The Business Case for Supply Chain Diversity

Nov. 12, 2011
Supplier diversity programs offer more than a positive corporate image.

Supplier diversity programs can provide manufacturers with that feel-good aura of social responsibility that companies often champion as proof they're model corporate citizens. Sometimes manufacturers implement such programs to meet customer mandates or federal supplier requirements.

But does a business case exist for establishing programs that target minority- and women-owned suppliers? Several large manufacturers that have created supplier diversity programs for both compliance and strategic reasons say yes. For one, such programs can help manufacturers connect with a major portion of their customer base.

Manufacturers that have implemented supplier diversity programs say the payoff has come in the form of stronger relationships with their supply base, new business opportunities and a more agile supply chain.

GM Grows its Own Diverse Suppliers

General Motors Corp.'s supplier diversity program dates back to 1968 after race riots in Detroit a year earlier left 43 people dead and hundreds injured. The idea was to help provide jobs for the local community. GM provided loans to businesses near the company's headquarters that would be used to hire diverse employees from the community, says Linda Ware, GM's supplier diversity manager.

By the early 1990s the program evolved into a full-fledged supplier diversity initiative aimed at providing loans to GM suppliers. The program now includes more than 200 women- and minority-owned businesses that supply GM. While GM sought to provide obvious social benefits through the diversity program, the company also envisioned an opportunity to expand its customer base. The hope is that diverse suppliers in GM's network will hire employees who will in turn purchase vehicles from GM for supporting the community, Ware says.

ChemicoMays LLC became a General Motors Corp. supplier in 1989 after joining GMs supplier diversity program. Founder Leon Richardson, pointing at the bulletin board above, attributes much of his companys success to the opportunities gained from GMs supplier diversity program, including training and mentorship.GM also created a diverse supplier development program that provides mentoring and training to approximately 20 suppliers that GM has identified as high-value partners. Suppliers within the development program are involved in activities that help promote GM vehicles throughout diverse communities. In 2010, suppliers within the development program began a series of "ride-and-drive" events at various ethnic gatherings, including some at African-American churches and an India Day event. "This gives people participating a chance to test drive GM vehicles, and we have actually sold vehicles by doing that," Ware says.

An early member of GM's supplier development program was chemical management firm ChemicoMays LLC based in Southfield, Mich. Leon Richardson started the company in 1989 to provide research and development for nonhazardous paint and materials in auto industry painting applications. When Richardson first introduced his company to GM, he wasn't too familiar with the company's diversity program but soon discovered the program could be a key growth driver for his new enterprise. GM matched Richardson with an executive within GM who served as a mentor. As part of the mentorship process, Richardson attended workshops that educated suppliers on how to market their goods, invoice GM properly and navigate through the GM organization, says Richardson, who is African-American. Since 1989, ChemicoMays has been providing GM with services that help identify the chemicals and hazardous materials that are used in the manufacturing process. During that time, ChemicoMays has grown from sales under $1 million to more than $50 million today, Richardson says.

"As a small start-up company, even though I'm confident we had the technology that the customer would deem as valuable, there was no way in the world I could see possible that we would have access to the engineers, technicians, managers or executives had there not been a formalized diversity program -- where we could come in and talk about the goods and services we provide and have GM take it very seriously," Richardson says.

Diversity Brings New Business

Milwaukee-based Johnson Controls Inc. has been a Tier 1 supplier to GM and other automakers for years. The company also is recognized as a supplier diversity leader. In October, the company, which provides technologies for various industries including auto interiors, received Corporation of the Year honors from the Michigan Minority Supplier Development Council for its commitment to minority businesses. Johnson Controls spent $1.15 billion with diverse-owned companies in 2010 and is on track to exceed that amount this year.

Johnson Controls' focus on diversity helped the company gain business from GM in the late 1990s, says Chuck Harvey, the company's vice president of diversity and public affairs. During that time, Johnson Controls knew GM was looking to increase the minority-produced content of its vehicles. Johnson Controls was competing with other companies on seat design, pricing and other typical bidding points.

To differentiate itself, Johnson Controls approached GM armed with consumer research that Cadillac was a popular vehicle in some minority communities. Johnson Controls offered to form a joint venture with a minority-owned firm to help GM achieve its minority-produced content goals. The joint venture became known as Bridgewater Interiors LLC. Johnson Controls won the business from GM, and Bridgewater now conducts business with several other large automakers, Harvey says. Bridgewater's sales currently exceed $1 billion, according to Harvey.

"It was a great way for us to figure out how to do something that was important to our customers and to do it like nobody else had done it. We have a couple of joint ventures now similar to this," Harvey says.

Johnson Controls can trace $6 billion worth of business it has received over the past 12 years to its involvement in supplier diversity, Harvey says.

Sometimes Smaller is Better

For manufacturers supplying the federal government, diverse supply chains aren't an option. Federal diversity requirements mean companies such as Lockheed Martin Corp. must search for companies classified as minority-owned or small businesses to provide a percentage of their content.

The federal government's definition of a minority-owned business can include small businesses and veteran or service disabled veteran-owned companies.

These smaller companies are often more nimble and innovative than larger suppliers, says Nancy Deskins, Lockheed Martin's director of corporate agreements and supplier diversity. "When you look at the passing of Steve Jobs and how he started his business in the garage of his parents' home, what these small businesses do is really bring innovation to our corporation in a much faster method to market than a real large corporation like Lockheed Martin might be able to do," Deskins says.

Likewise, Life Technologies Corp., a biotechnology tools and equipment manufacturer, must meet federal mandates as well as customer requirements for supplier diversity.

In June 2009 the company hired Ed Weil Reyes as supplier diversity program manager. Reyes led an initiative to expand the company's program beyond small businesses to encompass minorities, women and veterans. The program helps the company gain contracts with pharmaceutical giants such as Merck and Novartis, which have begun requiring more diversity in their suppliers' network. But the program has another possible economic benefit: pleasing potential investors, Reyes says.

"There are actually investment groups out there that want to invest in companies that have supplier diversity programs and have good citizenship programs, so our supplier diversity program is reported in our annual citizenship report," he says.

How to Find Diverse Suppliers

Starting a supplier diversity program could seem like a daunting task. After all, how does a company sift through thousands of potential partners and figure out which ones are minority owned? Carlsbad, Calif.-based Life Technologies Corp. reaches out to diverse businesses through various networking avenues. The biotechnology tools and equipment maker belongs to organizations that represent different minority groups. The company attends the minority group events and meets with potential suppliers, says Ed Weil Reyes, the company's supplier diversity program manager. Life Technologies also advertises in publications that appeal to minority groups, including a veteran-owned business magazine.

Most manufacturers engaged in supplier diversity include information and application forms on their websites. General Motors Corp., for instance, has an internal site dedicated to its supplier diversity program at The site provides information on how to become a diverse supplier to GM, a program overview and a new supplier registration link.

Multinational corporations interested in partnering with women-owned businesses globally can find potential leads through WEConnect International. Formed in 2009, the nonprofit organization certifies businesses that are at least 51% owned, managed and controlled by one or more women. WeConnect collaborates with various international agencies, such as The World Bank Group and the U.S. State Department, to identify and certify women-owned businesses globally, says Elizabeth Vasquez, CEO and founder of WEConnect International.

While women carry a tremendous amount of purchasing power globally, women-owned vendors typically represent less than 1% of sales to large, multinational corporations. "If that's the case, these companies are probably not doing as good a job as they could anticipating the needs of the market in the future," Vasquez says.

About the Author

Jonathan Katz | Former Managing Editor

Former Managing Editor Jon Katz covered leadership and strategy, tackling subjects such as lean manufacturing leadership, strategy development and deployment, corporate culture, corporate social responsibility, and growth strategies. As well, he provided news and analysis of successful companies in the chemical and energy industries, including oil and gas, renewable and alternative.

Jon worked as an intern for IndustryWeek before serving as a reporter for The Morning Journal and then as an associate editor for Penton Media’s Supply Chain Technology News.

Jon received his bachelor’s degree in Journalism from Kent State University and is a die-hard Cleveland sports fan.

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