Supplier Diversity: Reverse Sourcing Discrimination?
Over at E-Sourcing Forum, David Bush breaks the news of a recent Hackett Group report that finds that "Companies wanting to expand their supplier diversity programs can do so without sacrificing savings". Even though I won't dive deep today into the economic arguments about whether or not the societal costs of supplier diversity programs outweigh the benefits, I find it abhorrent that no one else has raised the red flag over the dangerous slope that introducing minority status into the contracting practice can bring.
Let's examine the argument in David's post and linked headline for a minute. I'd argue this logic flow is an equivocation that takes the belief that since "World Class" companies are not spending more in aggregate considering their use of diversity suppliers, that they're not sacrificing potential savings by considering diversity as a factor in the first place. In my book this type of argument is PC sourcing hogwash. We all know that if a research study asked the question set a different way and looked at the data based specifically on savings sacrificed -- and supply bases narrowed -- based on set-asides as determined from an initial sourcing strategy, you might get very different result. Moreover, I believe the results of the referenced study are inconclusive (e.g., are the results causal or correlated? Are "World Class" companies just good at diversity sourcing because they're leaders across the board in general sourcing areas?)
Enough of the economic argument and shooting the study logic in the foot. That's less important, anyway. Rather, let's examine the logic behind a line of thinking that is treated as scripture and rarely questioned. In my world, the more important point here is that by considering diversity as a factor in supplier selection, we are creating an exclusive environment that discriminates against others. How, you ask? Explain to me the "societal" benefits of awarding a contract to a small "minority" owned business versus to a white business owner with a horrible stutter and one leg who had to max his credits cards just to get off the ground. What makes one person less appropriate than the other to receive a contract? Heck, it's actually legal to discriminate against the stammering, white-trash-raised, one-legged man, but if you ignore the "minority" supplier whose parents may or may not have been doctors or business owners, you might get a Jessie Jackson Push Coalition led protest outside your door (not to mention fewer government contracts for not agreeing to allocate a certain percentage of spend based on race and gender).
Seriously, if looked at from this vantage point, how can you tell me that "supplier diversity" is anything but legal -- heck, government mandated -- discrimination in favor of one party over an other. Perhaps just as California and Michigan struck down discriminatory affirmative action policies in higher education, we'll see similar moves in the government and private sector contracting realms in the future, eliminating race and gender as a legal factor to even consider in sourcing. And then I won't be the only voice of dissension for a practice that hurts just as many -- if not more -- than it helps through legal discrimination. Curious to learn more? Read a previous post on the subject here.
- Jason Busch
Let's examine the argument in David's post and linked headline for a minute. I'd argue this logic flow is an equivocation that takes the belief that since "World Class" companies are not spending more in aggregate considering their use of diversity suppliers, that they're not sacrificing potential savings by considering diversity as a factor in the first place. In my book this type of argument is PC sourcing hogwash. We all know that if a research study asked the question set a different way and looked at the data based specifically on savings sacrificed -- and supply bases narrowed -- based on set-asides as determined from an initial sourcing strategy, you might get very different result. Moreover, I believe the results of the referenced study are inconclusive (e.g., are the results causal or correlated? Are "World Class" companies just good at diversity sourcing because they're leaders across the board in general sourcing areas?)
Enough of the economic argument and shooting the study logic in the foot. That's less important, anyway. Rather, let's examine the logic behind a line of thinking that is treated as scripture and rarely questioned. In my world, the more important point here is that by considering diversity as a factor in supplier selection, we are creating an exclusive environment that discriminates against others. How, you ask? Explain to me the "societal" benefits of awarding a contract to a small "minority" owned business versus to a white business owner with a horrible stutter and one leg who had to max his credits cards just to get off the ground. What makes one person less appropriate than the other to receive a contract? Heck, it's actually legal to discriminate against the stammering, white-trash-raised, one-legged man, but if you ignore the "minority" supplier whose parents may or may not have been doctors or business owners, you might get a Jessie Jackson Push Coalition led protest outside your door (not to mention fewer government contracts for not agreeing to allocate a certain percentage of spend based on race and gender).
Seriously, if looked at from this vantage point, how can you tell me that "supplier diversity" is anything but legal -- heck, government mandated -- discrimination in favor of one party over an other. Perhaps just as California and Michigan struck down discriminatory affirmative action policies in higher education, we'll see similar moves in the government and private sector contracting realms in the future, eliminating race and gender as a legal factor to even consider in sourcing. And then I won't be the only voice of dissension for a practice that hurts just as many -- if not more -- than it helps through legal discrimination. Curious to learn more? Read a previous post on the subject here.
- Jason Busch
I was alerted to this blog entry, and thought it appropriate to comment.
Our study was initiated by a large equipment manufacturer who is a member of one of our two membership-based Procurement advisory programs. We did a survey of roughly 50 large organizations (mostly from our client base of Fortune 500 clients) and also looked at our database of World Class Procurement organizations (which is populated by data coming from large firms who participate in our 6-8 week benchmark studies). I won't elaborate on the hopefully obvious difference between this and a 30-minute survey instrument. Our best practices benchmarking database is populated by these rigorous funded studies and uses comparative data on hundreds of firms who've benchmarked with us over the last 13 years. We compare top quartile firms in both effectiveness and efficiency (which we deem the "World Class" firms), based on 50-60 key output performance measures, as well the best practice adoption metrics that we use to discern and prove/disprove statistical correlation between those practices and the output metrics which determine who are the world class performers.
The diversity survey instrument focused on the rationale for diversity programs, costs, benefits, barriers, and lessons learned. The study is for our members and is proprietary, but there are a few learnings I can share here.
First, the study does not advocate any Hackett point-of-view about the merits or drawbacks of supplier diversity regulations (although I do have strong personal feelings in this area). We call such regulations "demand drivers" which are environmental factors that a firm has to deal with (vs. the best practices that a firm can affect). Indeed there were a fair amount of firms who cited government regulations as why the pursued supplier diversity programs.
Interestingly though, “Corporate Image” was at the top of the list in terms of stated rationale for the program and “Social Responsibility” was dead last (regulatory requirement was 3rd). These programs are clearly not invented by firms (and certainly not by Procurement) to solve social ills, but rather to enhance corporate branding to increase sales and stock multiples (the 'helping hand' can hold the 'invisible hand'). The same arguments can be had on corporate “greening” (e.g., are environmental regulations a good thing? Should firms consider environmental footprint from suppliers even if not currently madated and even though it might not improve profits in the short term? Should a facilities group consider higher-cost alternative energy sources?). Whether that branding was done to explicitly support sales/marketing efforts to those diverse communities or whether the firm felt it was “the right thing to do”, once that decision is made, Procurement has to play a role in it, even though not all stakeholders may agree on the decision (which is no different than many other requirements).
Now, if you want to argue philosophically that firms shouldn’t hire employees and vendors based on “who they are” (not just on race as so rightly pointed out by the other commentor) versus “what they offer”, well, that’s a broader discussion. Must Hooters hire men wait staff? What’s the maximum body fat at Banana Republic? And even if we put aside the regulations issue, how much different is crafting a supply base with smaller, innovative, local suppliers that you have leverage over to reduce costs than crafting it with women-owned suppliers if you’re Mary Kay and use that advantage to drive incremental revenues and brand leverage?
Now, when you do add smaller, diverse suppliers, we found it does add to the supply base “tail” and does marginally increase costs (but not at statistically significant levels), but world-class firms know how to mitigate much of these costs through various ways to numerous to list (and my hands hurt from typing). So, the bottom line is that if supplier diversity is deemed important as a requirement, deal with it, and make the best of it. If you feel like it’s a pile of sh*%, then use that as fertilizer to feed something good you’re doing.
If any corporations want more details on the study, I can be reached at pmitchell@thehackettgroup.com
OK, back to my day (er, night) job........
By the way, I love the blog and check it periodically when I can. It almost makes me want to be an industry analyst again..... almost.
I especially enjoy the SpendFool rants. :^)
Thanks for the detailed explanation and analysis. Funny you're finally chiming in, as I mentioned you in a post I just wrote (I think it goes live Monday). I'm turning in for the night, but you can be sure that when I have some more time tomorrow, I'll tackle some of your observations and comments in more detail. On a more important and broader note, keep up the great research at Hackett, too. No 30 minute online survey instruments. Just the facts -- but not rhetorically "fact based" -- if you know what I mean ...
Stay in touch and comment more often if you can!
Cheers, Jason
So what is your stance on environmentally-friendly purchasing?
In your opinion, should organizations pay a premium for environmentally-friendly products vs. less environmentally-friendly products even though they are not required by law to do so?
Do you see similarities between the thinking behind "green purchasing" and "diversity purchasing" approaches?
You've got my mind running on this one ... but I've got to take the kids to school in the first chicago snowstorm of the year! Green vs. Diversity is very different in my camp ... the former impacts everyone (and life on this planet), the latter is completely open to interpretation and abuse. Alas, this will make for some great fodder in the coming weeks. If you've got some thoughts on this, I'd love to hear them.
Diversity in thought is derived from different backgrounds, different cultures, different views, and perspectives.
Hum...There is no lack of diversity with "Spend Pundits" and analysts... let's see...
Jason Busch
Tim Minahan
Charles Dominick
Jason Bush
Eric Strovink
Michael Lamoureux
Dave Stephens
Pierre Mitchell
Chris Sawchuk
Andrew Bartels
Andy Kyte
any pattern here...of course on the internet "the invisible hand" does not discriminate. You each are judged by you word not your looks right? I mean there is little you all have in common. Mutiple countries, levels of education, and ethicity represented here.
Thank goodness for AMR who seems to think there may be benefit to at least having women on staff in analyst roles - Lora Cecere, Mickey North Rizza, Christa Degnan Manning, and oh, yes, there is Debbie Wilson, recently hired by Gartner.
Quite a diverse group this is.
"Where we all think alike, no one thinks very much."
- Walter Lippman
There is strength in diversity of supply as well.
Companies need to be smart enough to recognize and use it to their benefit.
I would venture to guess the Hackett paper is well worth reading and considering.
I find it abhorrent that no one else has raised the red flag over the dangerous slope that introducing so called on demand spend management programs into the contracting practice can bring. Exorbitant claims of returns, high costs, and partial or cancelled implementations. Change the acronym EDI, B2B, SaaS, and pony up. The cry for automation is a shibboleth that no one stops to examine. And you are concerned about the cost that diversity introduces into the contracting process? Time for a little introspective.
1) Enable the procurement process to be transparent, clean and honest
2) Force non-diverse suppliers to be more competitive
3) Bring in more and better ideas, greater selections
4) What comes around - goes around
5) Reduce liability, improve compliance, and a lot more...
Questions welcome!
1) Enable the procurement process to be transparent, clean and honest.
By focusing on the superficial color of the supplier's skin the procurement process is more transparent, clean, and honest? By saying this you are implying that ALL white (i.e. non-diversity) people are all racist pigs and would never work with a non-white supplier? This is ridiculous on the face of it. The proper and obvious sourcing strategy for people of any color is to find the best VALUE supplier (giving the best combination of price, quality and service while mitigating risk and maximizing profit). What does it matter how they look AT ALL?
2) Force non-diverse (i.e. white) suppliers to be more competitive.
What exactly does this mean? Does this mean in order to be considered for the business they must agree to a 50% discounted price? Why does the color of skin of the supplier matter at all in the decision to procure goods and services? Maybe I'm stupid I just don't see the connection.
3) Bring in more and better ideas, greater selection.
More and better ideas and greater selection are automatically brought in by market action. More and better ideas will prosper and tired old ideas will lose market share. No skin color issue here.
4) What comes around - goes around.
What does this mean? Are whites the only people in history who have ever oppressed anybody? Does this also count for the 99.9%+ of whites (or their ancestors) in the US who have NEVER oppressed anyone? What about the poor whites who have no advocates, have NEVER discriminated against anybody, and just put in an honest day's work. Do they not deserve consideration for the business? Simply applying a stereotyped group trait to individuals is racism and discrimination in the highest. Why is this only OK when whites are the victims but is the highest crime (much worse than murder) when non-whites are the victims?
5) Reduce liability, improve compliance, and a lot more...
Reduce liability in what way? Jesse Jackson will not show up at your door with picket signs if you choose suppliers on how they look? Improve compliance... compliance with what? The unfair doctrine of discrimination? What more is there?
Any intelligent person knows that what matters is maximum VALUE and fair treatment of EVERYBODY regardless of skin color. This is all that MLK advocated.
For me it all comes down to this: Why in the world would the child of a black millionaire, a company owned by Michael Jordan or Tiger Woods, a company owned by rich east or south Asians be favored FOR ANY REASON for a contract over a poor white man who has never discriminated against anybody especially if the white's price/service combination is more competitive? This is in my opinion the worst sort of discrimination and it is never questioned by the mainstream who assumes anti-minority racism is endemic. Perhaps this was the case in the 50s but it is very clear to thinking people that this hurts far more innocents and reduces the competitiveness of companies engaged in such practices far more than it "helps".
Why should small white kids who have NEVER harmed anybody be made to pay and be subject to a non-level playing field for any abuses of anybody in the past?
NEVER focus on skin color, only the content of your supplier's characters (and their products, of course)!
I would argue that, like the DiversityFool posted, there is strength in diversity of supply just as there is in diversity of thought and that this diversity should be embraced as being beneficial rather than scorned.
A contracting process represents buying decision on behalf of stakeholders. These stakeholders may be represented by an individual (as you go out and buy something for yourself), a company, a team within a company, or a government or other organizational group that may have a constituency. The contracting process is completed on behalf of that client. As long as the process remains within the bounds of governing law, the procurement professional has an obligation to complete the contracting process using the guidelines provided by the stakeholders. If the stakeholders desire 50% of the bidders to be left-handed, then your obligation is to find left-handed bidders, not to judge the stakeholder's wisdom in wanting left-handed suppliers. In "blind" pursuit of left-handed bidders you may find there are actually some very competent left-handed bidders that you may have never sought out. You may even learn that having both left-handed and right-handed suppliers brings needed diversity to the supply chain.
This is an old posting. Your gripe does not appear to be with world class companies mentioned in the Hackett report or procurement professionals faithfully representing the expectations, indeed the requirements of the stakeholders - your gripe is based on the curse of your own knowledge, experience, and bias. Open that mind up more and you will find more benefit to diversity than you ever imagined.