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November 05, 2021

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Rethinking supplier diversity efforts

By Tonya McMurray

Based on current growth rates, it will take more than 333 years for minority business enterprises to reach parity with white-owned businesses, according to a study commissioned by the Michigan Minority Supplier Development Council.

MMSDC President and CEO Michelle Sourie Robinson said the regional council asked supplier.io Inc., a provider of supplier-diversity solutions, to conduct the study to assess the growth of MBEs and determine the gap in revenue parity for minority companies.

“I’m increasingly concerned that we’ve become an industry that likes to celebrate the minuscule wins,” she said. “It’s easy to start to believe in your own greatness, and then you don’t really question yourself or challenge yourself; you totally miss that you’re not achieving your mission.”

Robinson believes the social unrest following the murder of George Floyd provides an opportunity to educate people about the gap that still exists between minority-owned and white-owned businesses even after more than 50 years of supplier-diversity efforts.

“There are many well-meaning people that want these programs to work because they know that every community benefits when everyone is included,” she said. “When MBEs are employed and make a difference in the community, they improve all of our communities, regardless of the color of your skin. We’ve made some great strides. People of color are opening businesses at a very rapid pace. The size and growth of those businesses in the last 50 years, however, is minuscule.”

Robinson knew that the discussion about parity would need to be data-driven, prompting the council to approach supplier.io. The resulting study, “Facilitating Growth for Minority-Owned Businesses: How Rethinking Supplier Diversity and Creating Results-Driven Processes Will Achieve Revenue Parity,” used data published by the U.S. Census Bureau to analyze MBE growth from 2014 to 2018, the latest year for which complete data is available.

The report shows that between 2014 and 2018, MBEs created 14.2% of new jobs in the U.S., but collected only 7.3% of the revenue growth. In 2018, minorities represented about 40% of the U.S. population, but revenue earned by MBEs represented only 9.4% of the revenue earned by private U.S. firms. MBEs with more than $1 million in revenue earned an average of $4.8 million in 2018 compared with $9.7 million for white-owned firms.

“The cumulative sales of MBEs with revenues of more than $1 million grew from $684 billion to $1.2 trillion from 2014 to 2018,” according to the report. “While this is impressive growth, MBEs’ share of total revenues barely budged during this period. It grew from 8.8% in 2014 to only 9.4% in 2018. In fact, MBEs’ share of revenues decreased from 2017, erasing the equivalent of two years of gains.”

In addition, the report states MBEs continue to be underrepresented as a percentage of overall business. In 2018, the number of MBEs with more than $1 million in revenue represented only 17.4% of all companies, and minority representation increased only 1.25% over the five-year period.

Spending with MBEs would need to quadruple in the next 20 years to close the gap between MBEs and nonminority firms, according to the report.

Rethinking supplier diversity efforts

Robinson said that the model for rethinking the approach to supplier diversity can be found in earlier efforts. In December 2021, MMSDC will induct into its Ambassadors Championing Excellence or ACE Hall of Fame Legends, 10 former executives who drove supplier diversity efforts in major Michigan corporations 20 to 25 years ago.

These leaders took a bold approach to growing minority suppliers. When capital was an issue for a supplier, the corporations served as guarantors. The companies created joint ventures and challenged the companies partnering with minority suppliers to take robust steps to help the MBEs grow.

“If you look at the top MBEs in Michigan today, you can tie them back to one of those 10 leaders about 80% of the time,” Robinson said. “That says how much a small group of very committed people can make a difference. They said if we want this to work, if we want multimillion- or multibillion-dollar companies that employ thousands of people, we must do something different, and we must take risks.

“They did things that were unheard of, but because of that, they created MBEs that now invest in other MBEs,” she continued. “They’re multibillion-dollar operations. We must ignite that type of movement again. If we don’t, I really fear that in another 20 or 30 years, supplier diversity will be nonexistent. It will be a place where people have less than 1% annual spend, and it will be a marketing [opportunity].”

The report identifies several ways corporations can help close the parity gap, such as increasing spending targets with MBEs, including MBEs in every spending category and addressing barriers to expand the number of viable MBEs.

The average corporation spends 3.29% with MBEs, according to the report, and needs to increase to between 13% and 16% to achieve parity. The report estimates that if every corporation increased MBE spend by 1% each year, the time to reach parity decreases from more than three centuries to less than 15 years. The report also recommends that corporations intentionally include MBEs in high-growth, high-margin areas of the supply chain, including advanced manufacturing, technology and professional services.

Robinson said it’s also important for corporations to calculate their spend percentages only excluding payroll and taxes.

“Many corporations boast huge percentages because they add countless exclusions that make the percentage appear larger,” she said. “If we are to ever really compare results, not to mention really open all categories for competition from MBEs, we must stop exclusions.”

And, like those executives set to be inducted into the Michigan Minority Business Hall of Fame, the report recommends corporations take steps to address barriers facing MBEs by providing expanded access to capital, customers and strategic knowledge.

Robinson said regional supplier development councils are critical in helping rethink the current approach to supplier diversity.

“We need to stop talking happy talk and talk about the real issues,” she said. “Growth is the real issue. MBEs are not clamoring for more development and more events and more sponsorships to educational programs. They’re clamoring for more opportunity to grow. It’s up to us as councils to have that real conversation with corporations and to challenge them to do more to really create outstanding programs that grow MBEs. Similarly, MBEs have to be challenged to make sure they are absolutely prepared for whatever opportunities lie ahead.

A tremendous opportunity

Robinson said the 23 NMSDC affiliate councils and their members have been very receptive to the study and, in many cases, have begun to look at ways they can put the report’s conclusions into action. Across the country, councils have created challenges for corporations and MBEs, built annual conference agendas around the report’s conclusions and begun planning metrics and strategies to help drive MBE growth.

“The corporate members are excited about it,” she said. “They’re concerned because they’re trying to figure out — especially in today’s climate — how do I achieve 1% year-over-year? But there’s an excitement about being able to take real data to their leadership. And, of course, MBEs are thrilled because it finally talks about their growth, not all of the superficial things.”

Just as the social unrest of the 1960s gave birth to supplier diversity, Robinson believes current interest in addressing social justice issues could help drive meaningful change that will propel MBE growth.

“We have a tremendous opportunity,” she said. “Now is the time, and I think the nation is at a place where we’re listening. My hope is this [report] will drive real impact, and we will start having real conversations about “where is my company, how do I get my senior leadership to start making game-changing moves” and because of that, we will see real development of MBEs. It would be a huge failure on our part to miss this opportunity and not shift discussions to real conversations that drive legitimate and sustainable growth.”

To learn more about Michigan Minority Supplier Development Council, visit minoritysupplier.org.