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SUPPLIER DIVERSITY BEST PRACTICES WHITE PAPER PRESENTED BY


SuPPoRTing economic deVeloPmenT. Helping the Valley’s many communities thrive is at the heart of everything we do. After all, we live here too. For more than 100 years, SRP has supplied the Valley with water and energy. Besides being a steward of these crucial resources, SRP continues to invest in the area through educational partnerships that develop a skilled workforce to attract businesses to the Valley. Whether it’s economic development, the environment, human services, education or the arts, SRP is committed to helping our many communities prosper for generations to come. To learn more, visit srpnet.com/econdev.


SUPPLIER DIVERSITY BEST PRACTICES WHITE PAPER

PRESENTED BY

Arizona Hispanic Chamber of Commerce November 2013

RESEARCHED AND WRITTEN BY

Mike Slaven & Robert D. Esquivel

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ACKNOWLEDGMENTS

ACKNOWLEDGMENTS COMMITTEE Ricardo Carlo Associated Minority Contractors

2012 INDUCTEES of

America

Jesus Borboa,

Frank Celis,

Jesus Borboa

Alika Kumar

Phoenix MBDA Business Center

Gonzalo A.

de la Melena, Jr. Arizona Hispanic Chamber of Commerce

Valerie Churchwell,

of

Petra Nixon Arizona Public Service Lorena Valencia

Alex Juarez, Gladys Lopez, Rosemary Middleton, Patti Pyle,

Reliance Wire

Pamela Williamson, Ph.D. Women’s Business Enterprise Council – West Chester Yancy Arizona State University AZHCC STAFF CONTRIBUTORS Robert D. Esquivel, Consultant James E. Garcia Communications Consultant

Carmen G. Martinez, Graphic Designer Terri Morgan, Director of IT & Digital Media Mike Slaven, Consultant Monica Villalobos, Vice President

Ken Refner,

of

America

Walmart CenturyLink

American Express Hensel Phelps Construction

Salt River Project University

of

Phoenix

AT&T

Arizona State University

COMMUNITY PARTNERS Kerwin V. Brown,

Phoenix Black Chamber

of

Commerce

Scott Gregory Grand Canyon Minority Supplier Development Council Madeline Ong -Sakata, Loren Tapahe,

Asian Chamber

American Indian Chamber

Barry Wong,

Chinese Chamber

PRINTING COURTESY OF

2

Bank

Scott September, Chester Yancy,

Phoenix, Aviation

Cox Communications

Kevin Jost,

Commerce

of

Sundt Construction

Carlos Gonzalez, Julio Herrera,

PepsiCo

City

Marian Enriquez,

Ted Namba

Asian Chamber

Southwest Gas

Jaime Chon,

Arizona Public Service

Miguel Bravo Arizona Public Service

Arizona Public Service

SUPPLIER DIVERSITY BEST PRACTICES WHITE PAPER

of

of

of

Commerce

Commerce

Commerce


FOREWORD

WELCOME TO SDWP REPORT Arizona is home to an estimated 100,000-plus minority-owned business enterprises, two-thirds of which are Hispanic-owned, contributing billions annually in revenue to the state’s economy. Couple that with the tens of billions in purchasing power by minority communities and it’s clear the state’s demographic shifts have birthed a rising economic powerhouse in Arizona that cannot be ignored. Notably, the already substantial impact of minority-owned businesses is growing at a phenomenal rate. The number of businesses owned by Hispanic women, for instance, are growing three to four times the national average of non-Hispanic-owned firms. Hispanic-owned businesses are expanding at a rate two to three times the national average, while Asian American-owned companies are recording historic growth as well. Corporate Arizona is taking notice of this enormous and growing potential. Most major companies now understand that engaging a diverse supply chain is not only the right thing to do, but a practical economic necessity that can boost their bottom line. Getting minority-owned companies into the pipeline of the supplier diversity chain, however, requires community-wide, proactive and cooperative initiatives by the state’s major corporations, small businesses and other pro-business organizations. To help support of such initiatives, the Arizona Hispanic Chamber in 2012 partnered with a wide array of minority and non-minority chambers of commerce and economic development organizations and launched the Million Dollar Circle of Excellence. The project recognizes Arizona-based companies doing at least $1 million worth of business with minority- or women-owned firms in the state. The following white paper presents an overview of best practices that can maximize opportunities in the supply chain. For those companies that do not yet have a supplier diversity measurement program, the information contained in this white paper may serve as a guide to begin that process. This paper is the latest in a series of reports published in the past two years by the Arizona Hispanic Chamber offering impactful, data-based market research about minority-owned businesses and consumers for state business leaders and public officials to use in developing economic policy. The series has featured research on minority-, Hispanic-, women-, and family-owned businesses, as well as the 17th Annual DATOS: The State of Arizona’s Hispanic Market report and DATOS Tucson. The Arizona Hispanic Chamber of Commerce thanks its corporate partners for assisting authors Mike Slaven and Robert Esquivel in the preparation of this report, and hopes you find the information useful in your efforts to achieve a diverse and profitable supply chain.

Gonzalo A.

de la

Melena, Jr., MBA

President & CEO Arizona Hispanic Chamber of Commerce

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Freeport-McMoRan is pleased to support the Arizona Hispanic Chamber of Commerce and its efforts to promote the success of Hispanic-owned and small businesses. We are committed to supporting partnerships today that lead to a stronger community and economy tomorrow. Visit www.FreeportInMyCommunity.com or scan the QR code to learn about our commitment to communities.


TABLE OF CONTENTS

TABLE OF CONTENTS ACKNOWLEDGMENTS 2 WELCOME 3 EXECUTIVE SUMMARY 7 SUPPLIER DIVERSITY AS A BUSINESS IMPERATIVE 8 ADDRESSING SUPPLIER DIVERSITY’S MAJOR CHALLENGES 10 Fostering Support Among Management 11 Having Your Purchasing Organization Embrace Supplier Diversity 14 Mastering The Landscape Of Diverse Suppliers 17 Developing A Qualified Diverse Bidder Pool 20 Ensuring Supplier Diversity Improvements Are Achieved 23 Making Sure Diverse Spend Flows Down 25

FURTHER RESOURCES 28 BEST PRACTICE MATRIX 31

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Services that create results for you! We provide strategic business consulting; access to capital; bonding; contracting opportunities; teaming; minority certifications; workshops and B2B forums!

The Phoenix MBDA Business Center is focused on securing large public and private contracts and financing transactions, stimulating job creation and retention, and facilitating entry to global markets for eligible minority-owned businesses (MBEs). MBC serves eligible MBEs with annual revenues of over $1,000,000 or, firms in a highgrowth industry (e.g. green technology, clean energy, health care, infrastructure and broadband technology, among others). 255 East Osborn Road, Suite 202, Phoenix AZ 85012 I 602-248-0007 I www.ph oen ix m bdac ente r .c om Operated by the Arizona Hispanic Chamber of Commerce


EXECUTIVE SUMMARY

EXECUTIVE SUMMARY From its origins as a compliance matter, supplier diversity is increasingly becoming a business imperative, as demographic shifts change the face of American business owners. Maximizing opportunities in the supply chain means staying on top of what a growing group of minority- and women-owned businesses have to offer. Building a high-quality, competitive supplier pool means tapping the potential of this growing segment of businesses — which often are outside the status quo of companies’ procurement practices, and whose successes are increasingly crucial to the prosperity of our communities. Building on the work of the Arizona Million Dollar Circle of Excellence (AZMDCE), launched in 2012, this white paper serves as a brief guide to how leading companies have worked to create great supplier diversity programs in the face of common challenges. We were generously assisted in this project by nine corporate partners of the Arizona Hispanic Chamber of Commerce: Salt River Project, Arizona Public Service, Hensel Phelps Construction, Southwest Gas, Raytheon, CenturyLink, Bank of America, Arizona State University, and the City of Phoenix Aviation Department. Drawing on the experience of these partners, the goal of this white paper is to: •

Give companies that are looking to start setting up a strong program a sense of the major challenges;

Sketch what kinds of actions could be taken to address these challenges; and

Provide some information where companies can go for further information and support.

In considering the obstacles to setting up a strong program, we discuss six general, primary challenges that have to be addressed for a supplier diversity program to work well: •

Fostering support among management

Having your purchasing organization embrace supplier diversity

Mastering the landscape of diverse suppliers

Developing a qualified diverse bidder pool

Ensuring supplier diversity improvements are achieved

Making sure diverse spend flows down

For each of these, this white paper provides three best practices to help overcome the challenge — outlining both initial steps to take, and more advanced ones to consider. Fostering support among management is critical if a supplier diversity program is to have adequate resources, and if supplier diversity is to be taken seriously as a priority company-wide. It is important for a supplier diversity manager to make the most effective business case for supplier diversity, in consideration of the company’s culture and strategic objectives. A supplier diversity team also should continually engage with executives using proven methods such as establishing a steering committee, and should leverage both internal and external allies to help continually make the case for supplier diversity. Having a purchasing organization embrace supplier diversity is crucial simply because procurement staff have control over spending. Working with them to advance supplier diversity means acknowledging and managing the fact that introducing supplier diversity expectations can mean disruptive change in relationships with existing suppliers. Supplier diversity managers should look to educate buyers and provide them with tools to do their jobs, treating them as internal customers. A supplier diversity manager should look to build relationships based on trust with buyers, and to capture their energy by tapping into their competitive spirit to meet and exceed goals. Mastering the landscape of diverse suppliers is challenging because many qualified diverse suppliers will be hard to find or will fly under the radar in the absence of purposeful attempts to find them. Supplier diversity managers should network strategically, attending events conferences in order to form relationships — perhaps with suppliers the company may not utilize for years. A supplier diversity program should leverage external community partners, such as minority chambers of commerce and certification organizations, who can expand companies’ capabilities and help them find competitive contractors. They should also connect with other corporate supplier diversity programs and take advantage of their colleagues’ willingness to help improve their network.

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SUPPLIER DIVERSITY AS A BUSINESS IMPERATIVE

Developing a qualified diverse bidder pool means expanding the capacity of high-potential women- or minority-owned businesses to the point where they can compete strongly on the open market for larger-scale work. To begin with, a supplier diversity program should always provide feedback to diverse enterprises that lose bids or are not ready, teaching them how they can improve. Companies should create educational programs to develop suppliers: These can range from seminars to introduce diverse suppliers to a company’s buying culture and procedures, to extensive business training that helps them to expand capacity. Companies can also get their prime contractors involved in the development of diverse enterprises whom they can both work with in the future. Ensuring supplier diversity improvements are achieved means making sure that the programs put in place are actually achieving results. This entails developing a written strategy, roadmap, and budget that have been scrutinized analytically. It also includes working with the procurement organization to ensure that buyers are accountable for their supplier diversity outcomes, and that the company adopts metrics to measure the success of its supplier diversity programs so that it can correctly focus its efforts. Finally, making sure diverse spend flows down is critical if a corporate commitment to supplier diversity is to yield benefits throughout the supply chain and throughout a local community. This means establishing expectations for prime contractors’ commitments to supplier diversity, creating a reporting system for second-tier spending, and always working with the procurement staff to ensure that large contracts make room for small business participation. In pursuing the goal of a robust supplier diversity program, businesses also can take advantage of a number of resources and organizations — some of which are described in an appendix on further resources.

SUPPLIER DIVERSITY AS A BUSINESS IMPERATIVE “There are a lot of companies out there that we could partner with for our mutual advantage.” — Patti Pyle, Supplier Diversity Manager, SRP Many companies began supplier diversity programs in past decades as a compliance matter, in order to follow regulations for government contracting. Over time, though, more and more companies have started programs as the business case for supplier diversity has become clearer. Companies today are choosing to pursue a diverse supplier pool simply because, in the face of sweeping demographic trends, doing so is a smart business practice that figures importantly in an advanced supply chain management strategy. In Arizona in particular, a huge amount of new economic activity is being driven by minority- and womenowned businesses. Demographic change forms the backdrop to the economic changes that are making supplier diversity programs more critical to everything businesses source. The economy is generating a plethora of small minority- and women-owned businesses whose potential is waiting to be tapped. In Arizona, there are an estimated 100,000 minority-owned businesses or 25% of all businesses, growing at a rate 2-3 times faster than non-minority-owned firms, according to the Arizona Hispanic Chamber of Commerce’s 2012 Minority Business Enterprise Report.

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SUPPLIER DIVERSITY AS A BUSINESS IMPERATIVE

Maximizing opportunities in the supply chain means a company has to stay on top of what this growing group of businesses has to offer. Many corporate purchasing organizations, however, will not be primed to do this without a well-run supplier diversity program. Most minority and women-owned businesses are small, with four or fewer employees, according to the research firm Geoscape. Many are just starting to grow, and need to take initial steps to develop capacity before their competencies can be put to use by large businesses. Since purchasing processes often build from existing supplier relationships, the supply-chain potential resting in minority businesses will often fly under the radar without a program dedicated to seeking it out and developing it. More precisely, there are five main reasons that supplier diversity managers identified for why supplier diversity programs were important to the success of their businesses:

Finding and building the most-qualified possible supplier pool Knowing whether your company is getting the best possible product and price from suppliers means continually surveying what the marketplace is offering. Buyers in corporate procurement will often see that marketplace as consisting primarily of suppliers that are already known to them, or suppliers who are marketing themselves actively. The growing universe of small diverse businesses can exist quite apart from this, even if many such potential suppliers could offer good value or innovative approaches. Supplier diversity programs help to bridge this gap. As Chester (Chet) Yancy, manager of Small Business and Diversity Programs at ASU, explains about this group of diverse enterprises, “Most of these businesses are good at what they do — but they may not be good at selling themselves.” Getting the best value out of the supply chain means identifying the potential in these companies, which are often run by small businesspeople. Many small businesses don’t have the time or resources to focus on strategic initiatives that might otherwise lead them to realize the opportunities that could exist if they took the first step through a major buyer’s front door. Through the work of supplier diversity programs, corporate buyers can more readily understand what this group of supplier has to offer, and how this fits into their procurement needs.

Increasing competitiveness among suppliers Identifying and cultivating a greater number of qualified suppliers will increase the competitiveness of the bidding process — helping companies to bargain for higher-quality services and lower prices. It also helps to keep prime suppliers on their toes, and reduces the complacency that can lead to a company not getting the best value from its suppliers. “What they do through the competitive bid process we view as a cost savings,” says JD Calhoun, senior analyst with the supplier diversity program at Southwest Gas. “That’s what it’s about, and everybody wins.”

Meeting customer demands For companies that pursue business with clients who look for supplier diversity commitments — whether these clients are government agencies or in the private sector — an ability to demonstrate a diverse supplier base is a core part of competitiveness in bidding for contracts. “Being able to meet customer demands is a component of the firm being competitive in the marketplace,” says Rosemary Middleton of Hensel Phelps Construction. If a client asks for a certain portion of direct spend to be with diverse businesses, “we will sometimes go in with a higher goal — and if this is important to the client, then it is a beneficial thing to the bid.”

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ADDRESSING SUPPLIER DIVERSITY’S MAJOR CHALLENGES

Reducing risk in the supply chain What happens if a prime contractor falls short? This is much less of a problem if a supplier diversity program has helped to identify further qualified suppliers, even ones that the company hasn’t yet done business with. As Mike Angulo of SRP explains, “If we have more qualified suppliers, it enriches our supply pool.” This provides greater flexibility to a business and allows it more options if a prime supplier does not deliver according to expectations.

Building community prosperity The increasingly diverse demographics of Arizona (and the country as a whole) mean that diverse businesses support the livelihoods of more and more families in our communities. Many companies see doing business with these enterprises as a crucial part of their strategies for helping to develop the economies of the communities they serve, which in turn increases demand for their products. Doing so also provides an important linkage to the growing base of diverse consumers. “We want to make sure that we’re affecting the economic development in our local communities,” says Angela NorrisHawkins, supplier diversity manager for CenturyLink. “There are benefits to the corporation: Brand visibility leads to loyalty, which leads to increased customer interaction, hopefully, which leads to us getting access to a diverse market. It’s a circle of success.”

Across industries — and across companies — there are many individualized cases for why supplier diversity is important to meeting business objectives. Not all of the above will apply to every company, and companies in some industries may find pressing sector-specific reasons for developing diverse suppliers. Beyond the general reasons provided above, it’s important to understand what value a diverse supply pool offers to each particular company, and to build each company’s business case according to its unique circumstances. Indeed, having a supplier diversity strategy can aid the success of any large business entity, whether it is privately or publicly driven.

ADDRESSING SUPPLIER DIVERSITY’S MAJOR CHALLENGES Achieving results in supplier diversity is not an easy task. It does not simply mean creating a corporate goal, and it does not consist just of setting up a software program to track spending. Supplier diversity managers from leading companies all stress that creating a good program requires time and persistence: It’s about having a tireless attitude, continually demonstrating the value of supplier diversity to the company, and doing hands-on work to build a bridge between a company’s buying habits and diverse suppliers who currently are outside the loop. If creating a good supplier diversity program is hard, however, those companies that are presently at the earlier stages in doing so have an advantage: There are others who have come before, and they are an

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CHALLENGE: FOSTERING SUPPORT AMONG MANAGEMENT

open book about how they’ve addressed the difficulties they’ve faced. The following material is based heavily on the advice we heard from experienced supplier diversity managers. We discuss six key challenges to grasp in moving a supplier diversity program forward — and, for each of them, we offer a number of proven methods that can help supplier diversity programs make progress and achieve results for their companies.

CHALLENGE Fostering Support Among Management

“One of the things you have to have from the very beginning is support from the top. You have got to have your executive leaders on board with what it is that you’re doing. If you don’t have that, you’re pretty much spinning your wheels.” —Valerie Bailey, Southwest Gas

The Challenge It’s basically unanimous within the supplier diversity world that without the support of company management, building a well-working program is impossible. Management needs to support supplier diversity efforts in order for people throughout the organization to understand the importance of supplier diversity goals to the company. Visible support from the top is necessary in order for employees to feel that their progress on the issue will be valued and scrutinized. Supplier diversity teams need also adequate resources — personnel and funding — in order to do their jobs. These become very difficult to obtain if leadership doesn’t value what supplier diversity managers do. It’s unlikely that a company will take serious steps toward improving the diversity of its suppliers without some interest from management. It’s also unlikely, however, that the energy it takes to set up a nascent program can sustain the program for long or be sufficient to elevate it to higher levels. Existing support among executives needs to be nourished, and support among management must be continually cultivated.

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CHALLENGE: FOSTERING SUPPORT AMONG MANAGEMENT

BEST PRACTICE: Make the strongest business case for supplier diversity In discussing supplier diversity, people often refer to “making the business case” as a cornerstone of building support. How can this be done successfully?

INITIAL STEP: Understand your company

“Understand your business. To do that, you have to first understand your position in the organization, the organizational culture, their business strategy, and their objectives. Then you have to do the hard work to figure out how you’re going to map your supplier diversity pursuit to those particular strategies and business goals. If you sit down at the table and start talking to somebody about something that is not on their performance radar, not on their company value stream, you’re DOA.” — Benita Fortner, Raytheon Every company will have an individualized reason for pursuing supplier diversity. For some, it will be a cornerstone for reducing risk in the supply chain; for others, customers may be loudly demanding that action be taken. It may be an important part of forming linkages with expanding consumer markets, or it may be a matter of complying with governmental contracting rules. The particular interest of the organization in supplier diversity will be a strong guide to making the “business case” effectively to executives. Supplier diversity managers should tailor their case tightly according to the company’s broader strategic goals. This helps put supplier diversity on the map in terms of management, and requests for management to lend support to supplier diversity goals becomes a welcome component of their strategic efforts.

ADVANCED STEP: Identify ROI Making the best business case has to be done on an ongoing basis. To sustain a strong supplier diversity initiative requires commitment from both the corporate entity and the supplier to demonstrate value, explains Mike Angulo of SRP. Once management views supplier diversity as being part of their broader strategic goals, the contribution of supplier diversity efforts to achieving those goals should be made clear. “Always show your value through a report,” Angulo continues. “Show your ROI to your management.” This often means developing metrics to measure ROI for each part of the supplier diversity program, and in turn directly relating it to the company’s strategic executives. The ability to highlight successes is key to sustaining a program.

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CHALLENGE: FOSTERING SUPPORT AMONG MANAGEMENT

BEST PRACTICE: Continually engage with executives Fostering executive support is a continual process that is crucial to the success of supplier diversity — but capturing the attention of executives can be difficult. There are some reliable ways to help build interest in the C suite.

INITIAL STEP: Establish a steering committee

“Having the steering committee put in place has helped tremendously with education and visibility.” — Angela Norris-Hawkins, CenturyLink One way to stay visible among executives is to establish a steering committee for supplier diversity efforts within the company that requires occasional involvement by management. It keeps leadership engaged with regular updates, allows them to see the progress of the supplier diversity program, keeps them abreast of problems provides a chance for them to ask and answer questions, and gives a forum for the business case to be offered continually. If a company has a steering committee for overall diversity efforts, it might be a viable option to establish a supplier diversity subcommittee within it. A steering committee should create an important conduit for communication and relaying information between the supplier diversity program and C-level executives. A steering committee “is key, too, because you have a team of people behind you with the same idea, the same concept, and sometimes they need to take it to senior management, not you,” says JD Calhoun of Southwest Gas.

ADVANCED STEP: Meet directly and regularly with executives Once supplier diversity is firmly rooted in a company’s culture as an important part of its strategic efforts, more regular meetings with higher-level management — perhaps twice a year — should be possible, so that regular interface can occur between company leaders and supplier diversity staff. This keeps supplier diversity goals visible to executives and also provides supplier diversity personnel with the opportunity to present success stories, and to gain insight into how others see the place of supplier diversity within the company. At this point, having access to executives new to the company is critical in continuing to build support for the program. For a new member of the executive team, “It’s imperative that the supplier diversity group educate him or her to the nuances and the importance of what it is here, and what it means, and how his engagement has to be in such a way that brings out the best,” says Jesús Borboa of APS. “So it’s a learning process, and he or she will rely on supplier diversity to bring in the information, to educate.”

BEST PRACTICE: Identify and utilize allies It is very difficult for supplier diversity staff alone to keep the issue visible to executives and ensure there is buy-in. The role of allies — both internal and external — is key to ensuring that the importance of the program is felt throughout the company.

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CHALLENGE: HAVING YOUR PURCHASING ORGANIZATION EMBRACE SUPPLIER DIVERSITY

INITIAL STEP: Find and rely on people within the company who value your goals At the beginning, not everybody in a company will treat a supplier diversity program with importance. It’s key from the outset to find internal allies who do, and who can help ensure that supplier diversity efforts are felt company-wide. “Developing a network of allies who will align themselves with you on different pieces of execution is very, very important,” explains Benita Fortner of Raytheon. These people may be allies due to a personal interest in diversity, or they may have an especially forward-thinking view of the importance of supplier diversity to the company. In any case, a supplier diversity manager should ask for and rely on their help to keep it a priority within the company.

ADVANCED STEP: Leverage the wider community External allies can be extremely important in engaging higher-level management in particular, allowing the case for supplier diversity to be brought from outside the company. Having executives meet with leaders of community organizations also helps them to better understand the landscape of diverse suppliers. A once- or twice-annual meeting between executives and leaders of certification organizations or minority chambers of commerce can help to drive home the importance of the company’s efforts. “You’ve got to understand what’s out there. You really have to have your feet on the ground in terms of knowing your resources,” says Jesús Borboa of APS. “It is no accident that we have our community partners meet with our CEO twice a year. That’s not a feel-good thing. That’s incredibly, incredibly strategic for us.”

CHALLENGE Having Your Purchasing Organization Embrace Supplier Diversity

“Get your leadership’s support. Push it downward. And push in the other direction, too. It’s the purchasing staff where the rubber meets the road. They make it happen.” — Jesús Borboa, APS The Challenge A company’s purchasing organization will be on the front lines of increasing spend among diverse suppliers. For a supplier diversity program to work, it’s clear that it needs buy-in from the people doing the procurement. This is often easier said than done. “When I got in, I was saying, ‘This can’t be that hard — the buyer

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CHALLENGE: HAVING YOUR PURCHASING ORGANIZATION EMBRACE SUPPLIER DIVERSITY

needs what this person is offering, and they’ve been using other people, so it’s time to give somebody else a shot,’” recalls Valerie Bailey of Southwest Gas. “But it’s not always easy. I understand why people have the relationships they have with their contractors or suppliers: They get you what you need, they’re on time, and they have all of these things that are working in their favor. Why do I need to bring somebody else in?” In other words, as Chet Yancy of ASU puts it, “People tend to do business with people they like and they know.” This often means existing suppliers. Increasing the diversity of suppliers, at least at first, is in many ways a process of disruptive change. It is natural that there will be difficulties adapting, and it requires time and effort to manage this change process. Some proven practices can be followed, though, to build a purchasing culture over time where supplier diversity is accepted as a core part of the procurement process. “Twenty years ago, it was a push to change our purchasers’ mindset toward utilizing and supporting small businesses,” says Charles Eaton of his experience at Hensel Phelps Construction, the company where he leads supplier diversity efforts. “Now, it is just a process, as now our folks understand it makes good business sense.”

BEST PRACTICE: Educate buyers and provide them with tools Just as much as the case for supplier diversity has to be made to management, it also has to be made to people in the purchasing organization — even if management has made its support clear. Greater understanding of the business case for supplier diversity throughout the purchasing organization can lead to it being better integrated into normal procurement flows. Daniel Hutto of Cox Communications explains, “It’s all about internal and external awareness. Awareness that we are trying to leverage more diverse vendors and bringing in vendors that we wouldn’t have normally looked at in the level of detailed we needed to. As a result we are giving our leadership the leeway to use more vendors than we have in the past. In the end, we think our efforts will build a better community and a stronger company.”

INITIAL STEP: Treat procurement staff as internal customers It’s important for a supplier diversity team to think of the procurement staff as internal customers whom the supplier diversity program exists to help. This requires active relationship-building. It also sometimes means communicating the business case directly to buyers — reiterating how purchasing tradecraft is improved by embracing supplier diversity. Explaining what you do and how you can help will assist in opening up a dialogue that will allow both of you to achieve your goals more easily.

ADVANCED STEP: Have supplier diversity procedures fully embedded into normal procurement The ultimate goal is for supplier diversity to become an integral part of any purchasing activity — for it to be an inherent part of the normal purchasing workflow. This may mean people dedicated especially to finding diverse suppliers being part of a purchasing team, or for diversity goals to be set for individual buyers. Either way, the supplier diversity team needs to provide tools that are embedded into the procurement process, rather than standing as an outside resource. “When we deploy supplier diversity strategies, we always make sure they are baked into existing strategies and existing processes,” says Benita Fortner of Raytheon. “We want to make sure that nobody has to go outside of that arena to make sure that supplier diversity successes are going to happen.”

BEST PRACTICE: Establish yourself as someone buyers can trust Taking on a role where you are helping purchasers to do their jobs will take you a long way in establishing a trusting relationship with the purchasing organization. A supplier diversity team should work to ensure that the relationship is a two-way street where the feedback of purchasers matters.

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CHALLENGE: HAVING YOUR PURCHASING ORGANIZATION EMBRACE SUPPLIER DIVERSITY

INITIAL STEP: Ask for buyers’ feedback and information Show not just that you care about helping buyers to do their job, but that you also are interested in what they have to say about how goals can best be met. It is about building relationships. “Building that relationship of trust with our suppliers helps us to accomplish our goals,” says SRP’s Mike Angulo. Meeting with buyers to discuss new supplier diversity initiatives is always advisable. In addition, supplier diversity teams should be soliciting purchasers for information about contracts that are coming up to bid, so that the supplier diversity team can know best how to help buyers. Furthermore, it is important, especially early in a program, that the supplier diversity team only refer businesses to buyers if those businesses are plausibly ready to win work. “You need to really make sure that diverse business that you’re proposing out to your internal clients meets their expectations,” says Patti Pyle of SRP. “Otherwise your credibility is jeopardized.”

ADVANCED STEP: Formalize visibility into buying Eventually, the supplier diversity team should have complete and automatic visibility into upcoming company contracting. “Internally, it’s all about us creating the relationship with our business unit partners and with our supply chain partners to really find out what’s going on in terms of the opportunities in the business units,” says Jesús Borboa of APS. This way, the supplier diversity team can make the most pertinent, high-quality linkages. As the supplier diversity team grows, ensuring it expands with new staff members who have purchasing backgrounds can help to establish trust and credibility with purchasers.

BEST PRACTICE: Tap into people’s competitive spirit The corporate environment often means people will be competitive with one another. This can be a positive instinct to harness when it comes to having supplier diversity take hold within a purchasing organization.

INITIAL STEP: Make sure people know who is doing a good job Providing positive feedback and recognition can be a powerful motivator. “We make sure to work with each business unit to understand what they buy, and how we can help. We’re always there to help, not to interfere. And if they do something good, we communicate that: We want to make sure that people are recognized for the good work that they do,” says JD Calhoun of Southwest Gas. “We try to create among the VPs a competitive spirit. If one person is doing well, tell them.” Even matter-of-factly presenting the attainment of different business units can be enough to stoke people’s competitiveness to outdo each other at meeting and exceeding supplier diversity goals. “We meet regularly with our vice presidents and our senior business partners to let them know how they’re doing,” says Jesús Borboa of APS. “Trust me, they don’t get to that level without being a little bit competitive.”

ADVANCED STEP: Create a formal recognition program Especially when trying to encourage excellence across large or geographically dispersed purchasing organizations, a formal recognition program helps to create a competitive spirit. When individual purchasers who consistently support supplier diversity goals are eligible to be recognized by an award, it helps mark supplier diversity as an area where people should be striving to excel.

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CHALLENGE: MASTERING THE LANDSCAPE OF DIVERSE SUPPLIERS

CHALLENGE Mastering the Landscape of Diverse Suppliers The Challenge When a business is dedicated up and down the chain of command to contract with diverse suppliers, where does it find businesses to work with? The universe of diverse suppliers does not just present itself — especially in Arizona, where, due to fewer regulations about supplier diversity, many diverse suppliers may not be certified. Other diverse enterprises may not think that they could have success walking into the office of a large business, so they don’t try. Some small businesses may not realize when they have an opportunity to bid for suitable work. Finding the right diverse suppliers requires the concerted efforts of a company’s supplier diversity program to understand what’s out there and how that could benefit the company. Just as much as it is about building internal support for the idea, building a successful supplier diversity program is about mastering the external landscape of diverse suppliers.

BEST PRACTICE: Network strategically One of the major jobs of a supplier diversity manager is to be the face of his or her company to the world of diverse suppliers. Getting out and meeting businesspeople is essential.

INITIAL STEP: Attend a wide variety of networking events Managers of successful supplier diversity programs stress that they don’t have 8-to-5 jobs. Interfacing with small businesspeople requires going to a wide array of networking events and, among what are often familiar faces, looking for new opportunities that may be presenting themselves. “Sometimes you find the best suppliers can’t attend the things that you attend,” says Chet Yancy of ASU. “They can’t attend midday meetings. So that’s why you attend receptions in the evenings.” Surveying the field of diverse suppliers is a constant process. “Gathering their capability information such as skill sets, qualified personnel, financial backing, and safety is important. Going to supplier diversity conferences — where you can meet a lot of small contractors that you wouldn’t meet any other way — is essential to growing our subcontractor and vendor base,” says Charles Eaton of Hensel Phelps. Or, in other words: The job cannot be done well from a desk.

ADVANCED STEP: Establish strategic networking goals With a reasonable grasp of the landscape, a supplier diversity team should look to set goals for networking, down to the level of individual events. “A more tactical approach is showing up with a booth, putting it up, and being out there in the community, soliciting all participants,” says Mike Angulo of SRP. “A strategic approach is more of a targeting approach — going to conferences or trade shows with a specific purpose, having an idea of who we want to meet, and what we want to accomplish to build the right relationships.”

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CHALLENGE: MASTERING THE LANDSCAPE OF DIVERSE SUPPLIERS

Beyond the supplier diversity team, attending conferences should be something that eventually extends to buyers themselves. “On average, we sponsor one or two, or even three, procurement folks to attend conferences with us,” says Vonshe Jenkins of Bank of America. “For opportunity fairs that my team can’t go to, I pick up the phone and call on our sourcing partners to attend on our behalf, and give them instructions and everything — and they come back really energized. We are very inclusive of utilizing their skill sets in our activities.”

BEST PRACTICE: Leverage external community partners

“External partners are extremely important — one, because they are a hub for our diverse businesses, and we see them as that support foundation; and, two, because we also see those external partners as the conduit to our diverse businesses. Given that we will always have more diverse suppliers than Bank of America will have resources to meet them, our external partners serve as an extension to our team to help identify potential diverse suppliers. I just can’t do it without them.” — Vonshe Jenkins, Bank of America

INITIAL STEP: Join organizations as corporate members A company should make sure it builds a relationship with certification agencies, minority chambers of commerce, and other organizations that can provide insight into the community of diverse suppliers. A first step is to become a member, and from there, a program can develop a working relationship with these organizations’ staff, who often can help in identifying potential suppliers. “We spend a lot of money on memberships, and the reason we spend that is because we get access to their membership databases,” says JD Calhoun of Southwest Gas. “When we send information out about a certain type of contract that’s going out to bid, they will respond, whether they can find somebody or whether they can’t.” Having a close relationship with the staffs of these external organizations can open up new possibilities for diverse contracting, especially when a supplier diversity program is covering a large number of local areas. “I couldn’t talk to everybody,” says Angela Norris-Hawkins of CenturyLink. However, community organizations “really can be my champion in helping to talk about how we can affect business in Arizona,” she says.

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CHALLENGE: MASTERING THE LANDSCAPE OF DIVERSE SUPPLIERS

ADVANCED STEP: Strategic involvement in community organizations Beyond a working relationship between supplier diversity managers and staff members at community organizations, companies should look to more advanced partnerships with community organizations. “Many sourcing executives sit on our external partners’ boards. We also engage them in all the conferences that we support and participate in,” says Bank of America’s Vonshe Jenkins. This can lead to significant long-run returns. “We’ve been fortunate enough to take very strategic leadership positions in a lot of these organizations, which we’ve been able to leverage in creating the kind of focus from our community partners that we need to sustain this kind of effort,” Jesús Borboa of APS explains.

BEST PRACTICE: Connect with other supplier diversity programs Supplier diversity managers in the same area will see each other frequently at events, work with overlapping groups of contractors, and share community-oriented goals. Given this, it’s common for them to work together and share expertise and opportunities with each other.

INITIAL STEP: Contact others in your area or industry One helpful feature of the supplier diversity field is the extent to which different companies’ programs will support each other. Especially within industries, each company has an interest in seeing other businesses to help expand the pool of qualified diverse suppliers. Other people in the field are glad to partner and to introduce various suppliers to different programs: as Garry Walters of Southwest Gas explains, “We’re an open book here.” When supplier diversity managers encounter a business for which they don’t have any potential upcoming bids, they will routinely help to connect that business with a company that may be able to use them. Having these kinds of connections can improve a company’s ability to find what it’s looking for among a universe of diverse suppliers.

ADVANCED STEP: Strategic partnership or mentorship with a more advanced program For supplier diversity programs that are just starting out, it may make sense to pursue partnerships with other programs. Industry-specific programs in particular can result in significant cross-pollination. Speaking of APS’s diverse supplier education program (AAAME), Jesús Borboa of APS says, “It’s really important that I have a lot of buy-in from my partners, from SRP, from Southwest Gas, from Tucson Electric Power, from the telecoms. I’m not crazy enough to think that everyone who graduates from the AAAME program is going to immediately become a vendor to APS. So we’re going to do what we can to make sure that we partner with our utility partners and say, ‘Help us support this,’ in concept.” Where a strong partnership is likely, seeking out a mentor may be appropriate. “New supplier diversity programs need to see what other companies are doing,” says Patti Pyle of SRP. One key way to do this is to talk extensively with experienced people. “Two key ways to do this would include mentoring and benchmarking with another organization that already has an established program,” she says.

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CHALLENGE: DEVELOPING A QUALIFIED DIVERSE BIDDER POOL

CHALLENGE Developing A Qualified Diverse Bidder Pool

“If you don’t have a qualified and certified diverse bidder pool, it doesn’t matter how successful you are internally.” — Jesús Borboa, APS The Challenge Significant success in improving spend among diverse suppliers doesn’t mean simply getting the most out of the base of suppliers who currently are ready to do business with a company. The effort often always includes the development of a base of qualified suppliers — a spectrum of activities that ranges from providing ad hoc feedback to unsuccessful bidders, all the way to providing intensive education programs for high-potential minority- and women-owned businesses. Any supplier diversity program will find many businesses that could potentially work with their companies but are not yet ready. Investing in helping to prepare those companies can yield a much more qualified and competitive supplier pool in the future, especially in niches where there presently is a lack of options. “We can no longer wait for the economy to spontaneously generate businesses that play in our space,” says Jesús Borboa of APS. “So we have to go out and seed the economy and work with diverse businesses that have a chance of working in our sector, and create meaningful training and opportunities for them.”

BEST PRACTICE: Always provide feedback to diverse suppliers who haven’t

succeeded

To a small business, a corporate procurement process can be very opaque. The guidance of a supplier diversity program can be crucial to navigating through the system — especially one that has already turned them down. One of the most important roles of a supplier diversity program is to offer businesses advice on the expectations levels of their company, and to provide tips on where potential contractors can improve.

INITIAL STEP: Provide ad hoc feedback to suppliers who aren’t ready Helping diverse suppliers to understand where their bids fell short — or why they are not ready to compete for a company’s business — is critical to improving their chances to successfully bid for a contract. Businesses may not begin with an accurate idea of their obstacles. “They might assume that the buyers gave it to one of their friends, or that they gave it to a large corporation,” says Chet Yancy of ASU. “That’s not necessarily true.”

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CHALLENGE: DEVELOPING A QUALIFIED DIVERSE BIDDER POOL

Providing honest feedback — either about the specific shortcomings of a bid, or about the fact that a supplier simply isn’t ready to bid for work — is crucial to the success of a supplier diversity program. “Just getting the contract might be success for that small business, but we’re talking about something much bigger: Do they get the opportunity to come back?” says Valerie Churchwell of the City of Phoenix Aviation Department. A small business meeting expectations might open the door to future chances for other small businesses with the same purchasing organization. “Now you’re talking about levels of success — for the owner, for the prime, for the subcontractor, and for the subcontracting community.”

ADVANCED STEP: Establish a formal training and mentoring program for high-potential suppliers Companies may want to actively mentor businesses in order to strategically build capacity among enterprises that show the potential to play an important part in their supplier base. Some companies choose to take this approach long before the right contract comes along, often by using a formalized program that may include the services of consultants. Mentoring can involve advising suppliers on how to improve in any number of areas that helps them to meet the expectations of the buyer. It can also include mentoring while on a job. If a supplier is struggling on a current contract, “we will help them find some success,” says Rosemary Middleton of Hensel Phelps. “We’ll have more patience with a smaller company and will work to ensure their sucess. Not only do we assign jobsite personnel to help ensure timely and accurate paperwork, including payment application, but we also provide extra quality-control checks to help eliminate work re-dos. It’s not uncommon for us to send our experienced personnel to their office and train them for a period of time on the ABCs of running a business,” Middleton continues. This kind of assistance can make a big difference not just in the success of a future project, but also in preparing a supplier to win future work with a range of companies. This can greatly affect a diverse supplier’s overall viability in the marketplace.

Best practice: Create education programs to develop suppliers Put most basically, many suppliers have to be educated in how to bid for work in a way consistent with the culture and expectations of buyers at a given company. What this means, however, can vary widely in scope — from programs to help diverse suppliers grasp the procurement process, to ones that focus on how they can run their businesses in such a way that they will be poised to become an important strategic partner to a company.

INITIAL STEP: Hold seminars on how to do business with your company Suppliers’ lack of clarity about a procurement process will often dissuade small businesses or minority- and women-owned suppliers from bidding for work. One way to help address this is to hold seminars dedicated to explaining how to do business with your company. “We bring purchasing folks from corporate, and all the buyers and the suppliers are in the same room,” says Garry Walters of Southwest Gas. For some, this kind of seminar will be their first exposure to a company’s buying practices. “It goes through the whole process of how to do business with us,” JD Calhoun explains. Sometimes, the experience will be instrumental in helping small businesses to bid successfully for a contract.

ADVANCED STEP: Create educational programs to help suppliers develop their businesses Cultivating some high-potential suppliers means helping them to develop their ability to run their businesses on both the tactical and strategic levels. Offering this kind of broad training is an investment in developing a sustainable base of businesses that will be ready to compete on the open market in the long run. APS’ Academy for the Advancement of Minority, Women and Small Business Entrepreneurs (AAAME) is an example. “The tactical side is profitability, how to read financial forms,

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CHALLENGE: DEVELOPING A QUALIFIED DIVERSE BIDDER POOL

marketing, HR, and everything else. The strategic side — negotiations, evaluations, high-level stuff,” APS’ Jesús Borboa explains. With faculty of ASU’s WP Carey School of Business providing much of the instruction, “The point is to create training and learning opportunities for businesses.” Forming educational linkages can enable a company to sponsor an entrepreneurial training program. SRP, for example, is the founding sponsor of the Small Business Leadership Academy (SBLA) at the ASU WP Carey School of Business, which this year will benefit 21 businesses. “We are in our sixth year of providing scholarships for small businesses that are nominated by our business unit representatives and buyers. The firms participate in an eight-week course to improve their business acumen,” SRP’s Patti Pyle explains. This includes training taught by ASU professors in fields such as strategy, marketing, branding and negotiations.

BEST PRACTICE: Get prime contractors involved in development

“Many small companies don’t have the opportunity to get in front of the big contractors without some assistance, so we like to create an environment to help them start the conversation. Once the dialogue has begun, it’s up to both parties to continue. The small businesses have to be able to sell and market themselves; the big businesses have to be willing to listen.” — Valerie Churchwell, City of Phoenix Aviation Department

INITIAL STEP: Ask your prime suppliers to work with a diverse supplier on a job Diverse suppliers can build capacity for larger contracts by working on parts of contracts that are suitable to their present size. Important experience about doing business with your company can be imparted if they are paired on a job with a prime supplier. “Many of the small subcontractors are some of the best at what they do,” says Rosemary Middleton of Hensel Phelps. The problem comes with them being prepared to offer competitive bids for large projects. Pairing companies can be productive, but also can be tricky. “Trying to team smaller businesses with companies doing similar work can be difficult, since some prime contractors will worry about training competitors in the marketplace,” Middleton says. “By making appropriate introductions and monitoring their relationship, a large specialty company can help create an opportunity for a small diverse supplier to grow while developing a relationship that may help them both procure more work in the future,” Middleton explains.

ADVANCED STEP: Ask prime suppliers to mentor a supplier A company’s prime suppliers should understand their client’s commitment to diversity. A supplier diversity program interested in developing a business should look for close fits between small diverse suppliers it wants to develop and any large suppliers it frequently works with. “When there’s a supplier that would benefit from the expertise of one of our primes, we might ask them to partner with them to help them grow,” says Angela Norris-Hawkins of CenturyLink. “When we have someone who’s open to our ideas of working with smaller companies, then we try to do as much as we can to get that implemented.” Asking prime contractors to work with or mentor high-potential diverse suppliers can expose both your company and your suppliers to the talents of an up-and-coming business. It can also allow the supplier to work with someone in a better position to give them helpful advice, and can multiply the capabilities of your supplier diversity team.

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CHALLENGE: ENSURING SUPPLIER DIVERSITY IMPROVEMENTS ARE ACHIEVED

CHALLENGE Ensuring Supplier Diversity Improvements are Achieved Even with industry-standard initiatives in place, how does a supplier diversity team guarantee their efforts will lead to results? Building a company culture where supplier diversity is valued means, in part, building one where goals are clear and everyone knows that meeting goals will be taken seriously. Company leaders will help to communicate company goals, but in addition, where the rubber meets the road — in the procurement organization — there must be accountability. For this to exist, goals must be reasonable, achievable, and thought-out. They also have to be measured according to clear criteria. In addition, for a supplier diversity program to function at full potential, every one of its efforts must be assessed in respect to how it gets a company toward its strategic goals.

BEST PRACTICE: Develop a written strategy, roadmap, and budget Writing down goals and objectives is a way to ensure that they are aligned with the company’s larger goals, and to make sure the supplier diversity team is in harmony with the procurement organization. A formalized strategy-setting process provides structure that is useful in making sure results are achieved.

INITIAL STEP: Benchmark and set realistic goals The primary step in developing a written supplier strategy is to survey what comparable companies — in your industry or area — are doing. “I benchmark to understand other companies’ programs — to understand where they are in terms of the advancement of the program and their objectives, or where they are in measuring successes of their program, and to identify improvement opportunities for Bank of America,” says Vonshe Jenkins. Benchmarking is an especially important process for young programs. From there, a supplier diversity program should set realistic goals in terms of improving its effort and its spend among diverse suppliers, and should make sure these align with the company’s larger strategic goals. “Have realistic goals. Don’t try to go for the home run,” says SRP’s Mike Angulo. “Get some base hits and then eventually you’ll start scoring.” To ensure that it receives dedicated resources to do its job, the supplier diversity program itself should have a written, dedicated budget, which can be useful in assessing the ROI of individual efforts.

ADVANCED STEP: Develop analytics to pinpoint underutilized areas In order to properly focus a supplier diversity team’s efforts, written strategies should be finely tuned to contracting opportunities that are coming up for a company. Laying out a good strategy requires a sharp assessment of where spending opportunities exist. “Spend some time analyzing sourceable spend and understanding where yours is. Make sure you have a good internal picture,” says Vonshe Jenkins of Bank of America. “I’m not talking about a really deep analytical exercise that takes six months. Some of these evaluations may take just 30 days. You get a good analyst who you worked with and you say, ‘Hey, can you look at these numbers?’” Comparing this to the external market of suppliers should make areas of opportunity more clear, and should show in which sectors supplier diversity efforts are not penetrating. Understanding when different procurement opportunities are arising will help to provide the program with a roadmap for expansion.

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CHALLENGE: ENSURING SUPPLIER DIVERSITY IMPROVEMENTS ARE ACHIEVED

BEST PRACTICE: Ensure buyers are accountable for supplier diversity

outcomes

Supplier diversity programs have to treat buyers as internal customers, and support them in doing their jobs. But, at the same time, buyers must also know that accountability for the outcomes they achieve in supplier diversity will belong to them, and will be part of how their performance is assessed.

INITIAL STEP: Establish expectations in buyers’ performance reviews How well a buyer does at managing the entire landscape of suppliers is a core component of their professional expertise: the supply chain management field. Expanding business with minority- and women-owned enterprises is a central part of this expertise, and it follows that meeting supplier diversity goals should be part of buyers’ professional performance reviews. Success in any area is difficult to achieve without this kind of accountability. As Hensel Phelps’ Rosemary Middleton says, “It will take one purchasing agent to not do it and say, ‘Well, I still have my job — I don’t have to make that extra effort.” Top-level support is critical in making clear that supplier diversity is important to the company, but building relationships with procurement managers — and having them at the table when proposing goals for individuals working in the procurement organization — helps greatly in establishing accountability. “Buyers and analysts have supplier diversity goals built into their personal goals for the year,” says SRP’s Patti Pyle. “So whether that means attending events or including a diverse supplier in the bids, they are accountable for the success of our initiatives.”

ADVANCED STEP: Move beyond ‘good-faith effort’ expectations Especially in fields where there may be a relative lack of qualified minority- or women-owned suppliers, it is frequent to expect buyers to make a good-faith effort to find a suitable diverse supplier for a bid. However, as a company culture becomes oriented around supplier diversity as part of the normal procurement workflow, it should be possible to hold buyers to firmer expectations in supplier diversity spend. Especially where buyers are well-supported by a supplier diversity program, effort requirements can mean buyers not taking the next step in finding a qualified diverse supplier. “I guarantee that we can look at anybody who’s given what they consider a good-faith effort and say, ‘Wait a minute — why didn’t you advertise in the local diverse newspaper, or debundle your bid package so it would be more attractive to smaller firms? Or why didn’t you reach out to the diverse contractors’ association?’ There’s always something more you can do to ensure diverse contractor participatiopn,” says Charles Eaton of Hensel Phelps. “We teach our people to forget about working toward a good-faith effort — bottom line, we’ve got to get there.”

BEST PRACTICE: Create metrics for success

“Analyzing your program is the most important. If you don’t know where you are, then how can you be deliberate about where you want to go?” — Vonshe Jenkins, Bank of America

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CHALLENGE: MAKING SURE DIVERSE SPEND FLOWS DOWN

As a supplier diversity strategy evolves, continually analyzing the program will provide an important basis for understanding how to stay on track and make progress. Conducting analysis helps to focus effort. Analysis helps to identify priority areas for action, internally and externally. “It helps us to set the stage for our partnerships with our external partners, and really helps us to define for them what we’re looking for,” Jenkins continues.

INITIAL STEP: Develop standard measurements for tracking in the long term The first step is to develop measures of success that can be used consistently in the long term, so that progress can be tracked in a clear way across time. “You have to have something that people can see and measure, so people can see progress,” explains Benita Fortner of Raytheon. For instance, this means deciding how the company is going to assess spending with minority- or women-owned businesses as a portion of overall spend, or how it is going to assess the efforts its procurement organizations is making. Using metrics, it is easier to move a company’s program along its roadmap. “You have to give them the how-tos and the roadmap,” Fortner continues. “They want to do good things, so here’s how they go about doing it.”

ADVANCED STEP: Develop metrics of achievement for each individual effort Keeping a supplier diversity effort well-honed means keeping tabs of what initiatives have been most valuable in advancing the program’s larger goals. At an advanced level, this means developing measures for return-on-investment and accountability for each part of the program. Every education program, seminar, or internal policy should be assessed from the standpoint of what it was expected to deliver for the company and what it ended up achieving. This is easier if the supplier diversity team has developed metrics that have been agreed upon ahead of time as the way a given effort would be assessed. “One thing for Bank of America is that programs have to have clear objectives, and have very robust measuring systems, so we can agree on the ROI,” says Bank of America’s Vonshe Jenkins. “That’s very critical for us.” Otherwise it can be difficult to determine whether the business is wasting its resources on a low-yield program. In terms of providing advice to supplier diversity programs about how to keep on track, Jenkins says, “My biggest feedback has been, ‘You don’t spend enough time analyzing and understanding where you’re going to concentrate your efforts.’”

CHALLENGE Making Sure Diverse Spend Flows Down The Challenge A company’s commitment to supporting community businesses should not include only the contractors with which it does business directly. For the benefits of increased supplier diversity to be truly felt — by the company seeking to maximize its supply-chain opportunities, and more broadly by local communities — the benefits from large projects have to flow down through the supply chain. Especially for companies with a few large, strategic suppliers, contracting directly with minority- or women-owned small businesses can sometimes be difficult. “When the pieces of work tend to be really big, the entire community gets extremely excited about the work that will be available in their community. These businesses work to position their firms to participate, but the reality is that many don’t have the experience or capacity for a large project,” says Rosemary Middleton of Hensel Phelps. “Counting small

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CHALLENGE: MAKING SURE DIVERSE SPEND FLOWS DOWN

business participation at a lower-tier level gives the prime contractor the incentive to unbundle large scopes of work when feasible, as well as the authority to require large subcontractors to reach out and subcontract some of their work to the underutilized businesses. If you don’t create these scenarios, then the little guys aren’t going to get opportunities,” Middleton explains. Because one major purpose of a supplier diversity program is to provide opportunities in the marketplace for smaller companies in the supply chain to prosper and grow, a supplier diversity program must be concerned with whom its prime contractors are hiring. This is why “second-tier” programs are so important, and why companies must take steps to make sure that the benefits of its supplier diversity commitments are “flowing down.”

BEST PRACTICE: Establish upfront expectations for prime contractors When bidding out a contract, a company adopts the role of a customer: Making clear what it expects from in terms of diversity when shopping for a service can shape a contractor’s actions.

INITIAL STEP: Make clear to your prime contractors you expect them to share your supplier diversity values Especially in government contracting, there may be rules that restrict what kind of second-tier requirements can be stipulated in contract terms. However, even on an informal basis, making clear that you want your contractors to have their own supplier diversity commitments can make a difference. “Part of the outreach that we had was educating some of the large subcontractors that we knew we had to use, that they had to achieve their own goals so there was a flowdown,” Rosemary Middleton of Hensel Phelps explains. “When we negotiate with our tier-one suppliers, we share with them our supplier diversity objectives and commitments, and we ask them to sign up to goals,” says Raytheon’s Benita Fortner.

ADVANCED STEP: Ensure supplier diversity commitments are included in RFPs Beyond expressing expectations, a company may lay out its expected supplier diversity standards in requests for proposals. Doing this can get first-tier suppliers to think about these goals at the outset of their bids and can help avoid tensions that could develop if expectations are introduced midway through a contract. There are a number of ways to ensure the issue considered in the bidding process, including, potentially, placing them in the opening sections of an RFP that discuss the general requirements of a bid, and leaving them out of the section on terms and conditions.

BEST PRACTICE: Create a second-tier reporting system

“Those programs help the very small get bigger. If you have a big project and you haven’t tiered it, then there’s not going to be opportunity for small businesses.” — Rosemary Middleton, Hensel Phelps

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CHALLENGE: MAKING SURE DIVERSE SPEND FLOWS DOWN

Grasping the true effect of a company’s supplier diversity program often means knowing what’s happening at the second tier. A reporting system creates transparency into this, and also makes clear to first-tier suppliers that you are monitoring how well they are meeting expectations. Gathering data from contractors is not always easy, but following steps toward setting up a transparent second-tier reporting system can maximize the impact of a company’s commitment to supplier diversity.

INITIAL STEP: Request upfront that a contractor share second-tier direct spend information The first step to establishing a second-tier reporting system is to express early on to contractors that you need them to report information. This establishes it as an important part of your company’s satisfaction as a client. Data about second-tier spending can be very difficult to obtain otherwise, since it may be seen as supplementary to the core of the agreement and the contractor may not dedicate resources to that part of the project.

ADVANCED STEP: Require second-tier direct spend reporting Where possible, a company should try to require that large contracts contain a commitment to second-tier spending. If this is not possible, however, a company can likely require that the numbers be reported. Even if a contract cannot contain those kinds of terms, adopting an easy-to-use reporting system can greatly facilitate gathering information about second-tier spending. “I think what’s most important is the voice of our suppliers who are entering their information. As long as it’s easy for them, we get the reporting that we need to make this successful,” says Bank of America’s Vonshe Jenkins.

BEST PRACTICE: Work with procurement staff to find room for small

businesses

Much of the focus of a supplier diversity program will be on businesses that are small: Companies don’t want their diverse spend monopolized by a few large minority- or women-owned suppliers whose own subcontracting may not “flow down.” In large projects where second-tier monitoring may not make the desired impact, creating room for small businesses — ensuring that they will have opportunities to work and grow — becomes an essential part of ensuring flowdown.

INITIAL STEP: See if parts of large contracts can be “debundled” Where tiering does not seem to yield results, affording opportunities to smaller businesses may be possible by “debundling” part of a larger contract and offering a smaller contractor an opportunity to compete on it. Working with procurement staff to keep an eye out for this type of opportunity is sometimes helpful. Many diverse enterprises will be too small to take on a job, and granting it to them could be counterproductive. “It is the smallness that sometimes can make them fail on big jobs that have a high profile,” Rosemary Middleton of Hensel Phelps explains. “You have to break things up by debundling scopes of work.” This may present an unwelcome complication for buyers, but in line with a company’s goals, would be worth pursuing. In a large construction job, for instance, Hensel Phelps’ Charles Eaton explains, “There may be a standalone building such as a control building or a parking garage, and we can let a small general contractor do that on their own. Or they can do a specialty portion such as lighting, flooring or something similar as a set-aside small-business scope of work. It’s rather easy to break those out. You can’t break out everything, but you must think creatively to ensure that small local businesses can participate.”

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FURTHER RESOURCES

ADVANCED STEP: Require bids for large contracts to include a subcontracting plan Apart from communicating expectations about prioritizing supplier diversity after a contract is won, it could be productive to require bidders for large contracts to explain their subcontracting plan ahead of time. “We have a formal requirement that if we spend more than $500,000 with a supplier who’s not diverse, then there is an expectation that they will implement a subcontracting plan,” says Angela Norris-Hawkins of CenturyLink. This ties into other work that a company might do with its suppliers: Where a supplier diversity program has a particular contractor in mind, a prime supplier’s subcontracting plan may integrate with a mentorship component.

FURTHER RESOURCES The good news for a company at the early stages of building a supplier diversity program is that there are a number of resources available to help guide you, and a number of organizations that can partner with you.

Arizona Hispanic Chamber of Commerce The AZHCC is a vital link to growing power and influence of the Latino business and consumer market. The AZHCC serves as the primary advocate for Latino-owned businesses statewide and conducts primary research into the economic state of the Latino community in Arizona. It has been a vibrant part of the state’s business community for over 64 years and has an established reputation of actively promoting small business growth in today’s increasingly diversified market. The AZHCC’s strong efforts to keep member businesses competitive and progressive stems from the many programs it provides, including seminars, marketing consultations, leadership development, and networking opportunities. The AZHCC offers a number of partnership opportunities for companies looking to connect with Latino-owned businesses, including networking events, as well as a variety of well established, high-profile sponsorship opportunities for our corporate and community partners.

Phoenix Minority Business Development Agency (MBDA) Business Center The Phoenix Minority Business Development Agency (MBDA) Business Center is a non-profit organization, federally funded by the Minority Business Development Agency of the U.S. Department of Commerce and operated by the Arizona Hispanic Chamber of Commerce Foundation. The Center strives to create a generation of minority-owned business enterprises (MBEs) generating $100 million in annual revenues by focusing on maximizing job creation and global competitiveness for minorityowned businesses. MBDA aims to foster innovation and entrepreneurship with minority-owned businesses in high-growth industries. This is accomplished through fostering the growth, expansion, and competitiveness of minority business enterprises by assuring access to credit, capital, markets, consultation (business and professional), collateral, and other resources.

National Minority Supplier Development Council The NMSDC is a certification organization that has standardized procedures to assure consistent and identical review and certification of minority-owned businesses. These businesses are certified by the NMSDC affiliate regional council that is nearest to the company’s headquarters. A minority-owned business is defined as a for-profit enterprise, regardless of size, physically located in the United States or its trust territories, which is owned, operated and controlled by minority group members. “Minority group members” are United States citizens who are Asian, Black, Hispanic and Native American. The

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FURTHER RESOURCES

NMSDC has more than 460 national corporate members. Many companies are local members of NMSDC’s 36 affiliated Regional Councils. In Arizona, the Grand Canyon Minority Supplier Development Council (GCMSDC) is the affiliate of the NMSDC. It provides a powerful system for exchange between 3,500 corporate members and 17,000 certified minority businesses.

Women’s Business Enterprise National Council WBENC is the predominant certification organization for women-owned businesses. It is also the nation’s leading advocate of women-owned businesses as suppliers to America’s corporations. WBENC is dedicated to advancing the success of corporate members, certified women’s business enterprises (WBEs), and government entities in partnership with its Regional Partner Organizations (RPOs). In Arizona, Women Business Enterprise Council — West (WBEC-West) is the regional partner of the WBENC. A coalition of corporations, WBEs and regionally focused women’s business organizations, WBEC-West implements the certification standards of WBENC throughout Arizona, Colorado, Southern California, Utah, Wyoming, Hawaii and Guam. They also support corporations in their efforts to include WBEs in their supplier diversity programs.

Institute for Supply Management Tempe-based ISM is the leading international supply management institute. It exists to lead and serve the supply management profession and is a highly influential and respected association in the global marketplace. The “Certified Professional in Supplier Diversity (CPSD)” certification offered by ISM is a professional designation for supply management professionals whose responsibilities include supplier diversity. It is the only such designation of its kind, is supported by various diversity organizations, and provides managers with tools to manage a comprehensive supplier diversity program. The ISM Supplier Diversity Group (ISM SDG) is comprised of members that share a common interest in diversity; they recognize and value minority-owned and women-owned business development as a sound business practice within purchasing and supply chain management. The ISM SDG exists to promote the exchange of ideas and information as well as discussion of ideas and concerns on this subject matter.

Associated Minority Contractors of America AMCA conducts seminars and workshops throughout the year with the goal of increasing the number of minority-owned firms participating in the construction marketplace. These courses train the minority contractor to better compete and perform in the public and private sectors. AMCA acts as a conduit of opportunities and opens doors for its participants in new fields.

The Billion Dollar Roundtable The Billion Dollar Roundtable Inc. was created in 2001 to recognize and celebrate corporations that achieved spending of $1 billion or more with diverse suppliers, including minority- and woman-owned companies. The BDR promotes and shares best practices in supply chain diversity excellence through summits, collaboration with other organizations and the production of policy papers. BDR member companies review and discuss issues, opportunities and strategies related to supplier diversity as a way to advance opportunities for corporations and diverse suppliers. The BDR encourages corporate entities to continue growing their supplier diversity programs by increasing commitment and spending levels each year. The BDR inducts new members bi-annually. For more information, go to http://www.bdrusa.org.

This is just an introductory list – there are, of course, many other resources available to supplier diversity professionals.

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W I T H

P R E S E N T

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W ay

in

Supplier Diversity

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BEST PRACTICE MATRIX

Challenge

FOSTERING SUPPORT AMONG MANAGEMENT

HAVING YOUR PURCHASING ORGANIZATION EMBRACE SUPPLIER DIVERSITY

Best Practice

DEVELOPING A QUALIFIED DIVERSE BIDDER POOL

ENSURING SUPPLIER DIVERSITY IMPROVEMENTS ARE ACHIEVED

MAKING SURE DIVERSE SPEND FLOWS DOWN

More Advanced

Make the strongest business case for supplier diversity

Understand your company’s reasons for having a supplier diversity program. Tailor your case according to those objectives.

Identify the ROI of all supplier diversity efforts as they are reflective of corporate goals and strategies.

Continually engage with executives

Establish a steering committee made of people in management who ensure higher levels of the company pay attention.

Meet directly with executives regularly, and ensure you have the ability to educate ones new to the company if necessary.

Identify and utilize allies

Identify people within the company who share supplier diversity goals, and rely on them to help you communicate its importance.

Have allies from community organizations meet with executives and reinforce the importance of supplier diversity.

Educate buyers and provide them with tools

Treat procurement staff as internal customers. Make sure they each understand the business case for supplier diversity.

Work closely with procurement staff to ensure that supplier diversity goals are baked in to their day-to-day jobs.

Establish yourself as someone buyers can trust

Ask purchasers to inform you of contracting opportunities coming down the pike. Only refer suppliers who are ready.

Formalize complete visibility into future buying. Expand your team with people who have a purchasing background.

Tap into people’s competitive spirit

Make sure everybody knows which individuals or business units are doing a good job on supplier diversity.

Create a formal awards or recognition program.

Attend a wide variety of events related to diverse suppliers to understand the breadth of what’s out there.

Develop strategic goals for each — land on what exactly needs to be accomplished. Have buyers attend events.

Leverage external community partners

Join these organizations (such as minority chambers of commerce) as corporate members. Get to know their staff.

Have your company leadership directly engage with these organizations (e.g. on boards or initiative steering committees).

Connect with other supplier diversity programs

Contact other people in your area or industry to understand how they find suppliers. Refer possibly appropriate suppliers to them.

If appropriate, explore a mentorship relationship with a company that has a more advanced program.

Provide feedback to suppliers who haven’t succeeded

Provide ad hoc feedback to diverse suppliers who have not won a bid or aren’t ready. Make sure they understand where they’d need to improve.

Establish a formalized training and mentoring program for high-potential suppliers not yet ready to do business with your company.

Create education programs to develop diverse suppliers

Hold seminars on how to do business with your company, giving them insight into your company’s buying culture.

Develop educational programs that help diverse suppliers improve tactically and strategically. Create educational linkages.

Get prime contractors involved in development

Ask a large prime contractor to work with a small diverse contractor on a job.

Ask an appropriate prime contractor to mentor a smaller diverse supplier whom you both have an interest in developing.

Develop a written strategy, roadmap, and budget

Set out realistic goals and put them in writing. Benchmark against past numbers and what others in your industry are doing.

Develop analytics that can pinpoint underutilized areas.

Ensure buyers are accountable for supplier diversity outcomes

Establish supplier diversity expectations in buyers’ performance reviews. Ensure procurement managers are at the table.

Move past a “good faith effort” requirement in finding diverse suppliers and hold buyers to firmer standards.

Create metrics for success

Develop long-term standards by which to measure diverse spend and the effort the buying staff is putting into supplier diversity.

Develop metrics to measure achievements and accountability of all supplier diversity efforts.

Establish upfront expectations for your prime contractors

Express your company’s supplier diversity values and that prime contractors are expected to share them.

Ensure that supplier diversity commitments are included in bids. Develop flow-down requirements for major contractors.

Create a second-tier reporting system

Request before the start of a contract that prime suppliers share second-tier direct spend information.

Require second-tier direct spend reporting from prime contractors.

Work with procurement staff to find room for small businesses

Scrutinize large contracts to see whether parts can be broken out for smaller diverse suppliers.

Require bids for large contracts to explain prime contractors’ plan for subcontracting small businesses.

Network strategically MASTERING THE LANDSCAPE OF DIVERSE SUPPLIERS

Initial Step

SUPPLIER DIVERSITY BEST PRACTICES WHITE PAPER

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SUPPLIER DIVERSITY BEST PRACTICES WHITE PAPER


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AZHCC13 Supplier Diversity Best Practices | White Paper