Companies that understand supplier diversity see it not as an expense to be trimmed in a slow economy, but as an investment in the future, a way to find new clients and an integral part of their business strategy.
For these corporations, a diverse supply chain is as essential as marketing or product development.
For minority-owned businesses, meanwhile, corporate diversity programs can be a critical lifeline, especially in a down economy.
Crain’s Chicago Business, a sister publication of Workforce Management, asked minority-business advocates, business owners, academics and consultants to identify the major corporations with the best reputations for building and maintaining supplier diversity in the Chicago area. The results are hardly scientific, but offer a ground-level assessment of seven major Chicago companies viewed by many as going the extra mile to maintain diversity, even in hard times.
Since 2006, the Purchase, New York-based food and beverage conglomerate has been run by a woman of color, CEO Indra Nooyi. Many of the company’s core brands, including those with headquarters in Chicago such as Tropicana, Quaker Oats and Gatorade, count large numbers of minorities among their customers.
“Diversity is a selling point that strengthens the bottom line,” says Ernest Freeman, PepsiCo’s senior manager for supplier diversity.
Freeman says his goal is to increase the total dollar amount spent with diverse suppliers by double digits each year, a goal the company has met every year since 2003. In 2008, PepsiCo spent more than $1 billion with diverse suppliers, up more than 10 percent from 2007.
Freeman says that getting his suppliers to increase their commitment to diversity as well has reaped benefits for everyone along the supply chain.
“Their efforts to diversify have identified minority companies that we didn’t know about; those companies can also do business with PepsiCo directly,” he says.
The telecom giant once known locally as Ameritech considers supplier diversity a competitive advantage.
“Having diverse suppliers improves AT&T’s products and services,” says Joan Kerr, executive director of AT&T’s global supplier diversity program. “By reaching out and including the full spectrum of suppliers, we’re getting better ideas, faster service and better quality.”
Gregg Ontiveros—owner of Group O, a provider of marketing, supply chain, printing and packaging services in Milan, Illinois—seconds Kerr.
“We’re seeing a lot of opportunities from AT&T to bid, which is all you can ask for: to be in the game,” he says. “In their supply chain, in marketing, and in advertising, they’ve shown a willingness all through their procurement ranks for diversity suppliers to participate.”
AT&T’s Kerr says the commitment to diversity has come from the top down for the past 40 years.
“Our goal is 21.5 percent of everything AT&T procures, and we have met that goal in the past,” Kerr says.
Because of recent mergers with wireless companies, many of whose supply chains weren’t as progressive, AT&T’s diverse suppliers accounted for only 12 percent of spending in 2008. Still, the total of $6 billion spent with women- and minority-owned businesses placed AT&T among the top 15 companies in the world on this score.
“It’s not about diversity, per se,” says LaShana Jackson, director of diversity and inclusion at the Chicago-based insurance and consulting giant. “It’s about integrating diversity into our overall strategy of ‘hire the best, build the best, be the best.’ ”
Aon is a member of Chicago United’s Five Forward Program, an initiative that encourages corporations to establish relationships with five local minority-owned firms. Chicago United also honored Aon this year with its Bridge Award for its contributions to diversity in Chicago’s business community.
Rather than cut back its diversity efforts in this economy, Aon is expanding them. Earlier this year, the company launched Cornerstone, a program designed to offer the products and services of its minority business partners to Aon’s diversity-seeking clients.
When the economy started to founder in 2008, Northern Trust saw an opportunity to prove that supplier diversity wasn’t just the right thing to do; it was a business imperative.
The bank has long considered a diverse supplier base as a profit center because helping minority-owned businesses succeed often turns suppliers into customers.
The bank “has been at the forefront of bringing minority entrepreneurs together with potential investors, says James Lowry, a Boston Consulting Group advisor.
Even as the downturn intensified, Northern reaffirmed its financial commitments to the Chicago Urban League and similar organizations. It also provided financial expertise to its existing suppliers to help them respond to the economic crisis.
“We realized some cost savings from using a single African-American supplier in the office products space,” says Deidra Jenkins, Northern’s director of supplier diversity. “All they needed was scalability, which they achieved by coordinating with a large, global supplier.”
Grace Puma, the Chicago-based airline’s senior vice president of strategic sourcing, says of her company’s diversity efforts: “It’s not a ‘nice to do’; it’s a smart business strategy. We’re aligning to the diversity of our customer base.”
The airline industry started feeling pressure to cut costs long before the rest of the economy contracted, yet Puma says United has not considered trimming its supplier diversity program. That’s not to say all diverse businesses have weathered the recession, however.
“We’ve seen the effects of suppliers who are no longer with us, and we’ve tried to counter that as much as possible,” she says.
During the past 12 to 18 months, she says, the airline has asked its biggest suppliers to increase the business they subcontract out to minority-owned businesses.
“We want them to be as serious about supplier diversity as we are,” she says.
The British-owned energy company that merged with Chicago’s Amoco Corp. in 1998 believes supplier diversity ensures that it gets the best products and services at the lowest price, says Debra Jennings-Johnson, BP’s director of supplier diversity.
“Because most of our purchasing is done through competitive bids, it’s pretty likely that women- and minority-owned businesses are adding value through efficient cost structures,” Johnson says.
The company is an active supporter of diversity-advocacy organizations such as the National Minority Supplier Development Council and the Women’s Business Development Council because “we get to meet suppliers we wouldn’t otherwise meet.”
BP has “some significant challenges because they are not U.S.-based,” notes Shelia Hill, president of the Chicago Minority Supplier Business Development Council. “But they have been at it for a long time, and they have good people in place.”
Johnson says the company spent about $800 million with women- and minority-owned business in 2008.
The Chicago-based utility operator serves “a very brown population,” in the words of supplier diversity manager Emmett Vaughn.
Vaughn says Exelon aims to spend no less than 5 percent of its procurement budget with women- and minority-owned businesses, a goal he says the company has met or exceeded every year. That includes 2009, in “an environment where we are spending less than we’ve ever spent since I’ve been here.”
An additional hurdle for a company such as Exelon is that there are no minority-owned businesses in some of the industries in which they purchase.
“There’s just some stuff, like uranium, where there’s no diverse supplier for us to buy from,” Vaughn says.
It’s his job to make up the difference by spending more with minority-owned firms in areas such as legal or professional services.
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