Subscribe
PurchasingB2B

Why diversify?

The ROI of supplier diversity may not be top-of-mind in every organization. But the benefits of including diverse suppliers are real, says our panel of experts.


April 27, 2011
by Michael Power

Canadian business leaders from a cross-section of industries met at Purchasingb2b’s supplier diversity roundtable on February 8, 2011. The event was sponsored by Grand & Toy, a Canadian Business solutions provider dedicated to promoting thought leadership on sustainability and strategic procurement in the Canadian supply chain and procurement industry. This is an editorial report detailing highlights of the event.

PURCHASINGB2B MAGAZINE: MARCH/APRIL 2011

The ROI of supplier diversity may not be top-of-mind in every organization. But the benefits of including diverse suppliers are real, says our panel of experts. Michael Power shares their insights and tips.

While the bottom-line benefits of some initiatives organizations take on are clear from the beginning, the ROI of others may not be immediately visible. Whether organizations invest resources to ensure their supply chain is diverse and reflective of Canada’s varied population depends on making a business case for supplier diversity.

Our roundtable of experts. Standing, L-R: Patricia Moser, Stephen Bolduc, Cassandra Dorrington and Michael Bourne. Seated, L-R: Courtney Betty and Barbara Anderson.

To discuss these and other issues, and to offer tips on how to promote related programs, Purchasingb2b along with our sponsor, Grand & Toy, hosted a roundtable panel.

Roundtable participants were: Courtney Betty; president and CEO of Diversity Business Network; Cassandra Dorrington, president of Toronto-based Canadian Aboriginal Minority Supplier Council (CAMSC); Michael Bourne, IBM’s manager, business operations, controls, ombudsman, diversity & MARCOM integrated supply chain; Barbara Anderson, chief financial officer for the Pan/Parapan American Games; Steve Bolduc, owner of Aboriginal Printing; and Patricia Moser, Grand & Toy’s vice-president of supply chain. Emily Atkins, Purchasingb2b’s publisher and editor-in-chief, led the discussion.

The participants discussed issues affecting supplier diversity, as well as strategies companies can use to help them reap the ROI supplier diversity offers.

To frame the discussion, the group began by defining supplier diversity. Roundtable members agreed any definition of supplier diversity should avoid labeling such suppliers “disadvantaged”. Rather, the definition should include words such as proactive, inclusive, accessible, participation and economic development.

“Sometimes the term ‘disadvantaged’ makes folks think that it should just be in the corporate social responsibility realm as opposed to being an excellent business practice,” said Moser. “And so I’ll just look at that terminology and say, perhaps we’re sending a little bit of the wrong message.”

Moser offered this definition: Supplier diversity is “a proactive business process that seeks to provide suppliers equal access to supply management opportunities and promotes supplier participation, reflective of the diverse business community, and encourages economic development.”

The group agreed ethnicity wasn’t the only characteristic of diverse suppliers—age, gender and other factors must also be considered in the definition.

The why

Why is supplier diversity important, and what is the business case for organizations seeking a diverse supplier base?

According to Dorrington, supplier diversity enhances an organization’s competitiveness. As well, accessing a broader vender group provides increased flexibility and innovation.

“That, of course, can lead to cost savings, higher quality goods, quicker turn-around, all those things that (corporations) would be saying, ‘oh, that’s interesting. Let me hear some more,’” she said.

But to build a case for supplier diversity, it’s important to expose some of the myths the terms carries, said Moser. Those myths included the notion supplier diversity is both costly and a form of charity. Moser agreed companies seeking supplier diversity could reap benefits such as flexibility and innovation within their supply chains.

“On top of that, there’s not the bait and switch that can often occur,” she said. “So I get the A-team to the table with a larger firm, but the B-team comes in to deliver. So here I get the A-team all the way through.”

Bolduc agreed smaller companies may not be able to compete at the same level as large ones. But a benefit of that smaller scale is the extra work larger companies may not be prepared to do, he added.

“With a small supplier, you’re talking to the owner,” he said. “You’re talking to the guy who will work the extra 30 hours a week or drive to New York for your project or drive your business cards to the airport for you when you need it. That’s the difference. But also, for a large organization to connect with a diverse supplier, there is a secondary benefit in the fact that the funds that go to a diverse supplier are transmitted within their community.”

US-based research shows companies with diverse supply chains see growth two-percent higher than their competitors, according to Betty. One company, he noted, had expanded the base of those contributing to its product. That move had cut by 25 percent the time it took to bring that product to market.

“The creativity, the thought, the innovation, the expansion into new markets, all of those are definitely documented and proven,” he said. “It’s how do we just get people to recognize that the old thought process that this is charity—it should come through your community development program and it’s a cost to you—that’s the real challenge for us now.”

Anderson noted the Pan Am Games had focused on connecting with networks such as CAMSC and the Diversity Business Network to let diverse entrepreneurs know what the Pan Am Games will need over the next three to five years. While opportunities abound to employ diverse suppliers, Anderson said, it will take time to connect with those companies and discern what the obstacles those companies face in participating in the tendering process.

“We’re not going to accomplish this today or next year, it’s an evolution,” she said. “Part of it is building the capacity so that we have sustainability in the supply chain. What we’re doing is taking that pause, getting ahead of what our needs are and doing that outreach so that organizations have the opportunity to get prepared for participating.”

The shift towards a more diverse supply chain can’t be accomplished overnight, Bourne agreed. But the change in popular perceptions of supplier diversity would eventually drive organizations towards seeking supplier diversity. “It’s just a question of how long it will take us to get there,” he said.

The how

In many organizations, the group agreed, procurement managers can face challenges getting the supplier diversity issue in front of senior management. Rather than remaining strictly a procurement policy, supplier diversity programs need support across an enterprise, said Moser. Acceptance of the importance and benefit of programs must happen at senior levels—then filter through the company—to be effective.

“If it doesn’t start at the top it will always kind of churn a bit and stop, and churn a bit. People will be able to marginalize it with other priorities,” she said.

But how the procurement manager gets awareness of supplier diversity into the C-suite depends on the organization, said Bourne. Companies with strong internal diversity gravitate more easily to the notion of supplier diversity, since the knowledge and capacity for such programs already exist.

Bourne recommended procurement managers talk with their companies’ marketing departments to help get supplier diversity programs into the C-suite.

“Look at the marketing department and say, ‘where’s the advantage of us illustrating to our clients—existing and non-existing—that we have a huge, awesome diverse supplier base’?” he said. “Once they see the accolades, the fiscal return—that’s motivation.”

For companies already working with diverse suppliers, a way to get the issue in front of senior management is to point out the value to date of working with a diverse group, said Betty. By pointing out those advantages, procurement managers can encourage upper management to further develop policies.

“There’s always this feeling that we’re doing these things anyway, but now here’s an opportunity to assess it, to document it and actually make it an asset for your company and, by doing that, you now have at least a framework that you can build on in getting a broader acceptance across the organization,” he said.

As well, mid-level managers looking to advance supplier diversity within their organizations can also contact groups such as CAMSC or WEConnect Canada (for female business owners) for guidance, said Moser.

Part of the business case for supplier diversity rests on what Anderson called the social ROI. She again stressed such benefits had little to do with charity. Rather, supplier diversity offers benefits to both company and the larger community.

“I think a purchasing manger, by doing those audits, understanding what’s existing in an organization, can build a very compelling business case focusing as well on the internal business ROI but also the macro ROI. I think it is a very compelling story most senior executives would buy into,” she said.

But to start a supplier diversity program, organizations must have a clear view of the shape it will take, and issues such as benchmarks and timeframes need to be hammered out. To do so, it’s key to formulate a definition of a diverse supplier, said Moser.

“You have to have that clarity, otherwise you’re going to go off track,” she said. “You have to develop a database and vet suppliers. When you have outreach programs and so on, you can’t do business with everybody and everybody doesn’t make sense for you to even try to do business with.”

Beginning with incremental steps helps increase the chances a supplier diversity program will succeed, said Anderson. She recommended choosing a project or initiative with a smaller scope to get started. Doing so helps organizations rack up successes while the notion of supplier diversity becomes entrenched.

“I think you need to bite off what you can actually accomplish in the period of time,” Anderson noted. “So that you can get those successes, so that it becomes a sustainable program and not just something that has a short-term life.”

One strategy companies can adopt is including a nod to diversity in their RFPs, said Betty. “The RFP process makes your tier-one, your tier-two and your other suppliers accountable and it just has tremendous ripple effects (such as) developing relationships—all of the things that we’ve talked about here are accomplished with just that simple injection within the RFP process,” he said.

The Pan Am Games has partnered with Infrastructure Ontario in building the venues, said Anderson. That relationship has helped influence Infrastructure Ontario to incorporate diversity into their RFQ and RFP processes.

“Will it be a hundred percent successful? Probably not, but again it’s that ripple effect, that awareness-building and our desire to ensure somewhere on the chain we get some diverse suppliers. And it will be with a tier-two or a tier-three coming together in a consortium-like process where I think we’ll have some wins,” she said.

On the operating side, the Games have diversity built into the RFPs, she noted. “So far, we’ve been mostly acquiring services and so it’s mostly people and there’s no big procurement. But as we go through the Games, that will be a much bigger part of our criteria because it’s going to be for goods as well as services. And, therefore, much more opportunity for these organizations to demonstrate what they’ve done.”

Several members of the roundtable agreed if the RFP process is overly arduous, small- and medium-sized businesses could get left behind. Those smaller businesses end up sidelined by the requirements contained in the document, said Moser.

“I’ve seen some RFPs in the past that are 160 pages, and what’s really key to it is about three pages and you could have tossed the rest of it,” she said.

Allowing smaller suppliers to submit joint bids—so that they can focus on the part of a job they’re capable of—would help get their foot in the door, Dorrington noted.

But those smaller companies don’t have to go it alone. For example, CAMSC and WEConnect Canada certify organizations with at least 51 percent minority ownership, she said. While the process takes up to three months, the payoffs of getting certified are real.

“Once they’re certified it’s an actual stamp they can use on their RFP,” she said. “They can use it on their reach-out letters and they actually get into a database. Now we can start connecting them as opportunities come from corporate Canada.”

Bolduc recommended “100 percent” that organizations get certified. The process is inexpensive, opportunities abound to hear and learn from war stories, and participants gain new perspectives on their business, he noted.

“You have to bide your time—it’s not going to happen on the first day and it’s not going to happen the first year, but you’ll win victories here and you’ll lose some there,” he said. “But just be persistent, be committed, dream and participate in the network in your community.”

Mentoring programs provide support, noted Dorrington. For example, consulting firm Accenture has developed an 18-month mentoring program that connects suppliers with mentors in its network for coaching.

Measuring success

So if an organization sets up a supplier diversity program, how is the success of that program measured? It’s tough, admits Bourne. However, certification helps track how diverse a supplier base is.

“If somebody doesn’t come to the table and tell us that they are certified either through CAMSC, WEConnect or they just voluntarily broach the subject to us, we won’t know. So you can’t track,” he said. “And it’s not measurable from that perspective. So self-declaration is actually a big thing because it opens the door to additional questions that the company or corporation can ask.”

Measuring the success of a program can also depend on how an organization defines success, said Moser. Is success measured by how many diverse suppliers a company employs? Or, is it measured by how that diversity affects business?

“One of the things that’s sometimes missing is a review within an organization using diverse suppliers and saying, ‘how have you found the diverse suppliers? And how have they helped you be successful in what you’re providing to your clients or within the organization?’ I think that second part is often not done. The success is defined in how many diverse suppliers and their percentage of spend,” she said.

The Toronto 2015 Pan Am Games is in a unique situation, since the event is starting with no suppliers, said Anderson. And since the games will end in 2015, the goal would simply be to move the needle forward on supplier diversity.

“We won’t have the benefit of being able to assess how they directly changed margins,” she said. “I think our job will be the capacity building area of this initiative. Setting examples, working with other organizations so that they know what we need and to work to aid this mentoring or this partnering that can go on.”

Advances in Canada

In Canada, the private sector has done more than governments to advance supplier diversity, said Dorrington. As well, Canadian offshoots of US companies tend to have programs that are more entrenched than their homegrown counterparts. Largely, the diversity of companies’ supplier bases depends on the demographics of the the company’s location.

“Of course, you’re seeing it in the Toronto region, we’re going to see it out west where we see some of the larger aboriginal population. We’re going to see it in BC where we see the huge growth out there. Not in the regions that tend to be more homogeneous, who haven’t seen a dramatic growth in demographics,” she said.

Betty pointed to targeted supplier diversity programs across Canada, such as a program in New Brunswick for women. Hopefully, he said, such programs will consolidate as more organizations look to expand the diversity of their supplier base.

During the lively discussion, our panel hammered out a definition of supplier diversity and offered tips to help make it a reality. Procurement specialists who want their organizations to incorporate diversity into procurement policies now have plenty of ideas to work with.