Corporate America has a supplier diversity issue
There have been new discussions about increasing diversity in spaces beyond the simple common office, such as in corporate boardrooms, among recruiters, and even within corporate incentive structures.
But there is another part of the private sector that could be left behind in all of these discussions – supplier diversity.
As a result of the civil rights movement of the 1960s, special programs emerged aimed at connecting large companies with more diverse suppliers, usually small companies owned primarily by people from under-represented groups. , such as minorities, women, people with disabilities, LGBTQ entrepreneurs, etc.
Unfortunately, diversity among vendors within U.S. companies is still low and appears to lack the support of the private or public sector, according to Kelly Burton, executive director of Black innovation alliance and founder of the Nexus Research Group consulting firm.
“While the vast majority of businesses and government agencies rely on vendor diversity to find diverse vendors, the model doesn’t work at all,” Burton said in an interview with the host of “Marketplace Morning Report” , David Brancaccio.
Below is an edited transcript of their discussion of low vendor diversity, why current programs and models to increase vendor diversity aren’t working, and what could be done to address a neglected issue.
David Brancaccio: Where does the company you do business get from? This is a key question. And in the quest to tackle systemic racism in this country, there is a new emphasis on what’s called supply chain diversity. Dr Burton, can you give me a better idea of what this means? It’s about where the company you’re doing business with gets its products from, right?
Kelly Burton: Supplier diversity programs are therefore the primary means by which businesses and government agencies seek out various companies with which to do business. It is a model that was created under the Nixon administration as a result of the civil rights movement to combat racial discrimination in shopping and has since been opened to include women, LGBTQ, veterans, individuals with disabilities and even small businesses. So in the diversity model, supplier diversity, all of these groups are considered disadvantaged groups.
Brancaccio: And I would like to say, “And that’s perfect in every way, and the problem has been solved.” And you’re going to say “No” to me.
Burton: If only, if only. While the vast majority of businesses and government agencies rely on supplier diversity to find diverse suppliers, the model does not work well at all. On average, just 10% of business spending is with disadvantaged groups, meaning the amount of spending with businesses run and owned by people of color tends to hover between the numbers. So for American companies it’s less than 5%, and for government procurement it’s around 2%, which is appalling considering the fact that people of color make up 39% of the total. American population.
Brancaccio: Yes, and based on your research, in your interactions, do you find that the companies that buy have everything to heart?
Burton: It’s difficult. What we do know is that, in general, these programs are neither well funded nor well supported. Supplier diversity professionals struggle to gain inter-organizational buy-in from managers and senior executives. According to a study, 54% of companies dedicate an employee or less to supplier diversity. So it’s hard to say you’re supporting something when you can’t even devote a full-time body to it.
Brancaccio: And that’s where leadership could come in, isn’t it? If the boss, if the CEO and his assistants make this a priority, things magically start to change.
Burton: Indeed, and we need more business leaders to step up and call for reform. But the challenge is that American companies are heavily invested in this system. This has been the way things have been going for over 50 years. And even though it’s pretty broken, it’s very difficult for American businesses to change.
Brancaccio: If a person wants to be a supplier in this complicated system, they often need the credentials, right? And can this system itself be a barrier?
Burton: Absolutely. More than 70% of companies rely on certification bodies. These are entities that essentially task small business owners with certifying that their business is more than 51% owned by a member of a disadvantaged group. Unfortunately, certification bodies tend to certify less than 1% of the diverse supplier universe. And so, in many ways, companies are cut off from the vast majority of suppliers and high potential companies that could potentially support their work and wish they could do business.
Brancaccio: And overall, it’s not just about getting more companies thinking, where do we source from? Are our suppliers more diverse? You want them to thrive. This is what the end goal of this policy was designed to meet.
Burton: Absolutely yes. You want them to be successful and you want them to be successful. But what we find is that more often than not these various companies don’t even get a chance. The system just isn’t necessarily set up so that they can even access these opportunities. Much of the sourcing is relationship based. And women and people of color have not had the opportunity to accumulate the kind of social capital that our white male counterparts have been able to accumulate over generations.
Brancaccio: Social capital, like a larger network, so that you know the right person to land the contract?
Burton: It’s exactly that. And so supplier diversity is supposed to be designed to create entry points, but in many ways it creates additional barriers as people of color have to go through extra steps that our white male counterparts don’t necessarily have. to cross.
Brancaccio: So what would you do? Would you rethink the system put in place during the [Richard] The Nixon administration? Does he need something structural?
Burton: Absolutely. And I submit that it would be completely reinvented. A lot of times we like to think, well, the system is down, so let’s fix the system. I think we just need an entirely different system, designed for a modern age, designed to solve the problem of lack of access to opportunities for entrepreneurs and business owners of color.
Brancaccio: Once people start talking, where do you go from there to rethink this whole idea of supplier diversity?
Burton: We need more corporate leadership. We need more leaders in corporate America to say, “You know what? The system is broken. And we have to reinvent the way we do it better. This won’t happen until companies decide it needs to be done. The challenge we see is that entrepreneurs and small business owners, for the most part, are unorganized. So they don’t have much power in this conversation. So it could be a “both and” where we’re talking about empowering small business owners and entrepreneurs of color. And at the same time, getting more business leaders, both supplier diversity professionals and business leaders, to say, “You know what? Two percent is not enough. Five percent is not enough. We have to take it to the next level and we have to design the kind of system and model that will allow us to do that.