Supplier diversity must shift to supplier development

Leonard Greenhalgh

By Peter Fretty

“The recession of 2008 created a shakeout in corporate supplier diversity programs. Corporations with vision already had strong programs and sustained them. They recognized that minorities are the future consumers, backbone of the workforce and major links in the value chain,” said Leonard Greenhalgh, professor of management and director, programs for minority- and women-owned businesses with Tuck School of Business at Dartmouth. “The strategic vision involved knowing that it was in their corporate self-interest to have a strong customer base, a strong workforce and a strong supply chain: these factors create competitive advantage.”

However, also during the 2008 shakeout, myopic executives saw diversity programs as an opportunity to cut costs. “Management thinking has been influenced by management fads for as long as I can remember. We’re starting to get over the low-cost country outsourcing frenzy, in which companies simply copied what other companies were doing, and the management gurus were advocating,” Greenhalgh said. ”It has become more obvious that off-shoring has many disadvantages, such as long lead times, high shipping costs plus high carbon footprint associated with long-distance shipping, development of future foreign competitors, quality problems, theft of intellectual property, unsafe and unhealthy products, etc. Visionary executives see much of that supply business coming back to their home countries and are developing the suppliers that will replace offshore sources.”

Michael Verchot, director of the Business and Economic Development Center with the University of Washington Foster School of Business, added that while it’s clear that some corporations have a robust strategy, producing results in terms of profitable growing relationships for both corporations and MBEs, supplier diversity is at an interesting junction. “A good number of corporations are still focused on supplier diversity and do not have a strategic approach to partnering and growing MBEs,” he said. “There’s clearly a significant strategic decision that corporations make when they begin to focus on supplier development, and it will be interesting to see how many more corporations are able to take the step from supplier diversity to supplier development over the next five to 10 years.”

Over the next two years, Verchot foresees a continued, steady growth in corporations, first-tier suppliers and government agencies that have goals and dedicate some resources to supplier diversity efforts. “This [growth] is really driven by the growing understanding of the changing demographics in the United States. But, what I’ll be most interested in seeing is how many of these corporations, first-tier suppliers and government agencies develop and implement a strategic approach to minority supplier development,” he said. “That’s the much harder and more complex challenge and the only way that we will significantly move the needle when it comes to growing the size of large numbers of minority-owned businesses.”

Diverse businesses need to make the choice to move well beyond startups and small businesses, said Jim Lowry, senior advisor with The Boston Consulting Group. “Diverse businesses need to think in terms of becoming billion-dollar companies. This [goal] means investing in dynamic companies, forming strategic alliances, entering into industries where minorities have not existed before and be- coming truly global, so it’s possible to seize major opportunities overseas,” he said. “As entrepreneurs and leaders, we need to think outside the box about how to get ahead of the curve. Too often, we are not at the forefront or vanguard. We have to find ways to be different. The big wealth is going to come in industries we have not even thought of. The next generation of diverse entrepreneurs has an opportunity to lead the way here, and we need to be willing to invest in their mission.”

According to Greenhalgh, it’s time to move to the next level of strategic supply-chain management, irrespective of whether the suppliers are minority- or majority-owned. “Simply put, corporations need their suppliers to be as good as they would want their internal operations to be,” he said. “From that enlightened perspective, funds budgeted for mi- nority supplier development are not simply an expense item — or worse, a philanthropic contribution — they’re an investment in the corporation’s own future.”

The next critical step is to move from supplier diversity that focuses simply on the contracting with or purchasing from MBEs to developing and executing supplier development strategies that grow globally competitive minority business partners, Verchot added.Leadership at all levels — corporate, elected and civil — is instrumental for diverse firms to reach the next level. “The old guard doesn’t work any longer. We need to collaborate, support and think differently. Business leaders need to be on top of what political changes mean to their organizations,” Lowry said. “It’s time for a change in mindset. If you are still thinking as you always have, you will not go anywhere tomorrow.”

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