www.sba.gov .

References:

(1) National Minority Supplier Development Council

(2) Morgan, James. “How well are supplier diversity programs doing?” Purchasing. August 15, 2002

(3) Porter, Anne Millen. “Secrets of Success” Purchasing. August 14, 2003

(4) The Coca-Cola Company

(5) Bristol-Myers Squibb Company