June 12, 2013

Supplier Diversity & Small Business Demystified (part 1 of 2)

Various aspects of Supplier Information Management affect virtually every function within an organization. Whether a treasurer optimizing working capital, or legal protecting the organization’s interest, everyone is a stakeholder – and, more often than not, disparate systems start to pop up to deal with “niche” requirements.

In a recent meeting with a $120+ billion dollar organization, I was told that their estimate on internal “purchasing-related” systems exceeded 300 different systems. Of course ERP systems constitute a small portion of these, but the vast majority of these included systems for supplier registration (“potential” suppliers), contract management systems, supplier diversity portals, etc. – and, unfortunately, not enough is known across the organization about the needs of the niche systems to effectively argue consolidation.

As such, I would like to take a brief moment to demystify supplier diversity (for those that don’t live it on a daily basis) and, in the process, address some of the small business requirements.

Supplier Diversity Overview

The U.S. Commerce Department’s Minority Business Development Agency (MBDA) and the U.S. Census Bureau estimates that there are 5.8 million minority-owned firms – and, according to The State of Women-Owned Business Report (commissioned by American Express OPEN), there are 8.3 million women-owned businesses.

The case for supplier diversity is multi-fold, such as:

  • A diverse supply chain adds different solutions and approaches, as they may be forced to be more creative and innovative to compete;
  • Diverse suppliers may have lower cost structures, thereby, aiding cost reduction efforts;
  • Supporting supplier diversity reinvigorates communities and fuels economic growth;
  • Supporting diverse suppliers may have a direct impact on revenue, as people/organizations often buy from those that have supported their efforts.

Certainly this is not an exhaustive list, but the case has been made and corporations support active role in promoting supplier diversity. The National Minority Supplier Development Council (NMSDC), for example, has over 460 corporate members (e.g., Cisco Systems, Coca-Cola, Ford Motor, JPMorgan Chase, Shell Oil, Wal-Mart, etc.) – and The Woman’s Business Enterprise National Council (WBENC) has over 265 corporate members, with many of the same Fortune Global 500 members.

The supplier diversity manager’s objective is to maximize diversity spend, as it supports the organization’s goals (note: not if it means switching to a diverse supplier at a higher price, or by sacrificing quality). In order to meet their objective, the manager needs:

  • An understanding of which diverse suppliers are being utilized, and which ones can be further leveraged;
  • An understanding of which potential, and qualified, suppliers exist in the market;
  • An ability to effectively communicate across the spectrum of stakeholders (e.g., letting a commodity manager know of a potential candidate, gathering information from suppliers upon a new sourcing activity, etc.); and,
  • An ability to track progress against goals, whether by diversity group, by certifying council, by primes, or other.

As was simply stated by a large financial institution, “Identify, Track, Report”.

One of the complications, however, is that there are over 225 certifying agencies. NMSDC, alone, has ~36 regional certifying counsels (e.g., Georgia Minority Supplier Development Council and PA-NJ-DE Minority Supplier Development Council) and the range of certifying agencies span from the SBA to the Illinois Department of Transportation to the City of Chicago, each with their own certification requirements.

The primary issue, therefore, is that significant resources are spent trying to both identify existing suppliers that are diverse (many are onboarded without the Supplier Diversity Managers knowledge), as well as track the status of existing diverse suppliers, as the diverse, as well as small business, suppliers are more volatile (e.g. change in ownership, insolvency, mergers/growth, etc.).

The Diversity Portal Blueprint

Due to ERP limitations, supplier diversity managers have struggled with being able to handle the data flexibility requirements necessary within supplier diversity. Hence, diversity-specific portals. But, even with these niche systems, the burden isn’t necessarily lightened, as suppliers still onboard in separate systems and those systems are rarely the standard for internal communication on prequalified suppliers.

Simply put, supplier diversity managers need a portal that maintained the most up-to-date information on diverse suppliers (active and potential), but is integrated into the organization-wide supplier management process.

A supplier would be prompted with information, such as (note: including some Small Business data elements here, as I will discuss them further in a following post):

  • Are you Small, Diverse, or Disadvantaged?
  • If Yes, what Classifications apply:
    • DBE (Disadvantaged Business Enterprise)?
    • Disabled?
    • DVBE (Disadvantaged Veteran Business Enterprise)?
    • GLBT (Gay, Lesbian, Bisexual, Transgender)?
    • HBCU (Historically Black Colleges and Universities)?
    • HUBZone (Historically Underutilized Business)?
    • Large (Large Business)?
    • MBE (Minority Business Enterprise)?
    • MWBE (Minority and Women’s Business Enterprise)?
    • SBA 8(a) (Small)?
    • SBE (Small Business Enterprise)?
    • SDB (Small Disadvantaged Business)?
    • VBE (Veteran Business Enterprise)?
    • WBE (Women Business Enterprise)?
  • What is your Gender (M/F)?
  • What is your Ethnicity?
    • African American
    • Alaskan Native
    • Asian / Pacific
    • Asian American
    • Caucasian
    • Hispanic American
    • Native American
    • Other
    • Subcontinent Asian
  • % of Ownership (%)
    • Minority
    • Women
  • Please Identify and Upload each Diversity Certification Held
    • Classification, Council/Agency, Certification #, Expiration (with upload/fax on each)

Per above, often diverse suppliers hold multiple certifications. As such, the last requirement should enable them to identify each – and provide an expiration dates on each so that reminders can be sent to the supplier in case a new certification needs to be uploaded.

Note: For the sake of simplicity, this template, which can be intelligent (show/hide questions based on previous questions), would differ based upon country. This is a sample, US-based diversity form. The United Kingdom and Canada, for example, has differing restrictions on what may be asked in regards to diversity.

Combining the diversity master data with other data elements, the supplier diversity manager is equipped to quickly perform other tasks, such as:

  • With commodity/service (w/ or w/o prequal. specifics) – potential suppliers by commodity, areas of opportunity for more diversity, etc.
  • With spend – spend by diversity category, by certification agency, by commodity, by BU, against goals, etc.
  • With performance – areas of opportunity/growth, areas to assist/improve, etc.

Net-net: Supplier diversity can be empowered to do more, and be more effective, once it is integrated into the global procurement/onboarding process.

I look forward to input and thoughts from our supplier diversity community.

 

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