Do Supplier Diversity Programs Work?

David Segura’s Detroit roots go back 100 years to when his grandparents emigrated from Mexico. So the idea of giving back to his community was a given when he graduated from college in 1993. But it wasn’t until he began volunteering with a program to introduce inner-city kids to technology that he found his calling.

He was 24 and working at Ford Motor Co. when he began mentoring high school students at a local chapter of the Society of Hispanic Professional Engineers. He recalls one disinterested teen who didn’t want to be there at first, but six months later gave a graduation speech that moved Segura to tears.

“I worked extra hard with him,” said Segura, the founder and CEO of Vision IT, one of the largest Hispanic-owned technology firms in the country. “I really wanted to get through to him, but you just don’t know what’s going to stick. He gave the graduation speech, and to hear him say that technology was going to be his career path was incredible. I thought that I had to find a way to do this exponentially.”

He said he realized that starting his own company was the best way to accomplish that, and four years later he founded Vision IT, which provides information technology services to a variety of clients, many of them Fortune 500 companies such as Pfizer and Hewlett-Packard. The Detroit-based company has 1,000 employees and 3,500 contractors around the country and invests in internships and mentoring programs to help disadvantaged kids pursue careers in technology.

Like many successful minority-owned businesses, Segura credits corporate supplier diversity programs with helping his business grow. These programs have had a profound effect on the minority business community, he said. In fact, between 2002 and 2007, the number of minority firms grew by 46 percent compared with 18 percent for all U.S. firms, according to the 2010 U.S. census.

And as the minority business community has evolved, so have supplier diversity programs. What began as a federal mandate in the 1960s requiring government agencies and the companies that supply them to contract with minority-owned businesses, has become a critical business strategy for many corporations as they seek to expand their markets and pursue innovation.

“With the changing demographics our customer base continues to change, and we want to make sure that we stay competitive by making sure that we are a good retailer to all of our customers,” said Denise Thomas, director of supplier diversity at Kroger, a grocery store chain. “We need input from diverse suppliers. Years ago, sushi was new to the market, and it was diverse suppliers that brought us that item and taught us how to sell. Now it’s a multimillion-dollar business for us.”

Minority suppliers also have helped the Cincinnati-based chain grow its Hispanic foods business and its market for ethnic hair products. “A year or two ago we had a major shift from ethnic hair relaxers to natural products,” she said. “Having someone who understands that category has really helped us.”

Thomas said the business case for Kroger’s efforts related to supplier diversity is simple. The grocery store is represented in 31 states, and many minority-owned companies are in those areas as well. “So they create jobs, and when people are working they can buy more groceries. As long as we have thriving communities, we have a thriving Kroger’s.”

But finding minority-owned businesses that are ready to meet the demands of a large corporation can be a challenge, she said. Kroger coordinates with supplier diversity advocacy groups like the National Minority Supplier Development Council to set up trade fairs and other networking opportunities where the companies can find each other. Greg Battle, president and CEO of Coolant Control Inc., is one business owner who has benefited from Kroger’s outreach.

He said one of the biggest challenges minority-owned businesses face is finding the decision-makers within a company and building relationships with supplier diversity managers who will advance a company’s cause. “All business is based on relationships, but if you don’t find the right person at Kroger or Honda or Ford, you don’t know where to start,” said Battle, whose company sells industrial lubricants to Kroger’s manufacturing division.

“People buy from who they like, who they know and who they respect,” he said. “You have to find that one champion on the inside that can say yes. The challenge is that we often don’t know who that person is. If the company puts a checkmark by my name, but they’re not invested in my success, I might be able to sell product number one, but there won’t be a product number two or three. You need to establish goodwill and create an innovative product or service.”

According to Rona Fourte, director of supplier diversity at Walgreen Co., first impressions are critical and follow-through is everything. She said corporate organizations like hers will scrutinize how a minority-owned business they’re trying to build a relationship with behaves in the initial stages of the relationship. That will offer an idea of how the company will operate going forward.

“It centers around following through correctly and truthfully and keeping me apprised of stumbling blocks,” she said. “Some suppliers don’t want to follow our protocol, but when they face a hurdle and get stuck, they run to supplier diversity, but I can’t do anything for them then.” It’s too late.

Fourte said another challenge for supplier diversity managers is finding minority-owned businesses capable of supplying products on a large scale. She acknowledged that minority-owned business are growing and changing, but she doesn’t know if they’re changing at the pace corporations need them to in relation to scalability.

“They can be creative and nimble, and they have a pulse on the community. However, the flip side is when you have corporations that are looking at expanding their supply chain and creating scales of economy, those businesses have to respond,” she said. “By scalability I mean that you are able not only to service a region of our stores, but if we wanted you to go international, you are readily able to do so.”

The Deerfield, Ill.-based pharmacy chain formalized its supplier diversity program in 2007, and in recent years has focused on expanding its efforts beyond ethnic and racial lines. For instance, in 2010, Walgreens launched the Community Corner initiative, to reach out to more diverse groups such as veterans, people with disabilities, women and non-minority businesses that serve minority communities.

Fourte predicts expanding the definition of diversity will be a future challenge for supplier diversity professionals. “Companies are going global very quickly,” she said. “What diversity looks like in the United States isn’t what it looks like in Europe or China. As companies continue to grow, it will be incumbent upon supplier diversity professionals to have an astute understanding of that global space.”

While companies have become more sophisticated in their approach to supplier diversity, they still lag behind corporate efforts to diversify the workforce, according to Fred McKinney, director of the Greater New England Minority Supplier Development Council, an advocacy group for minority-owned businesses. “The first response to growing diversity was seen in the HR field,” he said. “HR recognized that they needed more diverse employees. Then the focus was on diversity in executive ranks, the senior management and directors, and then the attention shifted to supplier diversity.”

He said the shift has been gradual, reflecting the slowly changing perception of supplier diversity as something companies were forced to do to something that is a business imperative.

Gerry Fernandez, president of the Multicultural Foodservice & Hospitality Alliance in Providence, R.I., said one reason that some companies have been slow to embrace supplier diversity is because it’s a hard concept to sell compared to workforce diversity. “You have a multicultural workforce, you have customers in all colors and shapes, you have your community and lastly, you have your supply chain,” he said. “The best companies in the world have all four, but there are still naysayers, people who say, “No one helped my father when he came from Germany, so why should we help out women- and minority-owned firms?”

Further, few companies, aside from members of the Billion Dollar Roundtable, get recognition for their efforts. The roundtable is made up of an elite group of firms that spend at least $1 billion on contracts with women- and minority-owned businesses.

“Many companies don’t take it seriously, and those who do don’t get enough credit,” Fernandez said. “Darden, Sodexo, these are companies that do it well, and they have numbers to back that up. They don’t say ‘Look, 16 percent of our franchisees are minorities.’ We need to do a much better job of telling that story.”