An increasing number of employers have implemented a diverse supplier initiative for their purchasing departments over the last decade.
The question is whether such efforts alone are enough. Statewide experts say while intentional efforts at creating an environment that utilizes diverse suppliers represents a positive step, metrics that prove the initiative is working are needed by businesses to confirm the value for all parties.
A diverse supplier is defined by the U.S. Federal Reserve as a business that is at least 51 percent owned and operated by an individual or group that is part of a traditionally underrepresented or underserved population. Examples include minority-owned enterprises and woman-owned enterprises. The definition of a diverse supplier has expanded in recent years to include businesses owned by other minority groups such as people who identify as LGBQT, veterans and those with disabilities.
In three decades, the notion of supplier diversity may take on a whole new definition. The U.S. Census Bureau has predicted that 55 percent of the population will be minorities by 2050. This shift in demographics means that workforces, customers and business owners will all be more diversified, which may change the nature of diverse suppliers all together. Inclusion will be a critical part of creating a positive culture, so businesses that fail to be inclusive could achieve limited growth.
Even those companies with the best of intentions in building a diverse supplier culture, may require a bit of a reality check, says Michelle Sourie Robinson, president and CEO with the Michigan Minority Supplier Development Council. She believes that efforts have moved the needle significantly over the last 50 years since President Richard Nixon created government programs to highlight diverse practices. However, metrics need to be regularly tracked and reviewed to measure effectiveness.
“Having a supplier diversity program is one thing but (uncovering) program-driven results is another,” Sourie Robinson says. She believes the most important metric that employers often miss is the amount of money they are spending on supplier contracts. Tracking that spending metric can help ensure that equal opportunity is truly being provided to people from all demographics who have historically been underrepresented.
It should be an easy sell for employers to highlight and follow this “spend” metric and others because it is in their best interest, says Sourie Robinson. After all, American demographics are changing, and people of color will represent the majority of the country in the coming decades. Having an effective supplier diversity program should reflect the communities that companies want to sell to, she adds.
Having an internal culture that values diverse suppliers is one of the keys to having a successful process, says Valencia Stoudamire, vice president of supplier diversity with Henry Ford Health. That support needs to start at the top, which is why Henry Ford identifies diversity champions at the executive departmental leadership levels. This team is responsible for reviewing supplier diversity goals and objectives throughout the year, along with ensuring other efforts to promote diversity are followed system wide.
One of the ways these leaders confirm such goals and objectives are met is to measure success. It has established a dashboard to measure performance of its supplier diversity efforts. Those results are tracked closely again pre-determined checklists. All data is reported to the company.
“We’ve been fortunate to maintain executive support and advocacy for more than 25 years, but you have to be intentional about it,” Stoudamire says. “It would be a hinderance to not have executive support. Our process helps to positively influence vendor selection.”
The financial impact of supplier diversity
The U.S. Department of Commerce released data earlier this year that indicates the U.S. economy will grow by anywhere from $6-8 trillion by becoming a more inclusive economy. Furthermore, if every business in the U.S. spent one percent more with certified diverse suppliers up to 15 percent of its current spend, the country would close most or all of its inequality wealth gap.
A report by McKinsey & Company in 2023 indicated that closing the racial inequalities gap within business could boost the U.S. economy by as much as $3 trillion annually. That equates to roughly 12 percent of the country’s current GDP. These are reasons why supplier diversity has become a top priority for many companies.
“A rising tide lifts all boats,” says Sourie Robinson.
Certification should not be overlooked
The first step for suppliers to be considered diverse is to be certified as diverse, says Ted Archer, global head of business partner diversity at J.P. Morgan Chase. There are numerous agencies that offer this service, such as the National Minority Supplier Development Council. Once an organization is certified, it should be prepared to access the capital it needs to provide services to the types and sizes of companies it targets. For example, working with J.P. Morgan Chase may require a supplier to have the financing needed to fill large-scale contracts.
According to Archer, once certification is assured, suppliers need to demonstrate both capital to tackle projects, and an industry-leading level of customer service. That includes addressing the needs of J.P. Morgan and its own customers.
The MMSDC focuses on developing, connecting and advocating for diverse supplier best practices. While it will soon discontinue offering minority certifications for suppliers, that service is still available through the National Minority Development Council. MMSDC will also create its own bank in 2024, allowing it to offer business loans of up to $1 million for qualified businesses.
Henry Ford Health encourages suppliers to develop strategic partnerships. One benefit is that this can help suppliers qualify for diverse status even if the primary owner(s) does not come from a historically underrepresented population. Creating a third company qualifies as diverse supplier but brings together combined knowledge and service that can support the end client, multiple entrepreneurs can benefit, Stoudamire says. This is a common practice within the construction field, she adds.
“These partnerships also allow suppliers to scale up to meet the demand, regardless of who is considered (the primary owner),” Stoudamire says. “We often see diverse and (non-diverse) companies form strategic alliances that create mutual benefits.”
Importance of tracking data and internal progress
Data analytics and management solutions provider Supplier.io released its 2023 Supplier Diversity Benchmarking Report earlier this year, which analyzed over $1.4 trillion in actual supplier spend across 466 companies and more than 15 industries.
The report found that companies on average spend 3.6 percent with certified diverse suppliers—with a best-in-class average of 9.1 percent — and 7.5 percent with small and diverse suppliers, which highlights the importance of looking at consistent data. Diverse spending is highly concentrated, which may be a risk: 80 percent of companies spend less than 5 percent with diverse suppliers, and the top 10 diverse suppliers receive 17 percent of money spent on all diverse suppliers.
Dollars invested into an effective, measurable supplier diversity program should have a positive ripple effect, says Sourie Robinson. Establishing key performance indicators can help drive quantifiable results. That is more important than “marketing-speak” and collecting awards for the existence of a supplier diversity program without any insights into its value.
That is what companies today are not doing well, Sourie Robinson says. “It’s not just about being present you have to be making a quantifiable difference.”
What companies are doing well is paying attention to the fact that the market has shifted. Younger workers are more interested in concepts like sustainability and are more aware of the importance of diversity. They are more aware of its presence or absence as well.
Even though small to mid-sized businesses may not be able to dedicate the employee resources to create a form diversity supplier committee, there are a few steps they should take to participate in the effort, according to Sourie Robinson. The most important is to tie a supplier diversity plan to the business strategy. That way it will remain a priority and can more likely achieve real results. “You’ll reap the benefits,” she says.
Some of the responsibility lies with clients
Archer leads a team responsible for fostering that culture of diversity within the procurement space. He says J.P. Morgan Chase has three areas of emphasis when working with diverse suppliers. The first is facilitating the growth of these diverse business. That includes giving certified suppliers the ability to access financial company’s network.
Second is promoting equity and inclusion along with diversity with all suppliers. Archer and his team work closely with suppliers to ensure they are equally committed to DEI tenants that mirror Chase’s high standards, such as employing professionals from traditionally underserved and underrepresented populations. Finally, supporting these diverse suppliers at a local level will help support communities and build the local tax base.
“There is no more direct way to grow and sustain a company than through supplier diversity,” Archer says.
“We want to be an organization that lifts up equity and can help make dreams happen for deserving minority suppliers. It will help support these suppliers with tools, resources and education, but the supplier itself must take steps to try and remove any barriers as well.”
Cybersecurity leads the list of barriers for diverse suppliers to overcome
One barrier, especially in the heavily regulated financial services sector is cybersecurity. Suppliers must meet minimum stated requirements to be a resource for J.P. Morgan Chase. The bank in turn provides a free assessment for interested suppliers to see if they have these minimum safeguards in place, and if not, what they need to qualify. These includes confirming the installation of important network updates to keep up with cybersecurity requirements.
“Being cyber ready is more important than ever,” Archer says. “It’s one of those investments that companies need to make, so we do what we can to help diverse suppliers understand what is needed.”
Stoudamire agrees about the importance of cyber security awareness for suppliers. Like the financial sector, healthcare organizations have strict guidelines to protect customers and patients, and all suppliers are part of the solution.
With this in mind Henry Ford Health has hosted a cybersecurity event for its suppliers where leaders from the organization’s information privacy team lead educational workshops designed to help any supplier learn more about requirements. Stoudamire says it is more about mitigating risks and ensuring the safety and security of Henry Ford’s patients and staff.
Similar steps are taken to inform and educate suppliers about other issues important to the health system like patient safety and infection control. For example, it is important to know from suppliers where their products are manufactured because that alone could prevent a supplier from being an approved vendor.
Even suppliers who are denied can benefit from Henry Ford’s feedback.
“All suppliers can take advantage of a debrief with our team where they can learn why they were not selected,” Stoudamire says. “That feedback can help them qualify for another project, whether with us or another (healthcare entity). We have suppliers who were denied by us before and have come back once they took the steps they needed to qualify.”
Cybersecurity is not the only common barrier preventing diverse suppliers from finding new business. Others include having the proper bonding and insurance that helps protect both parties.
Archer says that insurance costs have been rising, which can be another operational and financial challenge for some diverse suppliers. J.P. Morgan Chase is willing to introduce some of its trusted diverse and minority owned suppliers to industry contacts who can help overcome such barriers.
“A lot of the work we award to minority suppliers depends on forging new relationships that expand their role and impact on us,” Archer says. “We want to make sure there is mutual value.”
Setting the stage for future success
It’s also important to build a future pipeline of professionals that will advocate for supplier diversity programs. Travis Spencer, the head of Ford’s supplier diversity and inclusion department developed a partnership with Detroit Public Schools starting last year that brings students a chance to come into the facility and learn about manufacturing and then offering them jobs when they’re done with high school.
“Our ability to source that company and help him grow his business created jobs in Detroit but is also offering educational opportunities and employment opportunities to kids in the Detroit public school system,” Spencer said.
The key to Ford’s success in working with diverse suppliers is its own set of “pillars” the team has established, similar to what Archer references. At Ford, the key element is always training. Ford provides internal education to its employees, frequent supplier diversity training to all of its procurement professionals and other business units.
“This is probably one of the most essential pillars of them all,” Spencer said. “You have to have frequent supplier diversity education to all your procurement professionals … but also other stakeholders involved in decisions.”
Visit www.minoritysupplier.org to learn more about the services offered by the MMSDC.
