Supplier Diversity: What Is It and What Is In It For You?

Supplier diversity is a much talked about and much misunderstood concept in North America. In the United States in particular, suppliers to (big) public sector organizations need to either be diverse or themselves use suppliers that are diverse to meet necessary requirements to supply the (big) public sector organizations.

What does this mean? It means that the supplier must meet a definition of diversity to the public sector organization (government body, council, etc.). What is this definition? Typically, it must be “minority owned”, where minority is often defined as “women owned” or “non-caucasian owned”, or “veteran owned”, but some organizations, especially those in the private sector that have adopted their own diversity programs and definition of diversity, also include “LGBT-owned” or “disability owned” or other definitions that are not “white male caucasian owned”.

But why would you want a diverse supplier? Especially when such a supplier is, as the saying goes, smaller, more expensive, and less capable. Because while many diverse suppliers are smaller, and often look more expensive at a first glance than larger suppliers, they are not necessarily more expensive. The value of a supplier is more than the unit cost of each product or hour of services. It’s the value the supplier brings. Sometimes diverse suppliers bring innovation, cultural diversity, and increased productivity as employees work harder to embrace the new methods and cultural compatibility (because sometimes in a non-minority owned business, the factory has a large number of minority employees).

Plus, diversity can be a great boon to your PR organization. While the diversity movement was not well accepted in the beginning, now it is not only well accepted but appreciated by consumers who find that the companies who practice diversity both in their organization and their supply base are more responsible and deserve more of their dollars.

While the goal of a diversity program should never be cost savings, diversity can bring a lot of value to an organization. New suppliers, even smaller ones, can bring new technologies and new ideas. It can give you access to a new supply base that can reduce overall supply chain risk. Diverse suppliers might use newer methods and technologies that provide you with near real-time information on order status, project completion, or other data elements that you care about. They might be more willing to treat you as a customer of choice and work with you on joint innovation projects or give you first access to production runs or new capabilities. They might be more likely to themselves use diverse suppliers, allowing you to claim a supply chain with multi-tier diversity at home and abroad.

Diverse suppliers can also give your senior employees and management options for mentoring, as smaller diverse suppliers can often use the guidance as they grow into larger minority-owned suppliers to support your future business needs, access to a pre-qualified community of diverse suppliers, as they will already have checked out the diverse suppliers they use, and more PR, as they will be just as happy to issue a press release about your organization and their selection for a project as your PR team will be about releasing a press release about how great your organization is doing in diversity and how socially responsible it is.

But building an effective supplier diversity program that ensures that your organization will set, and hit, appropriate diversity targets in terms of spend and suppliers, and achieve the benefits diversity has to offer, is no easy feat. But that’s the subject of our next post.

Environmental Sustentation 19: Water

Water, water everywhere
and not a drop to drink

As we indicated in our damnation post on water, fresh water is quickly becoming the scarcest resource. While nearly 70% of the globe is covered by water, less than 2.5% of it is fresh. Moreover, only 1% of our freshwater is easily accessible, with the rest trapped in glaciers, snowfields, and the earth itself. In essence, at most 0.007% of the planet’s water is available to fuel the planet’s 7 Billion people. And the situation is only going to get worse.

By 2025, over 5 Billion people could be dealing with water scarcity issues. That’s (well) over half the planet, and, by then, a significant amount of these people will be in developed countries with the means to do something about it. Governments will have to do what it takes to ensure their people have enough water, and rather than risk revolt, they won’t care about what that does to your business.

The reality is that it’s not just we as individuals that need fresh water to drink (and, to some extent, to bathe and clean) and to grow our food (in dry climates that need irrigation), but our organizations need it too. When it comes to modern production, water is needed to clean and cool modern production plants. For example, not only is it impossible to make semiconductors and modern computer microchips in anything other than an ultra-clean facility, but ultra-pure water is required during production.

But it’s not just semiconductor and microchip plants that require clean, and sometimes ultra clean, water, it’s also data centres that use water cooling, production plants that have to clean production lines between runs, and so on.

As indicated in our damnation post, you can no longer depend on your local city infrastructure to deliver fresh, clean water to you. In many developed economies, there is not always enough water for consumers. In the southern US, municipalities often have to ban people from watering their lawn, in southern Europe, there is not enough water for agriculture, and so on. Countries where, even a decade ago, one would not expect a freshwater crisis are now experiencing water shortages.

You need to insure as soon as possible that the only fresh water required by your organizations is the fresh water your employees need to drink. Your office buildings should be updated so that only the faucets, and maybe the showers, use fresh water, the toilets should use recycled water that goes through a filtration purifier. All of your plants should be retrofitted with multi-stage filtration that includes desalination, that can take whatever water source is available — recycled water, locally pumped groundwater, and even re-routed seawater — and use that. If astronauts can survive on fully recycled water for six months or more in the space station, it’s obvious that this technology is no longer rocket science, well understood, and very affordable — and much cheaper than the skyrocketing costs to the local municipality that can be expected or the cost of a disruption because your water gets shut off during a crisis. Build your own water processing plants now, or form a cooperative with other nearby factories or large office complexes to do so, and reap the benefits later.

If You Can Marry Magic to Logic You Might Just End the Marketing Mayhem

In our last post where we asked if marketing mayhem got you down, we noted that, in many organizations, Marketing is still one of those sacred cow categories that Procurement has (very) little influence over (but yet often accounts for [up to] 20% of spend).

And since it needs to have a substantial impact on sales and revenue at that spend volume, it’s important that the spend be effective as well as efficient. This means that not only does the organization have to make the spend that is most likely to lead to a return, but it can’t overspend in the double digit percentages on a significant percentage of spend if it wants to get the maximum ROI. But when a considerable portion of the spend is on consumables (like print) or commodity services (like website design, social media marketing, or production overhead costs), that spend has to be efficient. But when its managed by Marketing, it typically isn’t.

But as a Procurement professional, whom Marketing often sees as the enemy who only wants to help Finance cut their budget as Procurement cuts their spend, chances are you won’t ever get to lay a hand on this spend unless you can change the status quo, which starts with changing the way Marketing sees you. In order to do this, you have to look like someone who is their friend, and not their foe, and this will involve mastering the marketing way — walking the walk, talking the talk, understanding, and working towards their viewpoint (spend money to make money, even if they can’t measure it). (Except that you will work with Marketing to take action to make sure that spend is accompanied by measurements and metrics that will help Marketing gage which spend is most successful with respect to a particular goal.)

Only once the walk, talk, and focus is mastered can Procurement get to the message, which has to revolve around Agency (Lifecycle) Management, as discussed in a recent six-part series over on Spend Matters Plus on Mastering the Marketing Way by the anarchist and the doctor. As of our last post, only the first three articles were available. Now the entire series is available. And in the last three articles you get a deep dive into agency management support, intelligence, training, and how to create a great RFX. If you want good results, you need a good RFX — and creating a marketing RFX is not like creating an RFX for commodity goods.

the doctor recommends that you check out the rest of the series, which is the most in-depth series on mastering marketing spend for Procurement that has ever hit the Procurement bit stream.

  • Offering Agency Management Support
  • Optimize Your RFX Support
  • Intelligence and Training

Enjoy.

Should All Service Spend Be Subject to Procurement

Last week, Spend Matters UK ran a great post that asked “why do executives employ their friends as consultants”, which noted that one of the most problematical spend categories is professional services, and in some organizations, this is even more problematic than contingent labour spend, marketing spend, and legal spend. Why? Not only do some executives in some firms often engage senior experts and big 5 consulting firms on six, seven, and eight figure (plus) deals without any notice or without any respect for the process, but they often do so without any background checks or references whatsoever.

Sometimes, as pointed out by the public defender, the consulting firm or expert is being hired because the consulting firm or expert was hired in the past and did a great job, and, more importantly, there is a need for speed.

Sometimes, as also pointed out by the public defender, the budget holder is simply lazy. He knows the consulting firm or expert will do an okay job, and that’s good enough for him.

But sometimes, as documented by the public defender, there is an emotional dependence on the supplier, and that’s a good enough reason for the budget holder not to rock the boat, and other times there is a personal relationship, which is a great reason for the budget holder but not so great for the organization.

And sometimes, as clarified by the public defender, the reason is not a good one, or even a legit one. The budget holder might be making the award on the future expectations of a favour or because of a bribe and/or kickbacks that have been, or will be, received.

But if bribes and kickbacks was the worst situation that could happen, that wouldn’t be so bad. It would just mean that the award was costing the organization more than it should (and maybe significantly more than market average). If the work is quality, and identifies an ROI, that’s not too bad.

You see, if proper process, and due diligence is not taken, the organization could:

  • guarantee a large minimum payment regardless of work quality, completion, or dismissal (such as a 1M payment for early termination)
  • hire someone with a known criminal record for fraud
  • hire someone with known terrorist associations who will try to steal trade secret technology protected under a defence act

And if you think overpaying an average consultant who will take twice as long to produce an inferior result is bad, imagine how much worse each of these situations would be.

So, while maybe it is the case that not all spend should be under the control of Procurement, it is the case that all spend should follow the proper Procurement process under the guidance of Procurement so that all the facts, and options, are available to the budget holder. And since the CFO and CEO can be held criminally liable for certain oversights in the business, they should support this as following a good Procurement process and policy is the best CYA defense there is.