Supplier Diversity: The “Will and the Skill”

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Welcome to Inspired Investing. Before we start, I want to let you know about a special new microsite dedicated to COVID-19. It's filled with up-to-date information, as well as deeper insights into how we'll prepare for future after the crisis has passed. Our main focus will be COVID-19, but will still provide you with our usual helpful tips and tools for better investment management. You can visit us at Bernstein.com/covid-19.

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As the COVID-19 outbreak unfolded, we knew that the impact on nonprofits and foundations would be major. So we set aside everything to focus on immediate needs across the sector. As time goes on, however, we're seeing two related issues where certain actions can make a difference. First, the fallout from the pandemic is shedding light on societal inequities in certain communities that are disproportionately affected during this crisis.

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Second, everyone's grappling with ways to help local businesses stay afloat. We believe that putting together a supplier diversity program is one solution, especially in communities disproportionately affected by COVID-19.

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So what you'll hear today is an interview recorded prior to the crisis that has become even more relevant today. Hi, everyone, welcome to Inspired Investing, where we inform and educate organizations and individuals who strive to invest purposefully with and for a mission, I'm Clare Golla, Head of Bernstein's Endowment and Foundation Advisory Services, and I'm joined today by my colleague James Thompson, Head of our Diverse Market strategy.

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Recently, we hosted an event in Chicago for leaders in the philanthropy and nonprofit sector on the topic of supplier diversity. We featured three panelists, Gerardo Rodriguez, who's manager of Supplier Diversity at US Cellular, Zak Schrantz, president and CEO of UCAN, a nonprofit that supports youth and families in Chicago, and Linda Zager, executive director of The Back Office Cooperative, which promotes financial sustainability through expense reduction for nonprofits. Today we'll gain some additional insight from James, who actually moderated the panel and will reflect on some of the panelists' perspectives.

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Hey, James, welcome. Hey, Clare. Great to be here. Thanks for joining us. I appreciate it. Before we get started, we should probably just define what we mean by supplier diversity. I think the historical perspective, Clare, is really important.

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So supply diversity programs were first introduced in the 1950s and they were essentially created to give minorities, women, and what has since been classified as these underutilized small business owners opportunities to secure contracts with government agencies, major companies, and corporations.

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Today, supplier diversity initiatives still exist, obviously, but benefit a broader spectrum of socially and systemically disadvantaged small business owners who are often disenfranchised due to ethnicity, race, gender identity, orientation, and class.

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At the end of the day, it's an intentional effort to build equity across the business owner landscape, affording a share of the financial resources companies and organizations spend through their procurement practices. That's really helpful. James, thank you. So essentially some of those same disenfranchised communities are the very ones that we are spending all of this time and effort, programmatic dollars, right, toward supporting.

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But then by using certain vendor relationships, for instance, that are outside the community, you're just sending a flow of capital outside. So one of the things that we decided to do with this panel, given that the nonprofit sector has such enormous purchasing power really across the country and as an industry, is, we asked Zach Schrantz from UCAN to participate specifically because of their journey as a community-based nonprofit that built a significant facility in Chicago. And they decided that they would engage in supplier diversity

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as a key part of building that facility. So his key points really included that, number one, implementing supplier diversity can work on multiple levels.

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However, it does take a lot of work. It takes a lot of effort and planning. But the rewards for the organization, for the community, for all of the stakeholders involved are really worth the effort. Here's a little bit of what Zach had to say. As I share the story of our supplier diversity journey, I want to start at the end. And so, little spoiler alert, supplier diversity can work and it definitely can and will be impactful if we do it.

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When we set out to build our campus in North Lawndale, it was a large project, seven and a half acres, 42 million dollars. We said, all right, what if we set an ambitious target of 50 percent of the spend be with minority and female owned contractors? This was about almost double what the city of Chicago expects when they invest in a project. So it was ambitious. Through a lot of hard work, we ended up with 60.26 percent of our spend of that

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42 million dollars was with minority and female owned suppliers. 22 million dollars of spend with those companies, 60 different companies benefited from our contracts.

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We had 44 percent of those were with African American owned companies and 16 percent were with female-owned companies. We ended up also with a commitment to hiring locally and that was important to us as well, because, yes, it's important to invest in our African American female-owned companies, but those in the community wanted to make sure that we were using the companies in the communities.

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And so those are the kind of the numbers and the success that we were able to hit. So from a branding and visibility and credibility perspective, it was fantastic. From a community relations and community engagement perspective, it was fantastic, and government affairs and funders, et cetera.

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So it, really looking at this, this project, and doing it the right way in our minds has really been a huge benefit for UCAN. And so that's the end result. So Zach did a great job really articulating the vision and the hopes and the successes they'd like to see through their programming.

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He also described the steps UCAN took to achieve those amazing results. One key to success was the organization was having a diversity advisory board, but also recognizing that we need to treat supply diversity like any other business decision. So that entails planning for it, providing adequate resources, executing the plan, measurement, and tracking, and amending as necessary. Here's Zach again. Now, the story is that it takes a lot of hard work. You have to be intentional and you have to be strategic about it. The supplier diversity is,

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and James, you mentioned that supplier diversity is often kind of lost in overall diversity, equity, inclusion work, and that was somewhat true for UCAN in our early stages. So we've been very intentional about diversity, equity, and inclusion for the last 15 years and have a comprehensive strategy that is looking at board diversity, leadership development, employee development, employee engagement, employee resource group.

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So this is one aspect of that. And for a human service provider, most of our work is done with and through our employees and our people. So that's been a large focus of ours. But really recognizing that putting our money where our mouth is with our suppliers was going to be important as well. And so we, when we started this project, we had this history with supplier diversity.

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So we have to do it the right way. And so what was important for us at the time was to, if you are moving into a new space, make sure you bring experts and consultants and people that have done this before. It sounds so obvious, but sometimes we forget to do that. So as we look at this, we have to have, individually and collectively both the will and the skill to make this work. And so we needed to develop the skill in order to have this happen.

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Fortunately, we had a diversity advisory board. So in our board structure, one of our boards is a diversity advisory board made up of experts like Gerardo and others across the Chicagoland community that have done this before. So they quickly tapped me on the shoulder and said, slow down a little bit. Let's make sure we do this the right way. And to do it the right way is we have to face this like we face any business issue. So any key initiative, anything that's important to the organization, you have to make sure that you plan for it.

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You have to resource it. You have to execute it, you have to monitor it, and then you have to course-correct. And so those are all things that we were able to do during this process. Incorporating supplier diversity is a business decision. And UCAN journey here really does exemplify how supplier diversity can be achieved from a large capital project.

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But James, what about the products and services that we use every day? Maybe you could share some thoughts on that. You know, Clare, there are certainly some easy and impactful ways for companies and organizations to implement inclusive procurement. We can always give consideration to things like who we hire to cater meetings and events.

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The owner operators of the venues we partner with to rent to host our meetings, events, even the distributors of paper office supplies that we tend to use on a daily basis are of certain consideration, especially to those business owners of industrial services for our offices. Anything from cleaning to [...] services. Gerardo also offers some great advice and insight here. If we want to have some sort of loyalty to our clients and customers, we should be giving back in some kind of way. Right. And what kind of way is that? One of the ways is, of course, supplier diversity.

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So I was hired to develop the initiative. And where I came from is the underground firsthand experience, having small businesses coming to me and entrepreneurs, people who are interested in wanting to start a business just like, hey, like, you know, I've, I'm either tired of my corporate gig and I want to start something new, or there's been a lot of immigrant families who've come to me, too. We just got to the States and we want to be self-sufficient and we want to provide for our families. Can you help?

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It's finding out these young entrepreneurs and these diverse entrepreneurs, how are we going to get them more opportunities to grow their business, but also how are we going to get them to hire people? I believe the SBA put out a report a few years back, a little over 70 percent of our total hiring comes from small businesses, and a good majority of those small businesses are diverse and small businesses. So a lot of these small businesses do a lot of the hiring for our country.

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And when you think of that, a lot of the businesses that I've worked with are from marginalized communities. And there's also data on a number of these diverse communities and diverse businesses tend to hire from within their own communities. Right. So a Latino-owned business is most likely going to hire a Latino person, a woman-owned business is most likely going to hire a woman employee, et cetera, et cetera. So what we noticed was, not only they're hiring from their own diverse backgrounds, but also from those communities, too.

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And so I would use that on the nonprofit side, communicating with government agencies and corporate entities. Hey, listen, if you invest in some of these small businesses, if you use a diverse business, you're not just using them for the goodwill. And just to show like you have a public pretty presentation, you're actually creating economic developments and economic impact to these communities that desperately need it. So there's a trickle-down effect of how hiring one locally owned business, for example, can foster further economic development throughout the community. So these businesses often hire from the same diverse communities that they're from.

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And then the dollars that are going to these small local businesses circulate back through the community again and again, rather than just leaving outright. You know, Clare, finding deliberate ways to spur economic development is key. This is actually how you start to create a sustainable ecosystem, right. Where each individual entity plays a role in circulating and creating these resources that benefit the company, the consumer, and the community.

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So let's listen here as Gerardo offered his take during our panel discussion. So if you offer one small business, a $50,000 contract, whatever may be, selling paper cups, right, they're most likely going to hire someone from that same diverse community and background that they're from. And they're probably from that same community where they're from as well, too.

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And what's that person going to do once they get their first paycheck, celebrate, go treat their family out to dinner? So supplier diversity is kind of that key fundamental point for corporations and government entities and nonprofits to realize like, how do we really want to build our communities?

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Well, this is probably one of the first steps. Right. How do we, it's supply diversity that can help out. And what I did quite often when I first started at US Cellular there, people were just like, oh, we love this, we love this concept. We love this idea. But how do we find these businesses? Where they at? Right. And so there are tons of resources within the Chicagoland area and nationally on how to find these diverse businesses that are certified as veteran, woman, minority, et cetera. And so what you really want to do is just start finding out who those resources are. Right.

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And then we can slowly build outs, which, what types of services do we need and do we want to focus on. Another quick point as well. There are more than 1.6 million certified diverse businesses in this country, meaning so they could be, and they're not just small, right? When you think of diverse, you don't just think of sexual orientation, gender, race, etc. And also people think that they're small, but that's not necessarily true. There are plenty of multi-billion dollar corporations that happen to be of diverse background as well, too.

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On the panel, folks mentioned that one of the benefits of inviting a small, diverse business to the table is creating more competition among businesses. James, what's your perspective on how this works? Look, at the end of the day, competition is always good and it usually, it normally creates a greater opportunity for best in class products and services.

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So eventually this helps to reverse the outflow of goods and services outside of the local community, which is what we're all trying to achieve. Now, on the procurement side of the equation and according to the research and surveys over the last few years, we find that organizations that dedicate 20 percent or more of their spending to diverse supplies are seeing as much as 15 percent of their annual sales derived from these programs, which is great.

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Similar research also shows and indicates that companies who purchase from diverse suppliers generated around 133 percent greater returns on procured goods and services than with that of the average or non-diverse and minority supplier. That's due to the fact that 99 percent of the resource suppliers have met or exceeded expectations. So the return on investment, the ROI from these programs is high.

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But some businesses will still worry that small businesses cannot deliver what larger ones can. Here, Gerardo talks about one of the biases people have about working with small businesses. A number of people at US Cellular, within the business, kind of had a negative point of view on it, like, well, I have to spend more money in order to work with the small business instead of just going with a larger company? That's one of the biggest misnomers there is. No, it's not true.

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If anything, you're going to bring more businesses into the bidding process on RFPs. And what's that going to do? It's going to drive more competition, right. It's going to drive everyone's prices at a more competitive rate. And it's just going to help you out at the end of the day with cost savings.

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But it's also going to bring in, just what's diversity & inclusion? What's the most important part about diversity & inclusion? Having different perspectives on how to do things right, so a lot of businesses have just a completely different perspective on how to solve a simple solution that could be cost savings for you. And you're also doing a good thing, right, for hiring people from diverse backgrounds and communities, and you're helping with that economic impact within those communities and helping out those small businesses as well.

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So once you find a diverse business and you think that they may be a potential partner, how do you know if it's the right fit?

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James, you and Linda Zager from BackOffice Cooperative discussed how to ensure the right resources and skills to fit your needs through things like an RFP process or feedback to help local businesses improve, even if they're not selected as a supplier. Could you share a little bit more on that? So, Clare, the magic is actually having a policy in place that ensures your organization will seek and vet minority suppliers just as you would with a non-minority or non-woman supplier.

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It's important to vet them to ensure that they have the right resources and skills for your needs. I say this all the time. This is not an exercise of compromise, but an exercise of inclusion.

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And here's Linda talking about her responsibility to her organization and how they make business decisions when hiring vendors. How do I bring this forward? We have some major contracts with major national suppliers.

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I have the responsibility to this community to make sure that you can, the community can buy products at the best possible pricing. And how do we make sure that we're not spending more money with suppliers just to have inclusion? It's an important balance and we have to make sure that, our responsibility is understanding which suppliers will meet these needs, but at the best possible cost.

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So we're helping to bring the data to the table and make the best possible business decisions. You want to look at, every time you go through a procurement activity, it's not only important from a business standpoint to do an RFP to look at your choice of suppliers, but include what they can bring to the table.

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Do they fit your service requirements? Do they fit your needs? Is this an opportunity for finding diverse suppliers? And now with the partnership with UCAN, we're, since they've done so much of this research, when we go through our processes, that's another tool in our toolbox to find out the communities and the suppliers who deliver these services that we may not have known about in the past. And we're going to start including them in our processes. And this is a tool that you guys have at your fingertips as well, whether we're part of it or not.

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The other thing is so include them in the RFP process, really understand what they do and have all the facts and figures and understanding of everything they can bring to the table and the cost.

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Right. What if a diverse supplier has a great product and service that fits your needs but their price is way over? Well, that's part of the decision process that you need to make. If the money is just not there and they're not competitive enough, how do we help them get better? So once the decision's made, you're not done, right.

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You want every single one of those suppliers to get feedback, to understand and learn more about how they can come to the table next time to be more competitive. So it's an inclusive process not just of bringing them to the table, but giving them enough learning and information to go away with and to continue to improve.

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Next, here's Gerardo talking about working with nonprofits from the corporate side with specific thoughts on research and leadership bias. Coming from the corporate side,

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you have to figure out first and foremost which nonprofit organizations fit your mission, vision, values, and goals. Right. And once you kind of find that out, then you'd want to figure out how can I do that? What can I do to influence it? So specifically, my program, my initiative supplier diversity, and diversity and inclusion, those are the fields that I play in, there's a number of nonprofit organizations that fit within that scope of assisting small businesses, workforce development initiatives, et cetera, et cetera.

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And it's a matter of just figuring out how can we help grow an entire community that fits within our footprint. What benefit of us within that partnership agreements can help this nonprofit organization? And how can they help us as well too, right. There has to be a nice relationship that's built.

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And so there's a lot of work.

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There's a lot of research involved in figuring out which organizations can we potentially partner with. The Chambers of Commerce and other business development organizations and entities, because that's where we're going to get not just the biggest bang for our buck, but I mean, that's where, inside my heart, that's what I know, that's where we can build entire communities as well too, right. Organizations that are offering that extra resource insights, technical assistance on how to really grow business and how to really provide job creation for within the communities.

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There has to be a top down approach from our senior level leadership to buy into this. Right. And going back to the will and to having passion for this and just knowing that what we're doing is good work. A key strength that The Back Office Cooperative brings to the table for nonprofits is collective purchasing power. They're able to negotiate pricing and award contracts for a much larger total than each organization would be able to do on its own. So Zach commented on this power.

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There's 117 members of The Back Office Collaborative. If everybody committed to $500,000 or a million dollars of minority or a female-owned contractor spend, 100 million dollars, 200 million dollars, what would that do? What could that do for the city of Chicago if we started doing that, and then our boards started seeing us do that, and that would then encourage our corporate partners to do that even more. While thinking about the power of collective action and big contracts is awesome, really

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organizations of all sizes can implement supplier diversity programs. Linda echoed this and added how she thinks about it. So I don't care if you're a 60 million dollar organization or a one million dollar organization. If there is a will, then there's a way to measure it. And it could be that you don't measure it in terms of spend dollars, but you measure in terms of the number of suppliers that we want to engage with. And even if you're small, you can go buy your lunch or bring lunch to your few employees from a woman-owned business or a minority-owned business.

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So think about it in terms of, Zach measured it as a percentage of spend. He had a plan for a project where he was going to build a new building and he measured success by the percent of that spend that was going towards diversity.

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But you could measure it in terms of the number of suppliers that you work with. Be aware and figure out, no matter how big or small you are, be aware of who your suppliers are and be aware and learn about in your smaller or larger organization where the opportunity lies.

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I just want to add on, one of the things, just small, simple changes that we made at US Cellular. Whenever we are going to go out to bid for something, just think about, hey, how about every bid that we have, we just include one diverse business within that framework? Whether they get the job or not, that's not the point. Just building that habit, right, building the right behaviors on how to start just being more proactive within supplier diversity. And so that's a, it's a simple ask. It's a simple ask. Just if you're going to purchase breakfast. Yeah, we can go to Panera, we can do that stuff.

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But also, let's see what the price is on a woman-owned business that can provide this stuff to you. And it's just a simple thought and behavior that you can simply add on a daily basis of whatever you purchase. Hey, let's just see if we can include a diverse business within this framework too. Simple as that. it doesn't have to be a huge, large project. It can be on everyday purchases as well. OK, James, so let's say you're a nonprofit and you want to start a supplier diversity program.

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Where do you begin? I think the first place we begin or an organization begins is just to be an intentional act, as I've mentioned before.

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So first of my mind, it's making a decision to put policies, protocol, and procedures in place.

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And for those who are finding it challenging to engage diverse suppliers, there are always organizations that can help. So seek them out. Your best bet is likely to engage your local Minority Women in Business Enterprise affiliate, also known as in MWBE, a local supplier Diversity Council, or certainly your Small Business Association. But please don't give up. I think at some point, once you identify diverse suppliers, the process of vetting and qualifying and finding references is no different than doing the same

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for someone who's not a diverse supplier. Don't add a layer of complexity to this. Don't add a layer of complexity to the process. A lot of this is just getting access and getting educated, and I encourage everyone to leverage dialogue like this to get involved. And here's how Linda, Gerardo, and Zach gave their advice at the close of the panel discussion.

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And the first step is before you think about the companies you want to bring in, look internally and understand your needs very specifically.

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So you have service requirements, you have needs. Go to your stakeholders in your organizations, the person on the front line who is feeding your client. Whether it's children, adults, whoever, they actually have to be interfacing with the supplier and they'll understand your needs the best. So the first step is internally in your own organization is to specify and understand your own needs and requirements very specifically. That's step one.

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Then when you go out and you go to the community to look for the suppliers that can fit, you have a very specific list of known needs and requirements that you're coming to the table with. And you can, it actually, the suppliers that will meet those needs rise to the top very quickly.

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Also ask for their capability statements. Most businesses have capability statements that you're looking for. And so that's just a one-page statement showing their project history, what their size and capacity is, all of that stuff that you're asking for.

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So, I mean, I think that's a little along the line to the list is, lists are great, but having people that have real experience, have people that can help do that vetting, especially in those spaces that you don't do every day. And so we're not experts in construction, we're not experts in a lot of the purchasing stuff. But there's folks like Linda in The Back Office Collaborative that are and can be that resource as well. It definitely takes time. And it's just, you know, finding those experts, finding the people who know about this and building relationships with everyone.

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If you don't have anyone on staff, figure out who they are, use me as a resource and we can go from there. Whether you're a social enterprise or if you're a sustainability company. And if you do have businesses like that and you do want to do business with corporations, you can use Linda's service, of course.

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But also there is, go to the website, do Starbucks.com/diversity or supplier diversity, or supplier list, and you're going to find, you can do that with any company. And you will see whether they have a supplier diversity program, whether they have a registry or a registration portal for you to register your business. Well, we're nearing the end here. So, James, any last important takeaways for an organization looking to implement a supplier diversity program?

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Look, I think it's just important to understand why supplier diversity is important and the role it plays for organizations and nonprofits. Right. It's more than the right thing to do. It actually improves the nonprofit's fiscal effectiveness and efficiency. It also aligns this idea of intent and mission, which ultimately leads to impacting economic and community development and sustainability for women- and minority-owned businesses.

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It truly supports an organization's inclusive practices mandate, increases ROI and decreases operating costs, but ultimately fosters a mutually beneficial relationship. Right. And that's what we will call a win-win. Finally, appreciate the small changes. Right. Those small tweaks and milestones along the way that will lead you to larger successes. Great. Thanks so much, James. What a meaningful recap and conversation. I really appreciate your joining us today. Thanks, Clare. It's so great to be part of the process and the dialogue. All right. Thank you all for listening.

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As our nonprofit and foundation clients ask us what more they can do in today's environment, we're pointing to supplier diversity as one way to make a difference. We'll continue to bring you new ideas and best practices that can help you innovate during these unsettling times. So be sure to subscribe to Inspired Investing on Apple Podcasts, Google Play, Spotify, or wherever you listen to podcasts. If you'd like to learn more about Bernstein's Endowment and Foundation Advisory Services, please explore the link in this episode's description.

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You can also find us on Instagram or Twitter at BernsteinPWM. Bernstein: Making money meaningful for individuals, families, and foundations for over 50 years. Visit us at Bernstein.com.