Supplier diversity programs, ultimately created to better connect businesses with their end users, present minority owned businesses with a distinct opportunity to break into world-class procurement systems. Although these programs are often heavily promoted, many small businesses find themselves uneasy about participating and therefore are losing out on this low-hanging fruit. This article aims to educate minority owned businesses about supplier diversity programs and how best to leverage this considerable opportunity.
Unlike the government sector, private businesses are generally not required to implement supplier diversity practices. Why, then, do the vast majority of prominent businesses such as AT&T and The Coca-Cola Company develop and tout their supplier diversity practices? There is a subset of reasons that, at the end of the day, boil down to the common language of all business — supplier diversity boosts the bottom line. By enhancing corporate reputation – and therefore brand and corporate awareness — and by communicating directly with scores of end users, supplier diversity simply makes sense.
Most people, and particularly women and minorities who own small businesses, want to purchase from companies that act responsibly and that patronize business like theirs. This same audience, and especially women, exercise tremendous buying power. For example, 76 percent of woman act as the principal shopper in their households Greater than 50 percent of investment, auto and electronics purchases are made by women. And, women purchase more than 80 percent of home improvement goods. Consider these additional statistics:
- In 2007, Hispanic buying power is projected to surpass that of African Americans for the first time, approaching $864 billion annually.
- In 2007, African-American buying power is projected to increase by 6 percent to top $850 billion for the first time in history.
- Asian buying power has the second-fastest projected rate of growth, behind Hispanic buying power. Asian buying power will grow 434 percent between 1990 and 2011(versus the 457 percent gain for Hispanics and 190 percent total U.S.).
- Buying power for Native Americans will total $53.9 billion in 2006 and rise to $73 billion in 2011. That’s a 270 percent increase since 1990.
Cross reference this data with the following business ownership facts, and it becomes easy to see why companies are serious about building relationships with diverse suppliers.
- Women own almost 30 percent of non-farm businesses.
- The number of U.S. minorities topped 100 million in 2006.
- The number of Hispanic-owned businesses grew by 31 percent between 1997. and 2002, which is triple the 10 percent rate of growth for all U.S. businesses.
- The number of black-owned businesses grew by 45 percent, versus 10 percent growth for all U.S. businesses.
The bottom line is that minority business owners represent more than the great American entrepreneurial spirit. They also represent a significant portion of a large company’s customer base.
Impressive as they are, these facts alone do not tell the whole story. In many cases, buying from a minority owned firm simply makes immediate dollars and cents. In fact, according to a study by consulting company The Hackett Group, “…Companies that focus heavily on supplier diversity generate a 133 percent greater return on procurement investments than the typical business…” The report also noted that, “Suppliers owned by women, African-Americans, Asians, Hispanics and American Indians may price their products and services better than larger competitors or operate more efficiently…”
Given that no business is going to turn down a combined opportunity to enhance its reputation among key purchasers, generate higher ROI and pay less for products, supplier diversity programs present quite a carrot for minority-owned business. The remaining question, then, is how to find and leverage such programs.
Finding Supplier Diversity Programs
Many small businesses find the following methods of finding supplier diversity programs to be especially fruitful. One is tried and true networking. Attend professional association meetings, and get to know colleagues from other industries and companies. They may share their successful – and not so successful — journeys. Learn from their experiences. Along these same lines, seek out procurement executives at meetings, and strike up a conversation about their processes. Nothing beats direct information and contacts. Local organizations affiliated with the NMSDC or WBENC provide excellent avenues for networking.
The other discovery method involves social networking, or researching and discussing programs online. In their quests to create vendor pools representative of end users, most large companies prominently display their supplier diversity programs online, and many of these Web resources include a step-by-step guide to assist small businesses through the process. Sometimes, one call, a, a single e-mail or just registering on the Web site is all it takes to get involved.
Practical Guidelines for Leveraging Supplier Diversity Programs
Armed with reliable information and guidance for program participation, some business owners stall at the point of action. Those who have been successful agree that one of their key learnings is the realization that success lies in a fundamental sales principle — understanding the customer. Businesses engage in supplier diversity programs because they expect the cost benefit analysis to be positive. All the added branding and reputation bonuses are helpful, but the bottom line is the same as always – the vendor must earn business by offering a quality product that enhances the company’s market position.
It is imperative that vendors prove their value up front. The best way to do this is by preparing well for the initial meeting or discussion with the supplier diversity organization. One way to begin successful preparation is to set goals for the meeting, and develop materials and talking points to support those goals. A set of sample goals follows.
At the end of the meeting, the diversity manager should:
- Understand what the your company offers
- Believe that you will bring value to their corporation
- Recognize that you understand and can support their supplier diversity initiatives
- Commit to introducing you to targeted buyers within the corporation
- Provide ongoing support during the sales process
Once goals are set, concrete preparation can begin. Tactics that will make any sales call more successful include gathering background information, determining who will attend the meeting and the roles those people play, creating supporting materials, and preparing answers to difficult questions.
When the meeting arrives, begin by introducing the company and how it can add value to the potential customer. The next step is asking for guidance about the customer’s supplier diversity program. Ask about organization structure, networking tactics and critical personnel. Inquire about support structures available during the sales process. Gather intelligence about the organizational goals related to supplier diversity. What is the targeted spend with diversity suppliers? How does the company measure success — number of contracts, total spend, number of suppliers bidding on business? Then, share ideas for meeting those goals, and ask for ways to help. As always, active listening and reflection is critical throughout the entire meeting.
Follow up communications can act as another key differentiator. Some companies find it especially useful to send the potential client a detailed outline of understanding and commitment, specifically providing an account plan and a full assessment of company capabilities related to client needs.
Corporate-sponsored supplier diversity programs represent a lucrative opportunity for minority owned businesses to drive sales and for large corporations to connect with end users. Minority owned business that prepare and follow a strategic, measurable plan for tapping into these resources will likely find themselves reaping the benefits of these rewarding programs.
MDI is a professional consulting and staffing firm with three divisions – IT Services, Finance and Accounting, and Medical Staffing. The firm specializes in project services and professional staff augmentation, and each division meets its clients needs by providing talented resources supported by best practices. MDI’s IT Services Division delivers project governance and technical staffing services, the Finance and Accounting division provides senior-level professionals providing F&A services, and MDI Medical specializes in allied travel staffing for rehabilitation and imaging professionals.
Founded in 1988, MDI has recorded 18 consecutive years of profitable growth, expecting revenues of $65 million in 2006. MDI now employs over 600 people nationally out of offices in Atlanta, GA (HQ); Birmingham, AL; Columbus, GA; Dallas, TX; Greenville, SC; and Phoenix, AZ.