By: Cheryl D’Cruz Young, Managing Director and Practice Leader: Industrial and Supply Chain, and Henry Miller, Managing Director and Practice Leader: Life Science Practice at Diversified Search

A commitment to local community and social responsibility as well as business growth and innovation continue to motivate large companies to expand their diverse supplier base as an important aspect of supply management. By purchasing more than US$90 billion worth of goods and services from minority-owned businesses, America’s largest companies have helped make minority suppliers the fastest growing segment of the business landscape.

What makes a supplier diversity program successful? Supply chain and diversity executives in the life sciences and healthcare sector point to executive commitment, metrics accountability and total business ownership as factors that help their supplier diversity programs succeed. We’ve found that firms that include diverse companies in their supplier network are able to deliver value, increase innovation and foster unique business relationships that in turn create stronger local communities.

Top-Down Commitment

Top-down commitment is a vital component of a successful supplier diversity program.
Kaiser Permanente’s national supplier diversity program was established more than 30 years ago and it’s a cornerstone of the California-based company’s diversity and inclusion goals.

“We have very strong leadership commitment to this program, and it starts right at the top with our Chairman and CEO Bernard Tyson. He has been a strong advocate for the program for many years, and he played a key leadership role in mapping out our strategy to achieve $1 billion of spend with diverse companies, which led to us becoming the first health plan and healthcare provider to be inducted into the Billion Dollar Roundtable,” says Skip Skivington, vice president of operations of Kaiser Permanente. The roundtable was created in 2001 to recognize corporations that achieved spending of at least $1 billion with minority and woman-owned suppliers. Skivington says Kaiser Permanente tries to create a level playing field for a diverse supplier in order to provide an opportunity for contracting. He adds that a diverse supply base also has a positive impact on the total health of area communities.

“Through our work with a minority and woman-owned food services business in northern California, we purchase fresh and heart-healthy meals for our hospital cafeterias, employees, health plan members and visitors,” he says. “Because of their contract with us, they’ve hired 66 employees from the local community — lessening the environmental impacts of travel and supporting the local economy.” The business also provides Kaiser Permanente healthcare to many of its employees, and its Healthy Living Program focuses on green initiatives, contributing to healthier communities by cascading our healthy food model to their other customers, Skivington adds.

A key driver for the supplier diversity program at New York City-based Pfzier is that it’s viewed as an extension of the overall diversity initiative at the company. “In addition, we have goals that are supported by our chief procurement officer and also embraced by the various category management teams within global procurement,” says Erik Meader, senior director, global procurement. “We have champions within certain business units and we would like to grow the number of champions,” he adds.

Metrics Matter

An important element of a successful supplier diversity program centers on strategy and metrics that track various aspects of the program from goals to growth. At New Jersey-based Johnson & Johnson, the metrics are aligned to the company and procurement strategy, explains Beverly Jennings, head of the office of supplier diversity and inclusion. “We have a supplier diversity business plan that we develop every year as part of our business planning process and this is done across the categories of spend in partnership with leaders of those spend categories,” she says. “We issue a preliminary plan and then it’s adjusted to include business insights and is part of our overall business plan for procurement.”

All of the metrics are aligned to the strategy, which Jennings says her organization refers to as GROW. “To Grow and sustain our supplier diversity business results; to Reach our customers and consumers; to work with Owners and advocates for supplier diversity; and to expand and impact Worldwide.”

**Metrics Create Transparency **

Meader says reporting supplier diversity spend is an essential part of his position at Pfizer. “We provide senior leaders across global procurement with regular reports and we’re in the process of launching an integrated scorecard that will allow anybody in the organization - global, regional or site-level - to look at supplier diversity spend and performance information.” He says such reporting creates transparency around the data, adding that “we’re trying to use our systems as much as possible to help support supplier diversity.”

At Kaiser Permanente, Skivington says his organization works with each region on their goals as well as on a methodology and reporting structure. “Then we share the preliminary numbers with them each month. If they don’t think something is being counted or reported correctly, they can let us know before the report is published.” He adds that as the company’s CEO became more involved in looking at the regional presidents’ goals, support for the program grew. “It created healthy competition and a pull from the regions, and there was a stronger commitment to get this process done.” Kaiser Permanente was “stagnant” for a number of years at around $500 million, although it worked hard to double that number over a three-year period. “Over time we made supplier shifts and increased our diverse base,” Skivington explained. “I made it clear that there would be absolutely zero degradation of quality, and, if anything, I wanted better quality. In addition, I could tolerate price neutrality, but I wanted to push for cost savings or efficiency savings wherever possible. I’m a believer that you don’t have to pay a premium for diversity, which was the myth at that time.”

All three companies reported a solid set of dashboards where they track performance on a monthly basis and regularly report results to the business. Best practices that have emerged include:

• Setting goals and measuring results by category, reporting them on a monthly basis

• Comparing results year-over-year to track whether the organization is growing its diverse spend

• Highlighting areas that are declining and required detailed review.

Johnson & Johnson has grown supplier diversity spend results by 50 percent to $1.5 billion since they became the first healthcare company to join the Billion Dollar Roundtable in 2011, spending $3 billion in 2014 with small businesses, Jennings says. “We compare ourselves industry benchmarks’ percentage of spend by category to continuously measure against best in class,” she adds.

Providing Sustainable Solutions

A challenge companies and women and minority-owned businesses face is ensuring that diverse suppliers can provide sustainable solutions to large companies. There are numerous organizations designed to help diverse companies meet that challenge. The Charlotte Minority Economic Development Initiative (CMEDI), for example, connects 16 Fortune 500 companies with a presence in Charlotte to 19 minority business enterprises (MBEs). The purpose is to create sustainable relationships and regional economic growth. The first two phases of the program resulted in $92 million worth of contracts and 1,100 area jobs in a more than three and half years, says G. Sean Williams, managing partner - Americas, Spend Management Solutions (SMS), LLC. “One of the key components we brought to the table is a performance and competitive focus, to supplement the social responsibility origin. This is driven through diverse supplier mentoring, training and onsite assessments to integrate every aspect of business performance,” he explains.

Ellen Jameson, director of supplier diversity in Pfizer’s global procurement organization, says she has seen the innovation, improved performance and growth of some diverse suppliers as a result of working with larger companies. Jameson says Pfizer partnered with a local woman-owned creative agency that now supports 20 brands annually. An example of the agency’s innovative work is My Pfizer Brands, a platform and single online destination where consumers can access prescription savings for the Pfizer brands their doctor has prescribed. MyPfizerBrands.com features one-click functionality to access savings on nearly 40 participating Pfizer brands, redirecting consumers to their selected brand’s website. “With our diverse suppliers, it’s not enough that we provide them business opportunities to compete for, but once they’re in our doors, it’s important that we continue to coach and mentor them to position them for continued success within the organization,” Jameson says.

Growing Business Success

Williams of SMS says he expects corporations’ investment in and commitment to supplier diversity to continue and grow. However, as they reduce their supply base, he says MBEs will have to integrate and create joint value. He says his organization often works with diverse suppliers to come together to jointly compete for business, which continues to create a win for all parties. Pfizer’s Erik Meader agrees. “With the supply base being consolidated, we find ourselves working with larger suppliers rather than the mom-and-pop-type businesses,” he says. “The challenge is how we support and grow supplier diversity through these larger companies and still be able to mentor the small and minority businesses.”

Despite challenges, supply management and supplier diversity leaders continue to see positive growth and contributions from their diverse suppliers.

Sharing business growth. A minority business IT systems integrator and IT supply chain solutions provider has added 120 additional positions because of increased procurement opportunities with Kaiser Permanente. The supplier delivers high-quality, innovative supply chain, engineering and project management services. Its business has grown annually and the company is Kaiser Permanente’s largest Cisco partner. The minority business now has its own supplier diversity program and has spent millions with small, diverse subcontractors.

Offering unique opportunities. Pfizer’s managed service provider (MSP) is a minority business that provides a level of responsiveness and flexibility to Pfizer and its MSP program that it typically wouldn’t see with other larger partners, says Jameson. The MSP provider can nimbly act on requests from Pfizer, enabling faster implementation of key initiatives and improvements. Jameson says the provider’s team is able to bring a high-level of attentiveness to Pfizer’s program, with direct access to its leadership team, which enables quick decision-making and immediate results.

Attracting attention. Johnson & Johnson shares its customer-collaborated supplier diversity success stories on its website and on internal portals across the company. Jennings says highlighting the success stories has resulted in increased engagement from senior leaders and internal business partners. “It’s highly motivating.”

It’s clear that supplier diversity is being embraced by many large global companies and that these initiatives have experienced tremendous growth. According to The Hackett Group’s recent supplier diversity research, nearly two-thirds of participants communicated a critical to high level of importance for supplier diversity programs in driving enterprise objectives. While the mandate often comes from executive leadership, supplier diversity today is becoming a part of many organizations’ DNA. And that’s because it can spur innovation, business growth, jobs and community investment.

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*This article has been published in the September 2015 Inside Supply Chain Magazine