In the wake of the racial and civil unrest America has experienced in the last couple of years, many companies have pledged to be more intentional about their purchasing processes, in addition to their hiring practices.
Even very large company leaders realize that if they want to address racial injustice, their diversity and inclusion initiatives must go beyond whom they hire, to include the vendors with which the company partners. "It's gone from a small functional department goal to a goal for the entire company to achieve success," said Jan Youngman, assistant vice president of administrative services at State Farm. What was a grassroots initiative that began decades ago now has C-suite and board support. He said. "We want our supplier base to be a reflection of our employees and customers."
A 2021 study by Hackett of 100 large global and US-based businesses reported that about 75% of them already have or plan to expand their supplier diversity programs by 2023. These companies plan to spend 13% of their target budget, on average, on minority-owned businesses in 2025. With the backing of both the C-suite and the finance department, it's clear that these diversity initiatives are here to stay.
If you work in a procurement department, you already know all of this. You've been working hard every day to meet these new spending goals and make these new initiatives effective because you know that utilizing diverse suppliers is critical to your company's success. You’ve seen how investing in minority-owned businesses makes your company more competitive and minority-based businesses more resilient. You see the value in these programs.
But the best intentions do not always come easy, do they? We know there are obstacles to overcome when working on a diversity procurement initiative.
There are thousands of competent and reliable minority-owned businesses in the United States, including Phase 3. And most of these businesses would jump at the chance to work with your organization. The difficulty develops when these businesses are not able to quickly scale up their capacity to meet your company's needs. Finding the best partner can be challenging because statistics prove that minority-owned small businesses have a higher risk of failure.
In a February 2020 CAPS report entitled, “Measuring Supplier Diversity Program Performance," the challenges companies working with diverse suppliers conveyed were concerns with the suppliers’ ability to meet capacity and automation requirements (48%) and to offer competitive pricing (45%).
Some companies address these obstacles through mentoring programs and capacity-building initiatives. As a result, both sides benefit when each is willing to become better business partners.
However, even with perceived C-suite backing, many companies do not place supplier diversity objectives as high of a priority as reducing cost or lowering risk. This makes embarking on a collaborative partnership with a minority-based business that needs capacity-building support a challenge. This, in turn, makes your job as a procurement expert even more difficult. It’s hard to increase your company’s diverse procurement spending to a new set of unknown suppliers when the risk of losing money is not acceptable.
Of course, smart buyers can utilize a few best practices to mitigate risk and make the search for diverse suppliers easier. First and foremost is to ensure your team understands what your company needs. Having concise requirements around products or services required, a timeline for deliverables and payment, and the scale of spend will center your search and weed out businesses that are not qualified.
Also, don’t forget about Tier 2 reporting. Your existing suppliers may also be working with minority-based suppliers. Make sure they report to you on their diverse suppliers and how much they spend. Ensure that they are establishing diversity goals and including their diverse spending requirements in their contracts. These second-tier relationships can be very strategic because you have the opportunity to foster them into becoming a first-tier supplier in the future.
Above all, your team needs to consider this initiative a long-term strategy, not just a box to check. This, of course, has much to do with your company's leadership and commitment to the goal. If you have the backing and budgetary support from your leaders to implement a successful supplier diversity program, it's essential to know that your efforts will take time and commitment. Bain & Company says it takes 12 to 18 months to qualify a new supplier fully. That time frame can be even longer if you need to help them scale. So keep at it and be creative. Your efforts will be rewarded. Bain & Company also reports that diverse suppliers have a higher annual retention rate (74%) than non-diverse suppliers (61.7%).
One Easy Solution
Contracting with a Corporate Plus® member of the National Minority Supplier Development Council (NMSDC) is one way to avoid the risk of limited supplier capacity. Corporate Plus® is an exclusive membership program for only MBE-certified businesses of the highest caliber. The NMSDC developed the program to assist members and other companies in finding minority-owned suppliers with the capacity to fulfill national contracts.
Corporate Plus® members have demonstrated their capacity to fulfill large national contracts through an extensive vetting process. An NMSDC national corporate member must nominate a Corporate Plus® member. This nomination builds credibility and creates a higher awareness for the supplier throughout the national NMSDC network and corporate America.
The benefits of participating in this program are profound. MBEs with the Corporate Plus® designation will have greater access to national contract opportunities. They can also provide additional opportunities for other MBEs through these contracts. In addition, corporate members and MBEs will learn from each other's competitive strengths, increasing business opportunities for both groups. It is a win-win solution all around.