Kathey K. Porter - Supplier Diversity For Dummies

A set-aside or affirmative action program: Supplier diversity creates a pathway for small and diverse businesses to get a foot in the door. It encourages the utilization of small and diverse vendors but doesn’t “set aside” contracts for one particular group or advocate that contracts be awarded based solely on how businesses may identify. Remember: This distinction is especially relevant in the public sector, where public dollars are being spent. In fact, the federal government is the only entity that can legally set aside contracts for vendors based on their identification as part of a specific socioeconomic demographic.

A catchall for other functions: Supplier diversity isn’t a job description that captures multiple, traditionally stand-alone functions into one position, and it’s not an add-on “get to it when you have time” job.

Although supplier diversity is a frequent collaborator with many departments and relies on internal relationships to advance its mission, keeping these points in mind helps programs avoid spending time on tasks that aren’t productive or don’t always contribute to the set goals. For example, although production and marketing often work together, having someone from production make marketing decisions for the organization may not be a good idea.

Every few years, this question pops up for debate as society (and a few detractors) try to move beyond the conversation of race- and gender-based initiatives and quotas and focus solely on qualifications, merit, and so on. The assumption is that the legislation, hours of training, and countless programs people have endured over the years have done their jobs. Now, everyone has equal access to anything they choose: jobs, housing, healthcare, business, you name it. This argument implies that the playing field is now equal and fair and assumes that humans no longer harbor implicit biases, prejudices, or favoritisms. If this description sounds like your organization, congratulations — you did it! If not, keep reading.

As Chapter 2explains, the motives behind supplier diversity have shifted from complying with federal law (we have to) to doing the right thing (we want to) to creating a business case (we need to). Arguably, these shifts likely came because someone brought up the question of whether it was still necessary.

The United States has definitely come a long way since the affirmative action legislation of the 1960s, but any progress that’s been made validates that these types of initiatives work and that there’s really no such thing as “we’ve made it.” If anyone working in diversity will tell you one thing, it’s that supplier diversity isn’t a destination but rather a continual process that requires a long-term commitment to change.

One argument in favor of the ongoing need for supplier diversity is the continued economic disparity that exists between diverse business owners and non-diverse business owners, whether it’s lack of access to capital or networks, lack of resources, or any other number of issues that derail business growth.

Take, for example, the impact the COVID-19 pandemic has had on diverse businesses. Of course, entrepreneurs across the board took a tremendous beating, but COVID-19’s effect on minority-owned small businesses in the United States was much more dire and extreme, according to an article by McKinsey & Company. It noted that of all vulnerable small businesses, minority-owned businesses were the most at risk and that many were in financially precarious positions even before COVID-19 lockdowns began. The pandemic disproportionately impacted minority-owned small businesses for two critical reasons:

These outfits tend to face underlying and systemic issues that make running and scaling successfully more difficult.

They’re more likely to be concentrated in industries most immediately affected by the pandemic, making them more susceptible to disruption.

Their vulnerability was compounded because many minority-owned businesses lacked emergency funding. A large percentage of minority businesses weren’t able to take advantage of relief funds from the government because they didn’t have the commercial banking relationships that larger companies had. (Many banks focused on their larger, long-term clients with established credit relationships.) The Center for Responsible Lending, a nonprofit group that combats abusive lending practices, estimates that nearly 90 percent of minority-owned businesses had little chance of receiving a Paycheck Protection Program (PPP) loan through a mainstream bank or credit union.

The Center for Responsible lending further broke down its estimates by demographic; here are the rough numbers:

95 percent of Black-owned businesses

91 percent of Latino-owned businesses

91 percent of Native Hawaiian or Pacific Islander-owned businesses

75 percent of Asian-owned businesses

Obviously, as a supplier diversity consultant and author, I have definite opinions around this subject. However, this section isn’t a declaration on how I feel. My leanings are based on factual and anecdotal observations that support the need for supplier diversity.

When goals are attached to projects, utilization improves. Goals in this context are percentages established on projects administered by public agencies — that is, local/state governments, higher education institutions, K-12 schools, and the federal government. Conducting disparity studies can help justify the utilization of goals. A disparity study is an analysis that examines whether differences exist between the percentage of dollars that minority- and women-owned businesses received in contracts during a specific period and the percentage of dollars that those businesses would be expected to receive based on their availability to perform those contracts. It may also look at other factors, such as legal considerations around creating programs for these businesses, conditions in the local marketplace for these businesses, contracting practices, and business assistance programs currently in place.Based on the results of such a study, organizations can establish goals, usually on their subcontracting opportunities, with the hopes of improving the utilization of diverse businesses. For example, a project can have a goal of 30 percent, which means that a prime contractor (a contractor who has a direct contract with an organization) must ensure that at least 30 percent of the total contract value will be spent with small or diverse businesses. If it can’t do so, it must provide a valid reason. In my experience, prime vendors often overindex on the utilization of small and diverse business spend when a goal is attached — that is, they spend more than 30 percent (or whatever the goal is) because they want to maintain a good relationship with a client and to report this number for future project pursuits. With a robust program, a prime vendor may be penalized for not meeting goals and risk winning future contract opportunities with a client.

When tracking, compliance, and reporting measures are in place, utilization improves. Accountability measures such as project tracking, contract compliance, and reporting let project teams and supplier diversity monitor the progress of a project in somewhat real time and take action if the prime contractor looks like it’s not going to be able to fulfill a goal. This approach is a more collaborative one where supplier diversity can provide support to help connect the prime contractor to small and diverse businesses.