The Business Case For Supplier Diversity

Our panel of experts investigates the ROI of implementing diversity into the supply chain

March 14, 2014
by By Michael Power

CalgaryParticipantsWhen the concept of “diversity” is used in a business context, listeners might assume the discussion is regarding corporate social responsibility programs. While such programs no doubt provide organizations with value, their direct contribution to the bottom line might be seen as difficult to track on an organization’s balance sheet. Similarly, the term “supplier diversity” may pro

duce thoughts of preferential treatment to underrepresented suppliers—businesses owned by Aboriginal, women, LGBT or minority members, among others—for the sake of driving corporate socia

l responsibility goals. But a panel discussion held at the National Supply Chain Forum (NSCF) at Calgary’s BMO Centre from October 28-30 sought to test that assumption, as well as show supplier diversity’s positive impact on the bottom line. The panel, organized by PurchasingB2B magazine in partnership with the Canadian Aboriginal & Minority Supplier Council (CAMSC) included the following participants: Cassandra Dorrington, president and CEO of CAMSC; Charles Varvarikos, head, facilities sourcing, RBC; Jenny Larocque, corporate development officer, Spirit Staffing; and GM’s supplier diversity manager Reginald Humphrey, who participated in the panel session from Detroit via Skype. PurchasingB2B editor Michael Power acted  as moderator for the session. To begin the discussion, the group worked to define what’s meant by the term supplier diversity. Dorrington acknowledged that the expression can lead to “a blank stare” when mentioned within the Canadian marketplace. She stressed that supplier diversity didn’t represent a quota system, a charity or a “set-aside”. Rather, the concept was about utilizing new, under-utilized suppliers. “For us, it’s a proactive program or process set in place by an organization that ensures an inclusive supply chain,” she told the audience. “We’re trying to make sure your supply chain expands beyond what’s traditional, whether it be women-owned businesses, LGBT businesses, minority businesses, or Aboriginal,” she said. “It’s about being proactive enough to recognize there are suppliers out there who can meet the need.” Varvarikos agreed that inclusivity was key to supplier diversity. The concept, he noted, embodied equal opportunity for diverse businesses to get their goods or services in front of corporations looking to buy them. “Whether it be Aboriginal, women-owned, visible minorities, it’s about offering people opportunity to compete,” he said. At RBC Bank, he said, supplier diversity didn’t mean awarding business based on an organization’s diverse status. Rather, it meant offering opportunity and building value. Larocque agreed, noting: “As Spirit Staffing is a diverse supplier, we have to compete equally with other suppliers to get businesses.” Meanwhile, Humphrey said that supplier diversity strengthens GM’s value chain at the Tier 2 level as well as the Tier 1. It’s easy to forget that supplier diversity appears all along the value chain, he said. Essentially, including diverse suppliers allows GM to leverage under-utilized companies in specific regions or within ethnic groups. “Supplier diversity is a unique network of corporate, it’s a unique network of suppliers and it’s definitely a unique network of how we work together,” he said. “I haven’t seen any other discipline in my career at General Motors where so many companies will collaborate to share best practices. Supplier diversity allows us to leverage these best practices and these suppliers to optimize our value chain.”

"I haven't seen any other discipline in my career at General Motors where so many companies will collaborate to share best practices. Supplier diversity allows us to leverage these best practices and these suppliers to optimize our value chain." - Reginald Humphrey

“I haven’t seen any other discipline in my career at General Motors where so many companies will collaborate to share best practices. Supplier diversity allows us to leverage these best practices and these suppliers to optimize our value chain.” – Reginald Humphrey

The panel then broke down supplier diversity into its components, providing the audience with an image of what an organization’s supplier diversity program might look like. The metrics used to analyze such a program include everything from spend to hiring practices and the impact those decisions can make in the community, said Humphrey—although supplier diversity programs focus largely on contract awards, he noted. One of the first necessary steps when instituting a supplier diversity program is to understand fully an organization’s corporate strategy, Humphrey said, which helps the organization realize why such programs are important. For example, he noted, diversity drives creativity and smaller entrepreneurs tend to be more agile and can sometimes react faster than larger organizations. “First, it starts with corporate strategy and alignment,” he said. “Then it comes to assessing your supply base, your needs, your supply and demand. And then it comes down to using the network to fulfill those gaps, performance issues, innovative technology issues that you want. Lastly, on the execution side, it’s allowing to share best practices on how you communicate those metrics.” As well, no organization should try to implement a full supplier diversity program in too short a time, Humphrey said. “The biggest mistake people make is trying to force-feed a diversity program down a corporation’s throat,” he said. “Identify what’s important to your company today and how can the diversity network influence and enhance those already established goals and objectives.” Varvarikos noted that once an organization has a strategy in place, it’s time to put together a plan. The first step that RBC took was to identify supplier diversity experts. The bank reached out to organizations such as CAMSC for expertise, which included access to its database of diverse suppliers. As well, Varvarikos recommended tracking and monitoring supplier diversity efforts to help ensure a program is successful. “How many opportunities are you affording people? How many successes are there? Are you giving out programs? How many mentorships have you done in the last year or two? How are your surveys on those mentorships? There are so many different components you can add into a supplier diversity program,” he said. Dorrington stressed that organizations must provide top-down support for supplier diversity, and such programs can’t be a “one-man show.” As well, she recommended organizations perform a baseline survey of suppliers to identify whether it already employs diverse suppliers, and if so how many. “It takes a while to get to that process,” she said. “There are some fairly straightforward practices regarding how to get there. But it starts with a willingness to say, ‘We want to be able to do it, where do we start?’” What’s the ROI? The panel discussed the business case for supplier diversity. For the supplier, the advantages include building capacity and learning how to compete, said Varvarikos. For the buying organization, an inclusive supply chain means a more diverse pool of thought and talent. “By accessing diverse suppliers we access a lot of companies that are very innovative,” he said. “Some of them are smaller, but usually they’re more nimble because they can act quicker and we obviously do a lot of business with the giant companies as well. But a giant company can only move so quickly. When you have immediate business needs you go to your smaller suppliers and there’s a good opportunity to get something done quicker and quite innovative as well.” Supplier diversity offers a cyclical value chain, said Humphrey. As organizations do business with diverse suppliers, those suppliers become more sustainable and able to attract diverse talent. That translates into wages and expendable income, which in turn means increased buying power. “That buying power, for General Motors, means a lot,” he said. “It can lead to diverse products, to a diverse customer base. We need loyal customers that will align themselves with General Motors. If I’ve got a diverse company who has an embedded loyalty to General Motors because of the investment we put in them, now they’ve got wages. Now they can spend that expendable income. It becomes profit to General Motors and guess what? Now we’re able to reinvest in those same suppliers.” Humphrey noted a female, Native American entrepreneur in Detroit who put together a joint venture with a Tier 1 supplier to create an organization called Detroit Manufacturing Systems. That organization went from having 80 employees to over 700. The average time that the company’s employees had been unemployed was 14 months, Humphrey said. “They suddenly have pride, they have economic stability,” he said. “Now, they’re connected by loyalty to a company that gave them a fresh start.” Creating that wealth within a community (rather than supplier diversity simply being charity work) was an intelligent business strategy, said Dorrington. By way of example, she cited an organization that CAMSC worked with that was able to get a 25-percent cut in costs by bringing in a diverse supplier. That’s because the new supplier was able to offer the organization an innovative way of looking at a business situation. “That’s not to say it’s all about cost, but it’s all about the new innovation and flexibility that comes with introducing this into your supply chain,” she said.

"As an Aboriginal woman-owned business, it not only classifies us as a diverse supplier, but also enables us to supply a diverse workforce." - Jenny Larocque

“As an Aboriginal woman-owned business, it not only classifies us as a diverse supplier, but also enables us to supply a diverse workforce.” – Jenny Larocque

Laroque agreed, noting that supplier diversity results in long-term investment and growth, which creates value for the community. To sustain a competitive advantage, organizations must explore several resources, she said, and businesses can’t thrive while relying on a single approach. Diversity is a critical element in building an effective workforce and efficient supply chain. Strategically selecting diverse suppliers helps add value and create social benefits that support the demographic group of their workforce and customers. Diverse suppliers like Spirit Staffing can work with customers for tailored approaches to business needs, Laroque noted, agreeing that small businesses offered flexibility and were open to creative business solutions. “As an Aboriginal, woman-owned business, it not only classifies us as a diverse supplier, but also enables us to supply a diverse workforce,” she said. “We’ve been a second-tier diversity supplier to an international oil and gas company working in partnership under their first-tier international supplier for the past eight years. We’ve contributed significantly in supplying an Aboriginal and visible minority focus contingent workforce and have been able to compete and perform alongside their first-tier supplier with great success.” Supplier diversity metrics With any large corporate initiative, tracking progress is one of the key steps towards realizing success, and supplier diversity programs are no exception. The panel discussed metrics and how organizations can benchmark whether their supplier diversity programs are realizing a return on investment. For Varvarikos, the key is to look at trends regarding supplier diversity, which Canadian organizations have been able to do for about 10 years. While still relatively young compared to such programs south of the border, Canada has seen good progress towards a more diverse supplier base, Varvarikos noted. He echoed Dorrington in calling for baseline tracking of areas like diverse spend, opportunities available for diverse suppliers, how many diverse suppliers a company mentors and so forth. “It’s all about improving and carrying on year-after-year improvement, making sure the program works and that RBC is getting the benefit as well,” he said. “Are we saving money through it? What about the quality of our products and services? So there are any number of metrics you can use. It probably makes sense to start simple with a few metrics and then build them up as you get more sophisticated.” It’s also important to track success stories, said Varvarikos. For example, a woman-owned architecture firm that attended an RBC mentorship workshop ended up on the bank’s bid list for architecture services, Varvarikos said. It’s a success story because while the firm plans to bid on a large RBC contract, it’s already done four projects for another Tier 1 supplier that the owner met at the mentoring workshop. A simple metric that organizations can use is looking at money spent at the Tier 1 and Tier 2 levels, added Humphrey. As well, companies can employ a snapshot of where the organization stands in terms of the lifecycle of current contracts. For example, if an organization has 200 suppliers with an average contract lifecycle of two or three years, it’s relatively easy to project what a supplier diversity program will look like in a few years. “Part of it is understanding your new business awards,” he said. “At GM, we not only track the number of suppliers—the spend—but we also track the new business awards every quarter so that we can understand the sustainable curve and what our program will look like in the out years, based on the average contract life cycle.” As well, organizations can integrate everyday corporate metrics into supplier diversity programs, Humphrey added. His team at General Motors looks at diverse suppliers in terms of cost savings, quality, delivery and so forth. “We want to make sure that they’re getting the same level of exposure that some of their bigger, non-minority, non-diverse companies are getting.”

"For us, supplier diversity is a proactive program or process set in place by an organization that ensures an inclusive supply chain." - Cassanddra Dorrington

“For us, supplier diversity is a proactive program or process set in place by an organization that ensures an inclusive supply chain.” – Cassanddra Dorrington

Tracking the number of bids to which diverse suppliers have been invited allows organizations to see whether those suppliers are offering valuable goods or services, said Dorrington. From there, organizations can track whether the number of bids increases and if those bids turn into awards. “Dollar spend, that’s hard if you’re just starting out,” she said. “What are the steps you’ve done along the way in developing that community and developing the suppliers? That’s where we start to see some real success.” Organizations can define success in several ways, noted Larocque. “But once you actually have a program rolled out, you need to measure it by quantifying the data and then comparing it to your organization’s goals to ensure that you’re hitting those targets.” Supplier mentorship Another way that organizations can get involved in supplier diversity is through mentorship, and both RBC and General Motors have such programs. RBC holds an annual event, with roughly 100 attendees, focusing on networking. The event features roundtable sessions, panel discussions and presentations on how organizations can best position themselves to compete, navigating around large corporations, establishing relationships and so forth. The bank also provides one-on-one mentorship, where it pairs RBC procurement professionals with diverse suppliers for a year. “It’s a reciprocal mentorship program,” he said. “Each person learns from the other. The RBC counterpart learns what the gaps are in our supplier diversity program and how we can improve it. The diverse supplier looks at how to be more successful when competing for business at corporations like RBC. Both programs have been quite well received and we’re looking to expand them further.” Laroque told the audience that she had recently been accepted to participate in RBC’s reciprocal mentorship program. The focus will be on evaluating RFPs and what larger organizations look for from suppliers. “From our perspective that knowledge is so valuable,” she said. “We’re a small supplier—we have the capabilities of competing alongside other agencies and other companies. And so just the learning from it is so valuable.” General Motors has a program called the diversified development program, said Humphrey. The program features a two-year timeframe with key components that include the executive director meeting quarterly with the owner and top leadership of the company to go through action items to ensure they get addressed. Suppliers graduate from the program after the two years. General Motors currently has eight suppliers enrolled in the program, Humphrey said. Dorrington recommended that organizations talk to diverse suppliers to ensure both sides are clear regarding expectations of the process. Typically, she said, suppliers are looking to build a relationship that results in a contract. Meanwhile, a corporation’s role is often to grow the supplier’s ability to bid, and these two differing viewpoints can lead to misunderstandings regarding the goals of a program. “Make sure there’s management of the expectations at the front end,” Dorrington said. “You have to say, ‘what do I want my program to deliver? Is it simply to grow the supplier’s knowledge or is it to grow the supplier?’ Those are distinctly different elements that you have to be aware of.” During the discussion, the panel produced a definition of supplier diversity, described the elements of a supplier diversity program and put forth the business case and best practices for implementing a program. Those looking to implement or expand policies should have ample new ideas to work with.