Exponential growth of supplier diversity programs is presenting a new procurement challenge at many large companies: finding certified, minority-owned businesses able to meet their demands for volume, quality and delivery. General Mills is meeting that challenge by channeling some of its $50 million annual travel and entertainment spend to minority-owned suppliers.
Companies are setting aside anywhere from 5 percent to well over 15 percent of spending to supplier diversity initiatives. But to meet their escalating diversity-buying goals, many corporations have had to market their diversity initiatives at trade shows, on their own Web sites and at meetings--or creatively find new categories and qualified suppliers. While most establish the programs to do good, such initiatives can be financially good for buyers, as well.
"Doing business with diverse businesses is part of our DNA; it is the way we do business at General Mills," said Erin Dunn, director of corporate services for the $12.5 billion maker of such brands as Betty Crocker, Green Giant and Cheerios. "As such, we have very aggressive goals companywide to increase our use of minority and women-owned suppliers. This was a natural part of our conversations within travel." Dunn is responsible for travel, meetings, food services and conference center services, among other areas.
General Mills has an overall goal to purchase more than $300 million worth of goods and services--about 5 percent of its total purchasing--from minority-owned businesses in 2007, Dunn said. She declined to detail her specific department's goal, but said every procurement category is included in the program. The company began the program in 1992, when minority purchasing reached $5 million. Last year, more than 500,000 diversity business owners ranked General Mills 12th in a list of the Top 50 companies for Multicultural Business Opportunities. Online portal DiversityBusiness.com produces the Div50 list.
Contributing to the corporate goal, General Mills' travel services for more than a decade has partnered with Minneapolis-based, minority-owned travel agency Metro Travel to handle part of its travel management needs. Metro works with American Express, the company's primary agency.
Searching for "more opportunities to do business in the minority community, and also meet our internal goals," Dunn said travel and meeting services zeroed in on hotels to identify minority-owned properties and include them in its preferred hotel program for transient travel and on a sourcing list used by meeting planners.
To identify minority-owned hotels, Dunn turned for help to her supplier diversity department, chain representatives, suppliers and credit card data.
"One of the best has been the credit card data," Dunn said. In the last year, new reports offered by card provider Visa have made it much easier to identify purchases with minority-owned hotels. Online reports allow companies to group spending by several diversity categories. Previously, identifying such buying was a multi-step process. "We also ask the question on our requests for proposals each year when we are setting up the hotel program. Finally, we reached out to trade associations such as the National Association of Black Hotel Owners," Dunn added.
Dozens of national and regional organizations certify women-owned, minority-owned or other selective categories of suppliers, both to help buyers identify them and validate ownership. The National Minority Supplier Development Council and its 39 regional councils offer the largest database of certified minority suppliers with over 15,000. Thanks to a concerted effort over the past nine months by a regional member, the Chicago Minority Business Development Council, the database includes numerous minority-owned properties, according to CMBDC executive director Phillip Barreda. Barreda told Procurement.travelthat his council added such properties just this year after it received requests from large financial services companies interested in steering business to minority-owned properties.
The Women's Business Enterprise National Council reports an uptick in the number of women-owned businesses applying for certification, because the corporations they serve want to count the dollars they're spending, said a spokesperson. Within the WBENC database of 6,000 suppliers, 130 were related to travel, including four women-owned hotels, according to one official. Other organizations that have standards and certification processes for minority-owned businesses include the U.S. Small Business Administration and state governments.
At General Mills, once identified, minority-owned hotels were asked to bid on relevant pieces of the company's preferred hotel program, which includes a couple of hotels in each of more than 40 to 50 primary travel destinations, Dunn said. All things being equal, she said the minority-owned properties were selected for the preferred hotel program and listed in the hotel directory. Qualifying hotels with meeting space were added to a sourcing list.
"Initially, it may take more time to identify and implement new minority vendors," Dunn said. "After the initial work is done, there is very little added time involved and generally little to no additional cost. In fact, some areas of our company have found that in the process of looking for new diverse vendors, they have actually reduced their cost base."
In a research report released in August, Atlanta-based consulting firm The Hackett Group said, "world-class procurement organizations which focus heavily on supplier diversity don't sacrifice procurement savings to do so." Researchers found some heavy adopters of such programs generating "133 percent greater return on the cost of procurement operations than average performers, driving an annual $3.6 million to their company's bottom line for every $1 million in procurement operations costs."
Beyond savings, companies like AT&T and Cardinal Health in published reports cited strategic advantages to their supplier diversity programs, tipping the scales in their favor in competitive bid situations. Whether driven by such bottom-line results, social responsibility, government mandates or other factors, there is little question that supplier diversity programs and purchasing are on the rise within Corporate America.
America's largest corporations this year are expected to spend close to $100 billion, 18 percent more than last year, on goods and services from minority-owned businesses, NMSDC said.
The Hackett Group's research found that typical companies dedicate 8 percent of purchasing to women- and minority-owned suppliers and that these suppliers make up 10 percent of the total supply base. In a survey of 113 companies in late 2005, CAPS Center for Strategic Supply Research reported that the average goal for supplier diversity buying was 12 percent. Some goals are even higher as companies have expanded the supplier diversity definition to include African-Americans, Hispanics, women, disabled veterans, homosexuals or suppliers in areas designated by the U.S. Small Business Administration as HUBZones (Historically Underutilized Business Zones).
Interest in such programs is also emerging around the globe, particularly as social responsibility initiatives advance. It's too early to predict how supplier diversity might be addressed in the International Organization for Standardization's new standard for social responsibility, now slated for release in early 2009.
At General Mills, Dunn uses credit card reports to track travel spending with minority-owned businesses for the supplier diversity department, responsible for ensuring that departmental and corporatewide goals are achieved each year.
"Measuring dollar spend allows us to better influence behaviors that foster the development of minority enterprises and thus increase the wealth within minority communities across the country," Dunn said. "These are the communities in which we do business and represent an important and growing part of our consumer base. As such, doing business in the minority community isn't just the right thing to do, it's the right thing to do for our company."
According to the diversity section of the company's Web site, General Mills chairman and chief executive Steve Sanger said, "Diversity is a fundamental value at General Mills. It's reflected throughout our company--in our employees, in our consumers, in our suppliers and in our products. A fundamental value like diversity doesn't expire. It continues to evolve, and it continues to grow."