Procurement professionals are faced with the challenge of securing business savings using a variety of strategies. These strategies include: establishing quality competitive bidding standards, analyzing product specifications, global sourcing, and working with business departments to blend procurement considerations into all stages of product and services design and development. In addition, procurement specialists are also asked to improve efficiency and costs while expanding supplier diversity and spend for minority and women owned business enterprises (MWBEs). These two primary procurement goals may seem on the surface to be at odds with each other, but they can be balanced so competition is enhanced in a way not possible if supplier diversity is excluded.
The truth is that in a global environment, supplier diversity plays an even more important role than it has in the past because non-traditional sources offer innovation and new strategies that increase competitiveness and force re-evaluation of standard approaches. This re-evaluation leads to a series of events that can ultimately lead to a company maximizing its ability to improve efficiency while controlling costs.
Subtracting the Status Quo
The re-evaluation begins with a willingness to consider the new approaches. The standard processes that defined procurement in the past focused mostly on pricing. Though quality did count, the more competitive a market, the more likely that price became an overriding factor. However, quality cannot be forsaken beyond a certain point, which means new ideas, new designs, new approaches and new materials are needed. When locked into traditional ways of thinking, it’s difficult to imagine beyond the self imposed limits.
One of the most powerful advantages of incorporating supplier diversity into traditional procurement systems is that quality can be reintroduced to products and services by utilizing unique vendor capabilities. In fact, MWBEs can present a competitive challenge to existing suppliers that leads to better pricing and quality from all vendors. MWBEs can challenge the status quo, but not in a threatening manner. In fact, what firms are discovering is that the globalization of markets is leading to business-as-usual challenges coming from different cultures and competitors not limited by cultural bias. By working with MWBEs, a business can learn to leverage a diversity of knowledge, competitive approaches and innovation to reduce costs while increasing quality.
A Matter of Addition
Understanding the benefits of blending strategic sourcing and supplier diversity is one thing, but how can a firm specifically improve procurement processes? One of the best ways is to look at what would be added to the strategic sourcing process by including diversity in the supplier program.
The first addition is the re-alignment of key suppliers to include diversity suppliers. Subsequently, core business suppliers would now include suppliers that represent diversity. Performance measures for quality, value and service would remain the same, but the additional diversity spend percentage is now tracked.
A number of companies have developed and implemented models for the identification, development and management of supplier diversity. In all cases, the balancing of strategic sourcing and supplier diversity involves a step-by-step approach to insure that best practices are instituted.
One example is Georgia Power, an investor-owned, tax-paying utility that serves 2.35 million customers in all but four of Georgia’s 159 counties. Their model began with discovery of viable suppliers within the spend market. Discovery was followed by evaluation of products and suppliers that were strategically essential to the business model and the creation of a market approach to access those suppliers. The third step was the selection process that includes bidding, negotiation and selection policies and procedures.
Selection of diverse suppliers cannot end with just these steps. The business must then invest in the development of those suppliers for long-term partnering success. The last step is the management of a strategic/diversity sourcing program that includes monitoring performance, encouraging innovation and sharing best practices
The spend analysis should also include everything the company needs to function and not just concentrate on supplying recurring goods and services regularly produced for resale. Spend totals for diversity suppliers can also include non-recurring items for internal or external use and operational supplies and services. In fact, the nonrecurring contracts offer the perfect opportunities to increase diversity supplier spend while also giving MWBE the foothold needed to prove its ability to provide quality performance.
Georgia Power is just one company among many large successful companies that have balanced strategic sourcing with supplier diversity. Another is the Gillette Company, also a large firm that recognized early the value of incorporating MWBEs to achieve competitive advantage. Their Supplier Diversity Initiative (SDI) model established a MWBE spend baseline and tracking program, and then put the infrastructure in place to lead, benchmark and market the supplier diversity program.
Archer Daniels Midland Company, an agricultural processor of ingredients for foods, feed and fuels, also developed a strong supplier diversity program by working closely with national organizations like the National Minority Supplier Development Council and the Women’s Business Enterprise National Council. The company had a supplier diversity program, but, in the last few years, it chose to purposefully expand the supplier list and commit more diversity spend dollars. This is part of the company’s global strategic sourcing program, which has created an access system that is seamless across all business divisions and locations.
Reaching Out to Equal the Playing Field
One of the interesting strategies for those companies trying to reach out to MWBEs and establish healthy market relationships is to attend MWBE program events, trade shows and other events. Successful minority business owners always point out that corporations ready to embrace supplier diversity cannot just sit back and wait for these businesses to approach them. Businesses must reach out to the minority and women’s communities and show sincere inclusionary intent backed by resource commitment and honest effort. For this reason, companies like Cargill, an international food producer and marketer, developed its supplier diversity by participating in organizations dedicated to MWBE growth and success, and encourages all staff to support MWBE businesses when searching for new supply sources.
It’s important to understand that a successful strategic sourcing and supplier diversity program must be integrated into corporate procurement programs and the corporate culture. The inclusionary process will net another benefit, too. It is a means of networking to manage or repair damaged community relationships due to lack of inclusion in the past.
Supplier development is as important as supplier recruitment. Supplier development includes education, training, mentoring, joint partnerships and strategic partnering. This is how mentoring businesses can insure minority and women businesses have a “seat at the table” – by insuring the MWBE has the tools needed to access the systems for full participatory opportunities. MWBEs must know how to access business procurement systems, present innovation and prove competitive superiority.
About DiversityPlus Magazine:DiversityPlus is much more than “just” a supplier diversity magazine.Thanks to its strong media platform, which includes the print edition, digital magazine, website, weekly newsletter, social media, blogs, and video, DiversityPlus is able to provide print readers in seven countries and more than 117,000 digital readers worldwide with access to leading-edge supplier diversity content, webinars, and events.
What you’ll read in the pages of DiversityPlus represents the most current and impactful thinking about diverse supplier relationships. Plus, with over 17 years in print, our trend research, interviews, and feature articles showcase a depth of industry relationships unmatched by any other supplier diversity publication.