In the US alone Minority Owned Businesses (MBE) generate $1.4 trillion of annual gross receipts There are over 8 million minority owned businesses in the US and 7.2 million people are employed by 909,000 of these minority owned businesses (Source: www.mbda.gov)
Tapping into these organisations, as part of your supplier network, has become an essential part of larger organisations strategies. For example, roughly 97% of the Fortune 500 companies set percentage or dollar goals on supplier diversity. (Source unknown)
Organisations are focusing on supplier diversity programs to encourage growth of their businesses. Drivers including opening up new markets/customer groups, investors supporting initiatives for diversity, brand awareness and to encourage increased levels of innovation in their supply chain.
This is not just a drive for larger organisations. Many medium sized businesses are also looking at diversity in their supply chains, for the reasons explained in this article.
See Appendix 1 for US definitions relating to what constitutes a Minority Owned Businesses and MBE certification or Diversity Supplier Certification.
Example corporate definition of a diverse business: JP Morgan
A diverse business is one which is certified by a JPMorgan Chase-designated third-party, as having met the definition of being at least 51% owned, controlled AND operated by one or more members of a diverse group: minority, women, Veteran, Service disabled Veteran, Disabled and LGBT. Certification is the means by which suppliers are validated to be a diverse business as defined above. This enables JPMorgan Chase to verify the diversity of its suppliers. Only certified businesses can register for the JPMorgan Chase Supplier Diversity Network.
2Why is diversity of supply important?
Supplier diversity is good for business. Studies and real-world results have proven that a diverse supply chain provides a number of benefits:
- Agility of the suppliers
- Diversity of thought and approach to Innovation of the suppliers
- Cost savings, including those associated with tax incentives, rebates and breaks
- Investor support for these initiatives
- Accessing new supply channels
- Meeting compliance requirements
- Build resilience into your supply chain
- Fuels wider corporate responsibility initiatives
- Building stronger customer engagement
- Building community relationships
- Employee satisfaction
- Attracting new talent
- Brand image
Plus, The U.S. federal government requires that a contractor whose contract for goods and services is expected to exceed $700,000 ($1.5 million for construction) must set and meet aggressive goals of subcontracting spend with underrepresented small businessesfrom specified categories. (See Appendix 1 for categories of MBEs.) Plus, the suppliers to these government contractors may also be required to adhere to diversity of supply requirements.
And, there are financial tax breaks available to both the sourcing company and the supplier. The US government wishing to support in part initiatives to drive diversity.
3Achieving results with supplier diversity
There are no quick wins in the process of supply diversity. There needs to be a concerted effort to identify and engage with a diverse range of suppliers. It is not a PR exercise or a corporate goal or policy document. It needs strategy, planning and action plans to achieve results.
There are also risks that need to be mitigated in engaging with smaller suppliers. It is important to understand clearly the capabilities and limitations of MBE suppliers. Ensuring that any growth in supply volumes is actively managed.
It will require time and you will need to be persistent if you want to get results. There will be challenges within your own organisation, as well as cultural issues with engaging with smaller MBE suppliers.
Adapting buying habits towards diverse suppliers is essential for success.
Increasing numbers of MBEs in one sense makes it easier to identify suppliers and engage on a multi-supplier sourcing activity, however it also brings challenges in terms of ensuring that the business selected will continue to operate in a highly competitive marketplace.
4Strategic approach to supply diversity
It is important, when looking at supply diversity, to include diversity as part of other key strategies and corporate objectives.
You may have many components to your strategy that could include achieving product specification improvements, packaging improvements, delivery improvements, best value pricing, reducing supply risk and supplier consolidation of volume for example.
Selecting a diverse supplier should not detract from achieving key objectives or divert the organisation away from core strategies. Diverse supply is part of the strategy, not a strategy independent of all other organisational initiatives.
In fact, diversity of supply is critical in expanding the corporate supplier base beyond traditional supply sources. Enabling the organisation to achieve many of their objectives through competitive supply and the additional innovation brought by use of MBE suppliers.
Tracking the level of diverse spend and tracking your Diverse Suppliers is an important part of the equation.
Certainly, in the Indirect Spend domain, Claritum’s focus domain, automation is essential to capturing spend data by suppliers and categories. Even down to spend by specification is important when dealing with Indirect Spend and seeking new diverse suppliers for products or services.
Knowledge of spend and performance of your diverse suppliers is key to your ability to demonstrate success. This business information can be used to both generate awareness of initiatives and to drive future investment in diverse supply chains.
Walmart states it has a network of more than 2,600 diverse suppliers – which it defines as a private company that is at least 51% owned and operated by members of a minority group
6Indirect Spend and supply diversity
Indirect Spend is the perfect domain for using diverse suppliers. There are many needs and requirements in this domain providing opportunities to use diverse suppliers.
Selecting MBE suppliers for Indirect Spend Categories will rapidly build up the number of suppliers and also build up the spend volumes, by including those significant Indirect spend categories for your organisation.
In fact, focusing on significant Indirect spend categories first will ensure quick results. However, it is also important to ensure that you have Indirect Spend focused automation in place to manage this spend.
A global US based banking organisation recently contracted with a Woman-Owned Small Business (Highroad Press) to outsource Print procurement and at the same time realise savings through early payment discounts for suppliers. Using a diverse and innovative supplier the bank was able to rapidly adopt Claritum’s solution. Automating the full process and ensuring that early payments were made against matched delivered goods and invoices.
Growing a diverse supplier base makes sense given the increasingly diverse markets that most companies serve.
Companies that lever best-in-class supply diversity and inclusion programs will maintain a competitive edge and reinforce their brand.
There are government initiatives that provide incentives for both your diverse suppliers and your organisation. Providing a financial benefit in addition to the primary objective of supporting a diverse supplier base.
See additional article on managing diversity in the supply chain: https://www.claritum.com/supply-diversity/
The following links are to resources that cover aspects of minority business enterprise (MBE), diversity supplier certification and supplier diversity in general. Please let us know if you feel a link is missing from this list. firstname.lastname@example.org
The EU lays down reporting requirements for large companies on disclosure of non-financial and diversity information.
Information on EU legislation can be found here:
Directive 2014/95/EU lays down the rules on disclosure of non-financial and diversity information by large companies. Applying to an organisation with average number of employees in excess of 500
The US federal government legislates on use of Minority Business Enterprises in government supply contracts and tax breaks associated with these organisations. This not only applies to the directly contracted supplier, but also to their suppliers as well.
In the US case there are also state level laws and state level government supply requirements. For example, in the general diversification domain, California mandating the number of female directors for companies incorporated in California.
Many US organisations have adopted supply diversity policies in a more general sense and not just applied to government supply contracts.
Federal Small Business Subcontracting definition of business types:
Small Disadvantaged Business
Woman-Owned Small Business
Historically Underutilized Business
Historically Black Colleges & Universities and Minority Institutions
Veteran-Owned Small Business
Service-Disabled Veteran-Owned Small Business
Alaska Native Corporations (ANCs) and Indian Tribes that have not been certified by SBA as Small Disadvantaged Businesses
Alaska Native Corporations (ANCs) and Indian Tribes that are not small businesses
Criteria for Minority Certification as Minority Business Enterprise (MBE):
- United States citizens.
- Minority businesses must be at least 51% minority-owned operated and controlled. For the purposes of NMSDC’s program, a minority group member is an individual who is at least 25% Asian, Black, Hispanic or Native American. Minority eligibility is established via a combination of screenings, interviews and site visits. Ownership, in the case of a publicly-owned business, means that at least 51% of the stock is owned by one or more minority group members.
- Must be a profit enterprise and physically located in the U. S. or its trust territories.
- Management and daily operations must be exercised by the minority ownership member(s).
“Minority,” as defined by US federal statutes related to business, includes people who are
- Alaskan Native,
- American Indian,
- and women.
Minority-owned business operations, also using the label “minority business enterprise,” are companies with minorities controlling 51 percent of the firm’s operations. Publicly owned businesses also qualify under the definition, but minorities, as defined under law, must control more than 50 percent of the stock offerings.
Achieving a diverse supply base
If you would like to discuss how to automate a diverse supply chain