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The Supplier Diversity Squeeze

March Issue

Rob Kuznia -- HispanicBusiness Magazine

The Supplier Diversity Squeeze  

With few exceptions, the brutal economic storm of 2009 battered the biggest and the smallest of American businesses.

This includes the bulk of the nation's largest corporations, and, by extension, countless smaller minority-owned businesses -- from janitorial services to IT companies to legal firms -- that land major contracts with them.

Verily it's a fact 2009 was a challenging year for supplier diversity.

Put another way, because the economy tanked, revenues dropped and many corporate giants had less money on hand for extending contracting opportunities to minority- and women-owned businesses -- or to any business, for that matter.

But despite the setbacks, paragons of the practice remain, and this issue of HispanicBusiness Magazine is dedicated to highlighting them.

Like last year, Comerica Bank is at the top again for its commitment to contracting with minority- or women-owned firms.

Comerica topped HispanicBusiness' list based on several measures. In addition to setting aside 25 percent of its budget for minority contracts, it ranked highest in three major areas: management involvement in supplier diversity; procurement from minority suppliers and outreach efforts to minority suppliers. (See a full list of how the Top 25 companies faired in the accompanying scorecard).

But in a reflection of the kind of year 2009 was, the amount of money Comerica spent on minority- and women-owned contractors fell in 2009, to an estimated $30 million from $45 million the year before. Meanwhile, the company's ranking on the Fortune 1000 slipped in one year from No. 501 to No. 559

"This year has been a real challenge," Don Alessi, Comerica's vice president of purchasing, told HispanicBusiness Magazine. "Our spending with anyone has been down, just because of reduced budgets."

Rounding out the rest of the Top 5 are Southern California Edison which set aside 16.5 percent of its budget for diversity suppliers, Consolidated Edison Co. of New York, (21 percent), Wells Fargo & Company, (23 percent), and American Electric Power, (23 percent).
In another telltale example of tough times, the company boasting perhaps the largest supplier diversity budget in terms of dollar amount--Ford Motor Co.--saw its impressive outlay shrink by a full $1 billion from 2007 to 2008, to a still gigantic $3.3 billion. Ford's final figures for 2009 weren't in by press time, but executives expect them to be similar to last year's. Ford, which set aside 10.1 percent of its budget for minority contracts, ranked No. 11 on this year's list.

Gone from the 2010 list are at least four financial companies that graced the index in 2009, some of them casualties of the Great Recession. These include the ill-fated Washington Mutual Inc. -- now part of JPMorgan Chase -- and Merrill Lynch, since acquired by Bank of America.

New additions include two energy companies (Consolidated Edison of New York and American Electric Power) three financial companies (Wells Fargo, JPMorgan Chase and Union Bank of California), PepsiCo Inc. and the software-and-hardware manufacturer Pitney Bowes Inc.

This year, like last, banks, energy firms and hospitality companies dominate the top 10.

In general, the purpose of any given supplier diversity program is twofold: to inject economic vibrancy in historically marginalized communities, and to help corporations gain a competitive foothold in diverse markets.

But the programs also serve an even broader purpose: helping maintain the economic vitality of the nation.

While the U.S. unemployment rate has hovered at a disappointing 10 percent, the figure for Hispanics in December was nearly 13 percent, and African Americans 16.2 percent, according to the U.S. Department of Labor.

"The best way to build strong minority communities is to have strong minority businesses," Harriet Michel, longtime president of the National Minority Supplier Development Council, told HispanicBusiness Magazine.
"The minority population is still growing in size and economic impact," she added. "The economy can't recover if large segments of the population are left out."

Over the past couple years, John Murray Jr., the CEO of the Southern California Minority Business Development Council, said "more than a few" corporate supplier diversity directors have lost their jobs.

"When corporations are looking for places to cut, they take a look around for areas not generating revenue, and one of those places is sometimes supplier diversity," he told HispanicBusiness Magazine.

Still, in the aggregate, supplier diversity is alive and well in America. Nationwide, corporate spending on minority-owned firms has grown steadily for decades, swelling from $12.5 billion 1988 to $41 billion in 1998 to $100.5 billion in 2008, according to the NMSDC. Ms. Michel says U.S. corporations again spent a little more than $100 billion in contracts with minority- and women-owned businesses in 2009.

And yet, there's a long way to go. While minorities make up about a third of the U.S. population, the $100 billion figure represents just 5-to-6 percent of total annual procurements in this country, Ms. Michel said.

The Limitations of Ranking

Determining the company with the "best" supplier diversity record is admittedly tricky, because success can be based on many variables. HispanicBusiness uses percentage metrics , but other measurements could include overall volume and improvement over time.

Further complicating the ranking process is how some companies are more forthcoming than others about their spending budgets.

On sheer volume, Ford's $3.3 billion is tough to beat. Then again, Ford is ranked No. 7 on the Fortune 500 list. With its supplier-diversity goal set at 10 percent, Ford came in at No. 11 this year on the HispanicBusiness index, up two notches from 2009.

"Ford has had a long history, from the very beginning, of being a socially responsible company," said Armando Ojeda, the company's director of supplier diversity development. "In the early part of last century, Ford Motor Company was the first to provide equal pay for African Americans."

Another noteworthy company is PepsiCo. Inc., which spent an estimated $1 billion last year on minority- and women-owned contractors. In fact, 2009 was a banner year for the company, which in October was named the NMSDC's Corporation of the Year.

And yet, Pepsi, too, faced major challenges in '09. The company, which ranks 19 on this year's HispanicBusiness list, had grown its supplier diversity budget by 10 percent every year for six consecutive years -- until 2009. That year the size of its supplier-diversity program stayed flat, which was a feat in itself, said Chris Knox, the company's director of supplier diversity and global procurement.

"We were able to maintain the gain," he told HispanicBusiness Magazine. "More importantly, we are proud of the fact that we have not lost any key diversity partners throughout the course of the year."

Another company with a laser-like focus for improving its record on supplier diversity is hotel giant Marriott International.

Bill Hartwig, Marriott's VP of supplier relations and global procurement, readily admits the company's supplier diversity program used to be weak.

"Different vendors or suppliers would call (the department) and beg for business, but that group had no decision-making authority at all," he told HispanicBusiness Magazine. Two years ago, the company jettisoned this "silo" approach to supplier diversity in favor of a more holistic corporate model, in which high-ranking decision-makers from various departments -- such as legal, IT, contracting and others -- were brought into the fold. Leaders in these departments receive bonuses for meeting diversity goals.

It appears to be working. In 2005, Marriott set a goal to boost its diversity-supplier spend from about 10 percent to 15 percent of its entire $2.5 billion purchasing budget by 2010. The company--ranked 208 on the Fortune 500-- is on track: Last year, it hit 14.8 percent, with a total dollar amount of $372 million.

Hartwig said in general, if a minority supplier and a majority supplier vying for a contract are equally impressive, the tie goes to the minority-owned business. It's a practice he refers to as "positive discrimination."

To be sure, though: "if they don't perform, they will be out tomorrow," he said.

Source: HispanicBusiness.com (c) 2010. All rights reserved.

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