Supplier diversity: Deeper well secures supplies

The practice of employing suppliers from among minority businesses is well established in the US. However, companies on the other side of The Pond are now waking up to the need to spread their supply contracts to businesses run by ethnic minorities, women and others.

While partly motivated by the desire to foster a reputation for responsible business practices, some companies in Europe believe that the changing demographic profile of clients and consumers makes the business case for establishing diverse supply chains.

Governments have long seen employment as a tool for social integration, so it comes as no surprise to find that several of the initiatives supporting diverse supply chains are funded by public sector organisations.

It is, for example, funding from the East Midlands Development Agency that supports the Supplier Development East Midlands programme that is managed by De Montfort University's Centre for Research in Ethnic Minority Entrepreneurship.

Working with about 20 companies - including IBM, JP Morgan, BT and PepsiCo UK - the centre aims, through workshops and other programmes, to facilitate supply chain contracts between corporations and minority businesses.

"Self-employment and small business has always been used by policymakers as a means of facilitating integration," says Monder Ram, the centre's director and a leading scholar in the field of ethnic minority businesses.

 A policy agenda is also behind the European Supplier Diversity Business Forum, an initiative spearheaded in the 1990s by the Brussels-based Migration Policy Group.

"We went to 15 countries and spoke to high-ranking civil servants who told us 'you can pass citizenship laws and introduce language training but, at the end of the day, where people begin to feel included is through work, so you need to talk to business about this'," says Beth Ginsberg, the programme's director.

In the US, support systems for supplier diversity have long been in place, the most prominent of which was set up in 1972.

The National Minority Supplier Development Council promotes the increased procurement and other business opportunities for minority businesses of all sizes.

The NMSDC has more than 3,500 corporate members - including public, private and foreign-owned companies, as well as buying institutions such as universities and hospitals - and, through its regional branches, matches more than 15,000 minority owned businesses with its members.

Legal pressures originating in the civil rights movement have been behind such initiatives in the US.

However, while for businesses in Europe, EU anti-discrimination legislation is certainly a powerful motivator, the approach is likely to be very different from that of the US, where affirmative action is acceptable.

"In Europe the idea of having quotas or a selection process on the base or race or gender would be considered discriminatory, so it's a very different approach," says Ms Ginsberg.

"You can look at [factors such as race, gender and sexual preferences] in the recruitment process but not add weight to that in the actual selection."

Prof Ram agrees. "In the US you have public policy requiring contracts with a certain percentage of women and minority suppliers - here that's actually against the law," he says.

Beyond questions of legislation, however, lies a desire on the part of businesses to broaden their access to an increasingly large and influential group of people.

For IBM, for example, diversity has long been part of procurement practices.

Over the past decade, the company has increased its yearly global spend with diverse suppliers from $370m in 1995 to $2bn today.

"It's an important strategy that is really driven by a recognition that we need skills and insights into an increasingly diverse group of customers," says Mei-Chan Duan, director of supplier diversity in IBM's Integrated Supply Chain.

 However, in the UK and Europe, making the business case for employing small and medium sized minority-owned businesses could be tough, argues Prof Ram.

He points out that cost and efficiency pressures might conceivably lead companies to reduce rather than increase the number of suppliers. "The difficulties of getting companies turned on to this agenda are not to be understated," he says.