Rethinking procurement to improve access for diverse suppliers

Rethinking procurement to improve access for diverse suppliers

Today, around four-fifths (81%) of minority-, women-, LGBTQ-, veteran- and disabled-owned businesses supply goods and services to corporations, according to CVM Solutions’ 2018 state of supplier diversity – diverse suppliers report. Since 2015, that figure has steadily increased from half what it is today. But the fact that almost one-fifth of diverse suppliers still struggle to gain access to big business suggests there is more work to be done, including by corporations.

 

One challenge identified within the research was a lack of coordination – or in some cases a tension – between companies’ supplier diversity programmes and their procurement departments.

 

It is a challenge one supply chain executive at a European energy firm knows well. “When I came into [the company], while we had a focus on supplier diversity, what we didn’t have was a cohesive strategy that brought it all together,” they tell Procurement Leaders. “So, I worked with our head of sustainable business to create a plan for our supply chain that ensures we incorporate diversity and inclusion into our agenda. This is based on the principles of our company-wide programme, meaning we are directly feeding into company goals.”

 

Setting the foundations for inclusive procurement

 

The supply chain plan led to the creation of an action group, which has representation from all of the firm’s supply chain heads. “The leader of each supply chain is responsible for ensuring we have the right policies, processes and awareness in place to continually evolve and drive our approach to diversity and inclusion, while ensuring we remain aligned by sharing best practice across the organisation,” the executive says.

 

Each supply chain leader is also responsible for setting goals related to diverse procurement. “What I’ve goaled everybody on my team to do is connect with [two diversity and inclusion non-profits] on all upcoming tenders. Working together with [those non-profits], we’ve simplified the process by creating a template, which we use to request contacts at diverse suppliers who may have the right capability in the category concerned to meet our needs.”

 

All of that helps to create clear responsibilities for supplier diversity within the energy company’s existing supply chain roles.

 

But RBC Royal Bank, a founding member of the Canadian Aboriginal and Minority Supplier Council (CAMSC), has gone a step further and created a senior position within procurement that is responsible for leading the bank’s global supplier diversity programme. That person is Kiruba Sankar, director – CSR, global procurement.

 

“In 2017, a change took place within RBC,” he explains. “Supplier diversity used to be part of the category managers’ roles. I used to manage IT procurement – and I managed supplier diversity. Last year RBC’s management decided to expand this programme globally with the creation of a leadership role dedicated to supplier diversity.”

 

That’s where Sankar now comes in. He is responsible for building the strategy to develop and execute RBC’s global supplier diversity programme. Similar to the energy firm, though, he relies on support from category managers to put the strategy into action. “I work with 12 voluntary members from procurement, who help me facilitate various activities on top of their day jobs,” he says.

 

Access projects

 

One such activity is RBC’s diverse supplier development workshops, where the bank invites around 25 category-specific diverse businesses to attend coaching sessions. During these sessions, category managers walk the firms through their strategies and their business requirements, and coaching is provided on submitting an effective RFP.

 

“This helps suppliers to pitch better,” Sankar explains.

 

In addition, buyers at RBC have a mandate to include at least one diverse supplier in every RFP the company releases. For every other RFP respondent, there are questions relating to their own supplier diversity efforts.

 

“We want to create opportunities for diverse suppliers at every level,” Sankar says.

 

That is important, since just getting noticed by big business was identified in CVM’s research as another major challenge facing diverse suppliers. To give such companies a fair shot at the usually lengthy corporate procurement process, the energy company has made adjustments, as the executive interviewed by Procurement Leaders explains.

 

“We’re in a heavily regulated industry so there are certain expectations that must be met, which means some activity is not suitable for SMEs. Where that’s the case we make it clear, as we don’t want to waste anybody’s time.”

 

But, in lower-value, less risky categories, the energy firm employs a “light” version of the procurement process. “With a full-blown tender, you’re looking at a substantial number of questions, some of which are pretty intense. Our streamlined approach reduces this significantly while ensuring we cover risk, commercials and health and safety considerations, as these remain key – zero harm being the culture within which we operate,” the executive explains.

 

As well as levelling the playing field for historically underused suppliers, relaxing procurement processes in this way can give buyers access to innovations they may otherwise have missed.

 

Global power engineering firm Cummins has taken what Denis Ford, international sourcing leader, EMEA and APAC, calls a “dragon’s den style approach” to boosting the number of proposals it receives from diverse suppliers. Relaxing the usual requirements of three years’ financial accounts and minimum insurance level coverage, Cummins invites small and diverse suppliers to pitch their best ideas to a panel of experts from within and outside the business. The idea is to take the best of those innovations through to a test phase at its plants and sites.

 

“We piloted the process in the UK; starting with 80 applications, we whittled the number down to 40 fully costed proposals, then down to 26 pitches with 12 innovations selected to test,” explains Ford. Crucially, the requirements placed on each test are strengthened or relaxed depending on the nature of the project. “If we’re running a pilot at one site, we don’t insist on a full suite of insurances, instead we attempt to scale [our requirements] accordingly to help small businesses.

 

“We want to open up a level playing field and make sure we’re not discriminating against potential suppliers or putting entry barriers in the way of a new start-up. Let’s look at the innovation; let’s focus on the business idea. Diversity and inclusion is one of our core values and the innovation gateway process is a good example of how we incorporate differences in decision making whilst increasing our competitive advantage.”

 

The problem is many organisations do not see things the same way. Respondents to the Supplier diversity programmes version of its study complained of competing priorities and misconceptions held by some of their colleagues that greater supplier diversity equals more risk and reduced quality. But a well-run procurement outfit need not preclude a diverse supply base. Consider the view of the energy executive, who argues supplier diversity is less about social and reputational kudos and more about competitiveness.

 

“Do we want true diversity?” says the source. “Yes, absolutely. It’s logical that the wider pool of suppliers we can reach into, the better our chances of securing the best supplier of the goods or services we require – that’s the diversity driver.”

 

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This article is a piece of independent writing by a member of Procurement Leaders’ content team.

Harry John

Harry John -

Research analyst, Procurement Leaders

Harry John is senior research analyst at Procurement Leaders. Harry draws on six years' experience researching and writing about procurement. His research priorities are organisational structures and talent. Find Harry on Twitter by searching the handle: @aharryjohn.