Supplier Diversity: Where Are We?

Supplier Diversity: Where Are We?
Mark Cartwright, CPSM, CPSD
Director of Supplier Diversity
Commonwealth of Virginia
[email protected]
(804) 786-9135
Is Supplier Diversity Still Relevant?
 In 1970, the acclaimed economist Milton Friedman captured the
sentiments of many when he stressed that “there is one and only
one social responsibility of business, to use its resources and
engage in activities designed to increase its profits.”
 In 2012, this sentiment is still held by many and translates to many
organizations continuously striving to increase productivity, lower
costs and develop new markets.
 From the VPPA…To the end that public bodies…obtain high
quality goods and services at reasonable cost, that all
procurement procedures be conducted in a fair and impartial
manner with avoidance of any impropriety….that all qualified
vendors have access…and that no offeror be arbitrarily or
capriciously excluded…
Not All Have Shared in the Success
 The Commonwealth of Virginia has been named the
best state for business numerous times. While such
accomplishments should be celebrated, there is great
cause for concern. Despite past efforts to make the
Commonwealth more inclusive from a procurement
perspective, willing and capable diverse businesses
continue to struggle to establish a foothold.
 Overt efforts to exclude such businesses from the
supply chain have greatly diminished, but the
Commonwealth clearly has not exhausted all of its
options in an effort to ensure equal opportunity and
access for all.
An Economic Imperative
 Small and diverse businesses drive our economy and
contribute to the fabric of our local communities.
Fostering an environment for entrepreneurial, highgrowth companies to succeed leads to job creation for
all Virginians.
 As our economic base expands, it is imperative that we
foster an inclusive procurement environment that
creates the broadest opportunity for everyone.
 Competitive opportunities must be awarded on merit
and potential for success. Diverse businesses across
Virginia have clearly demonstrated that when given the
opportunity, they more than rise to the challenge.
What About Legal Constraints?
 Can open competition can be accomplished without
granting preferences based on race or gender?
 Yes, however, policies that conforms to the race and
gender neutral mandate do not and should not be race
and gender numb. We have data that tells us that the
Commonwealth has done a particularly poor job of fully
engaging women and minority vendors.
 Being race and gender numb means failing to
acknowledge the problem and failure to take specific
actions to address the deficiencies.
 Under the leadership of Governor McDonnell and SOA
Lisa Hick-Thomas, we have a plan in place to address
the deficiencies at multiples touch points.
We Must Do Better
 The historic under participation of diverse firms in the
US economy is a huge problem because we are just
one of many players in hypercompetitive global market.
 Whole industries can seemingly migrate overseas
overnight. Jobs disappear, revenue streams are lost,
capital dries up, and tax revenues vanish. The US is
then lacking the cash needed to upgrade its
infrastructure and maintain critical services. Once in
that downward spiral, it’s painfully difficult to recover.
 We need all citizens fully contributing to the country’s
economic well-being, as minorities are well on the way
to becoming the majority of our workforce and
entrepreneurial economy.
Capital Must Be Allocated Wisely
 It is well established that small businesses are the
biggest source of job creation in the US, so most of the
money needs to end up in the hands of entrepreneurs.
In recognition of this, Governor McDonnell recently
declared 2012 as the Year of the Entrepreneur.
 It is also well established that access to capital is more
difficult for diverse firms. However, increasing access
to funding without making sure the money will generate
long-term revenue streams is not the solution.
 The emphasis needs to be on the development of
small and diverse businesses. It involves a
comprehensive, integrated set of interventions.
Standalone, piecemeal solutions will not work.
The Purchase Order Strategy
 In the past, emphasis has been on helping diverse
firms gain access to the traditional supply chains. I call
this the PO strategy. To clarify, advocates have
generated opportunities for diverse businesses to
compete for a small percentage of relatively
unimportant, non-critical items.
 Due to heavy competition, the prices have been beat
down to the point that the business owner can barely
sustain his business, let alone grow his business. This
course of action is in stark contrast with best-in-class
procurement, in which the objective is to work with high
potential suppliers to help them get better.
An Economic Tipping Point
 In addition to the threat to our future prosperity, we
have seen throughout history that when an economic
underclass becomes the majority, the established order
becomes unstable.
 This may seem counterintuitive, but sociologists point
out that revolutions do not happen when people are
completely down and out; they happen when there is a
glimmer of hope that people’s situations will improve.
Those on the bottom rung of the economic ladder have
higher expectations when their circumstances seem to
be improving and consequently have less tolerance for
their predicament.
Continued Inaction is Costly
 A community of people who do not see how they can
get ahead in life and have given up trying is a drain on
the economic system.
 The demographic shift brings with it a simmering
problem that is growing in magnitude each day. The
highly educated and experienced baby boomers are
beginning to retire en masse.
 They will need to be replaced in the workforce and the
entrepreneurial economy. Demographic changes
predispose their replacements to be primarily
A Wide-Ranging Impact
 If we do not foster inclusion, the impact will extend
beyond the disadvantaged community to constrain
GDP and national affluence. Instead of contributing
robustly to the national economy, the disadvantaged
will remain on the sidelines of their value chains,
generating little wealth, fewer jobs, and less revenue.
 Instead of reaping the benefits of inclusion, we will
have to divert funds that could instead be invested in
infrastructure or services. The issue of inclusion is not
about the poor becoming better off at the expense of
the rich: it is about all Americans becoming
progressively worse off than they were before.
Scale is Needed to Fully Compete
 To prosper, diverse firms need to play an important role in value
chains. They must be strategically focused and proactive. Those
who are passive, or deal in “commodity” services or products set
aside to achieve diversity-spend targets—are unlikely to prosper.
They will take on peripheral roles to major value chains, and come
up against hordes of competitors desperately underbidding each
other, driving down profit margins.
 Growth is required for full participation in the value chain. Major
organizations are increasingly less willing to absorb the
inefficiencies of dealing with a large number of small suppliers.
There are three strategic options for achieving the necessary
scale: organic growth, acquisition, and strategic alliance.
Government Has a Role
 As a nation, we need diverse businesses to succeed; therefore,
we need to enable their survival, growth, and prosperity.
Government has a role to play in fostering the development of
commercial activities. Government should remove barriers to entry
and burdensome legislation, such as lessening the bonding
requirements on construction projects which was championed by
the Governor Office.
 Entrepreneurs are independent thinkers and doers. They have
high aspirations, a high rate of innovation—and a high rate of
failure. Even with sufficient support, a large number of start-ups
are ill conceived and can’t be rescued. That sounds harsh, but
selection mechanisms operate in business much as they do in
biology. The real problem in an economic system arises when
businesses that ought to succeed end up failing.
Supplier Diversity Professionals
 The role of supplier diversity professionals is to ensure that
diverse suppliers become not only as good as they can be, but
world class.
 Getting buyers to deviate from long-established SOP’s is not easy.
Without articulating a compelling business case—the challenge
facing supplier diversity professionals is all uphill. Corporations
and entities have not integrated diverse suppliers into value
chains in proportion to their presence in the population.
 The mediocre results are attributable not to a lack of effort but,
rather, to outdated procurement approaches. Old-school
purchasing is tactical rather than strategic: it focuses on costs and
benefits rather than on competitive advantage. Supplier diversity
is viewed as an add-on process and is resented by many buyers
as an operating constraint.
Capacity is King
 The supplier diversity movement was established more than a
quarter century ago. Since then, outsourcing processes have
evolved to become strategic supply chain management, but
supplier diversity processes are still largely geared to the old
purchasing paradigm. It is time for new thinking, new leadership,
and new approaches.
 Capacity development is important. To fulfill a sustainable role in a
value chain, small and diverse firms must deliver real value;
otherwise, support organizations are accomplishing little more
than channeling corporate philanthropy in the form of diversity
 Development of capacity involves ensuring that small and diverse
firms have adequate access to education, mentoring, technical
consulting, capital, and whatever other assistance is needed.
A New Paradigm Is Needed
 Old-schooI purchasing sets goals for a percentage of volume to
be placed with diverse suppliers, usually involving goods and
services that are peripheral to the core value chain. Success is
judged in terms of diversity spend, impact on image, and/or
averting negative publicity generated by aggressive watchdog
 Many advocacy and certification organizations reinforce the oldschool paradigm and celebrate compliance rather than success. It
is therefore possible to be honored for doing well when in fact
there is very little impact.
 Entities need to identify value-chain roles where diverse suppliers
can meaningfully participate, recruit diverse businesses with the
highest potential for long-term value creation, and then marshal
the full spectrum of resources to develop suppliers’ capacity.
Advocates Need To Refocus
 Advocacy involves making the business case and shaping public
policy to achieve inclusion in mainstream value chains.
Certification must be conducted to rigorous standards, but at the
same time it needs to be focused on the needs of diverse
business and those that want to do business with them. The
burden should never fall on diverse firms to go through
certification more than once.
 Too often support organizations focus on their own self-fulfillment
rather than a disadvantaged firm’s needs. The focus is on
encouraging inclusion in the bidding process rather than ensuring
vendor development. Thus support organizations need to step
back and ask the hard questions about whether they are fulfilling
their core mission of reversing economic under participation..
Collaborative Effort is Needed
The supplier diversity challenge is large and complex,
calling for strategic action and concerted effort among
all of the players. Any hope for significant progress
requires visionary, collaborative leadership and a
willingness to move beyond the traditions that were
established in the 1980’s. The business world has
changed a lot since then, and the need for inclusion
has increased dramatically. We can’t afford to fail.
Open Forum
Thank You!!

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