The U.S. Census Bureau projects that by 2045, there will no longer be a majority racial demographic in the United States. We already see that reflected in changing consumer demographics, but what does that mean for the supply chain?
According to a study released by the National Minority Supplier Development Council (NMSDC), minority-owned businesses, or minority business enterprises (MBEs), are increasing in number at twice the rate of non-minority-owned businesses. In 2014, MBEs created 2.2 million jobs and contributed $49 billion in local, state, and federal tax revenues. MBEs now number more than three million, or 21 percent of all U.S. businesses.
MBEs are quickly becoming a critical measure of the nation's economic health, and forward-thinking companies are refocusing procurement strategies now to take advantage of MBE growth. We're moving beyond supplier diversity programs as being parallel to excellence and into diversity being core to an organization's excellence. Supplier diversity can no longer be seen as a supplemental program; it must be embedded with the procurement strategy if your company is going to stay competitive.
Once your organization has established spend goals and begun tracking relevant metrics, it's time to focus on supplier development to realize the true benefits of supplier diversity. Although minority supplier development has been around for more than forty years, MBEs in the nation’s supply chains still face obstacles that other suppliers do not experience, particularly in terms of access to capital, access to information, and access to networking.
Joset Wright-Lacy, president of the NMSDC, points out that, in general, customer-oriented companies that sell their products to consumers are most aware of the need to support supplier diversity. On a macro-economic level, this awareness is vital to the nation’s commerce, because a contract with an MBE is more likely to create a job for a person of color.
“It seems obvious that the more jobs consumers have and the more wages they earn, the more they are able to participate in the economy, whether that means buying healthy foods or snacks, durable goods or over-the-counter drugs, life’s essentials or entertainment, even cars and houses. We cannot expect to have a truly robust economy unless everyone can participate. Putting people to work at good wages is good for what ails the American economy. Corporations that understand this macro-economic principle are figuring out ways to make sure MBEs have the opportunity to participate in job creation so people of color can participate in the economy,” Wright-Lacy says.
Positioning for the Future
Despite the progress made in the area of supplier diversity in recent years, MBEs still face obstacles such as access to capital, networking and other resources. An effective supplier diversity program is focused on removing those obstacles, providing MBEs with opportunities to grow and succeed. Take a look at your current suppliers and analyze their current status, capacity, and productivity. How can you help them achieve their goals so that they can better serve your company?
- Make Tier 2 a Priority – The majority of your diverse suppliers are likely Tier 2 or Indirect suppliers, those who supply your Tier 1 or Prime suppliers. Communicate the importance of those suppliers to your primes by requiring that they track and report Tier 2 spend.
- Build Capacity – Particularly in the case of Tier 2 suppliers, the potential for MBE expansion is tremendous. How can you support your suppliers to build capacity and eventually become Tier 1 suppliers? How can you help build capacity so your current suppliers can meet your company's growing needs?
- Provide Feedback – If a supplier was not awarded, do you have a system in place to provide feedback on why its bid failed? Do your supplier diversity managers work with the supplier to present a more competitive bid next time?
- Provide Training – When you have several MBEs bidding on opportunities unsuccessfully or failing to fulfill obligations, gaps in knowledge become apparent. Identify those gaps and develop training to help them navigate your processes more successfully.
- Access to Decision-Makers – Send your procurement and supplier diversity managers to local and national events hosted by the NMSDC, Women’s Business Enterprise National Council (WBENC), National gay & Lesbian Chamber of Commerce (NGLCC), and United States Hispanic Chamber of Commerce (USHCC) where they can meet with MBEs. Host your own minority supplier summits that allow select MBEs to meet with decision-makers.
- Communicate – Help existing and potential suppliers meet your needs by keeping them in the loop about upcoming bidding opportunities and increased supply demands.
The future of supplier diversity moves beyond integrating MBEs into the supply chain and into the arena of supplier development. When we focus on developing and supporting minority suppliers, we strengthen the supplier base for everyone.