News Column

Holding Fast

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The economy continues its long, slow crawl toward recovery, with manufacturing and trade inventories up 0.4 percent in December. That was shy of what economists had predicted, but the value of inventories hit $1.6 trillion, an increase of 7.7 percent since December 2010, according to United Press International. Sales and shipments rose 8.9 percent during the same time period, to $1.2 trillion. Import prices and retail sales were also up.

Those are rays of hope for the diversity supply chain.

Money is only one metric used to establish the 25 Leaders in Supplier Diversity, but when payouts to diversity enterprises range from millions to billions, it's important.

PG&E Corp., No. 1 on the list, shelled out $1.13 billion to diversity suppliers in 2010, or 32.7 percent of its spend, according HispanTelligence, the research arm of HispanicBusiness magazine. The company spent $884.6 million in 2009. The No. 1 company last year, McDonald's Corp., which does not release exact figures, says it spends 55 percent of its purchasing budget on diversity suppliers.

Total spend among the top 25 increased from $25.7 billion in 2009 to $44.5 billion in 2010, HispanTelligence reported. For additional sources, see Statement of Methodology on Page 20.

AT&T spent $9.2 billion, 18 percent of its purchases, on diversity suppliers in 2010, according to Marianne Strobel, executive director, AT&T global supplier diversity.

Because Hispanic suppliers are a subset of the diversity supply chain, the spend on Hispanic suppliers is necessarily smaller than the overall diversity supplier spend.

"Last year, we spent more than $198 million with Hispanic suppliers," Alma Guajardo-Crossley, director of diversity initiatives at General Motors, said at the U.S. Hispanic Leadership Institute's annual national conference in Chicago in February. "Hispanics make up 22 percent of GM's supplier diversity program."

The 2011 numbers seem to be shaping up nicely, too.

Comerica in 2011 spent more than $64 million on tier 1 and tier 2 diversity suppliers, "which is approximately 45 percent of our opportunity spend," Teresa LeFevre, vice president, supplier diversity manager at Comerica, said. "Comerica spent more than $7 million with Hispanic-owned enterprises, or roughly 11 percent of the total diversity spend."

Generally speaking, tier 2 companies supply products to tier 1 companies, which supply products to original equipment manufacturers and other companies at the top of the supply chain.

"Verizon's total diversity spend in 2011 was nearly $4 billion," according to Mariano Legaz, vice president of supply chain services at Verizon, with more than $400 million going to Hispanic enterprises.

Chrysler Group LLC spent $4 billion with tier 1 and tier 2 minority suppliers in 2011, an increase of $1.4 billion over 2010, according to a news release.

"Verizon is investing more with diverse suppliers now than it did prerecession," Mr. Legaz said. "We appreciate the competitiveness, innovation and flexibility" that diversity suppliers provide.

"There are indications that the current focus on awareness has made many industries keenly aware that they must seriously consider incorporating 'diversity' not only in their supply chain, but also in their own business structure," Raul Espinosa, founder and CEO of the Fairness in Procurement Alliance (FPA), said.

Reschooling, Retooling
As Mr. Legaz points out, doing business with diverse suppliers is both the right thing to do and good business.

The top 25 companies for supplier diversity span the economic spectrum, from heavy industry to food processing. The companies in the top 10, however, were clustered in the telecommunications, banking and finance, retail, and utility sectors.

At PG&E's Supplier Awards Conference last year, six out of the nine award winners were diversity suppliers, according to the Winter 2011 issue of the company's "Powered by Diversity" newsletter. PG&E's supplier of the year, OneSource Distributors, is Hispanic owned.

Supplier diversity "helps improve the affordability of our products for our customers," Ken Goulet, executive vice president of health insurer WellPoint's commercial business unit, said in a prepared statement announcing a strategic partnership with the RLJ Companies in January.

However, cautioned Robert L. Johnson, founder and chairman of RLJ, "without exceptional products, competitive pricing and outstanding customer service, diversity alone doesn't deliver compelling value."

The prime concern for AT&T is to find diversity suppliers in emerging technologies, according to Ms. Strobel.

"We have a need for innovative businesses in the areas of cloud applications and API," or application programming interfaces, she said. "There are many new micro and startup companies that maybe have the latest mobility devices or mobile applications that could be used over the AT&T network, (but) they are not seeking certification as a diverse business."

Although Verizon sees some recovery in the economy, Mr. Legaz said, the current climate presents particular problems to "small and medium-sized businesses, which is what most of our diverse suppliers are."

Many companies are consolidating their supply base, according to Ms. LeFevre. "There are many diversity suppliers quite capable of benefiting from these consolidations if they are positioned properly," she said.

That means having a strong relationship with more than one decision-maker at a company, she said. When it comes to landing government contracts, on the other hand, the prime issues are "accountability and oversight," according to Mr. Espinosa.

"At the federal level, minorities and disadvantaged businesses have continued to be abused by regulations and by barriers," he said. Legal venues for protecting their rights, such as protests, "don't deliver justice," he said.

He saw good news and bad news out of Washington. "The president has made contracting with small and disadvantaged businesses a priority," he said, but "laws that protect our rights are not being enforced and the barriers that exist are not being eliminated."

Meanwhile, the diversity supply chain saw much the same sort of changes as the general supply chain during the past year, Ms. LeFevre said. "There were a lot of companies that didn't make it, (but) the ones that did are stronger than ever."

Companies throughout the supply chain need "to be more disciplined in the way they spend capital," Mr. Legaz said. That doesn't necessarily mean spending less, but deploying resources that give a return on investment. Verizon has invested more than $66 billion since 2008 on infrastructure, he said, and "we've increased our spend with diverse suppliers."

Mostly Unscathed
The diversity supply chain has emerged mostly unscathed from the fizzled recovery of 2011, according to our respondents. Demand continues to grow for manufacturing suppliers, especially in the automotive sector; information technology; and staffing.

"Outsourcing is still a hot topic these days to keep down overhead costs," Ms. LeFevre said.

Mr. Espinosa said that companies in the manufacturing, infrastructure and technology sectors all "stand to benefit by diversity efforts."

Verizon looks for diverse suppliers that are innovative and agile, Mr. Legaz said.

PG&E is particularly interested in diversity enterprises in the field of green energy, and held eight green-business strategy workshops with the California Hispanic Chambers of Commerce and other diversity advocates last year. It also held a matchmaking event in November 2011 to help its prime contractors improve results from their diversity subcontractors and to answer diversity suppliers' questions about opportunities with PG&E.

"Most of our strategic diversity partners are still doing well and finding ways to grow their business," Ms. LeFevre said. She also sees encouraging signs among suppliers in the service sectors that have "been capitalizing on their customer's supply-base consolidation plans."

Verizon continues to do more business with diversity suppliers, "and we don't think we're alone in this trend," Mr. Legaz said. "We're a member of the Billion Dollar Roundtable, a group of corporations that spend more than $1 billion with diverse suppliers, and its membership continues to grow."

Verizon is "constantly looking for contracting and subcontracting procurement opportunities with Hispanic entrepreneurs," he added.

"During the recession, many large companies relaxed their dedication to supplier diversity and small-business development," Ms. LeFevre said. Some even eliminated entire staffs to stay solvent.

But now they're "coming back to the table with a renewed energy around increasing diversity spend and revitalizing tier 2 reporting programs," she said. "This is already having a great impact on the recovery of many diversity suppliers and driving economic improvements."

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