In an era when conservative politicians have criticized classroom and workplace diversity initiatives, , corporate America has been exponentially expanding its supplier chain diversity and, in the process, pumping billions of dollars into minority-owned businesses, their workers, and the communities in which they operate.

The globalization of markets, the integration of the work force, and the need for leaner commercial operations has fueled a corporate and governmental drive to expand the breadth of the nation’s contracting base to pull in minority- and women-owned vendors and the perspectives and expertise they bring.

In doing so, the corporate sector in particular has brought fresh approaches to the look of cars, fresh designs for the use and look of technology, and broadened the base for its products.

 “Diversity is what keeps their products competitive,” says Harriet Michel, president of the National Minority Supplier Development Council, the primary organization promoting supplier chain diversity throughout the nation’s corporate sphere.

“The demographics are self-evident in the United States as the population darkens and people of color enter the middle class and have disposable income,” she continues. “We are beyond just cars and beer these days. We need financial services and other goods, and no corporation wishes to leave dollars on the table. That’s why you’ll see Dell Computer ads in Spanish, or with people of color at the console. They are moving to reflect the market in their marketing.”

 But, she says, it isn’t enough just to sell to minorities¯the corporations realize they need to buy goods and services from minority vendors, and companies have been pushing their first-tier vendors to broaden their supplier chains as well.

“Global competition has forced corporations to radically re-engineer their procurement functions,” Michel says. “It used to be just purchasing departments and pencils and pens. Now it’s a matter of supply chain management, and companies realize they impact their bottom line with long-term relationships with contractors.”

 Since 1986, says Michel, the portion of the supplier base going to minority firms has grown from just $80 million to $84 billion last year. But, she says, that represents just four percent of the sum corporate America spends on all its domestic suppliers.

Michel is in a position to know how corporate attitudes are shifting towards inclusion. The agency was first chartered in 1972 as an offshoot of the U.S. Department of Commerce. It is now an independent, corporate membership organization with some 3,500 members and 39 regional offices that certify the ownership of some 15,000 minority-owned businesses and match their capabilities with corporate needs. That certification is the seal of approval many corporations look for when seeking to diversify their supply chains.

In 1997, Toyota turned to the council for assistance in greatly expanding its minority pool of contractors when they realized that only $40 million was spent annually on purchases from minority-owned firms out of about $14 billion in annual purchases.

The Japanese automaker realized that if they wanted to appeal to a broad section of the American car-buying public, then they needed to join automakers like General Motors and Ford, which annually spent more than $1 billion on goods and services from minority firms. 

“We decided that supplier diversity was very important to us and we wanted it to reflect our customer base,” says Sig Huber (cq), assistant general manager of purchasing and supplier relations for Toyota. He says the company set a goal of buying 7.5 percent of the $14 billion in annual purchases from minority firms by 2005.

 “We purchased $1.2 billion from minority firms last year,” Huber says, “and we requested that each of our major contractors buy at least five percent of their purchases from minority firms.

The decision of a major corporation to expand its supplier base, and require its major suppliers to do the same, has enormous ripple effects in expanding minority-owned firms with a technological base. Take General Motors, and its decision to streamline the company to better compete with Asian and European carmakers.

The year 1998 was to be the start of a new era in the manufacture of GM’s automobiles. The Detroit automaker was getting away from its traditional process of making every component in a vehicle¯a labor-intensive system that necessitated huge inventories of parts, from door knobs to seats, while waiting three years or more for the cars themselves to be designed and built.

Instead, GM would franchise out more of its systems, beginning with the newly redesigned Cadillacs. This was not a small deal. Just the contract for seats¯with different types of leather and stitching, different sizes and configurations, pushbutton or manual¯was expected to be about $900 million for five years.

The winner would have to build a production plant near GM’s facilities and carry the costs of labor, materials, design, and development for about three years until the Cadillac chassis began rolling down GM’s assembly lines and needed installation. Payment, in the car business, is on delivery.

Enter Johnson Controls Inc. (JCI), a $26-billion corporate behemoth and one of the world’s largest providers of automotive systems and production line controls with facilities in 30 countries. JCI wanted to be a player in the changing manufacturing style of the world’s largest automaker, but needed an edge in its bidding battle with other global parts competitors.

Managers at JCI knew GM cared deeply about growing the diversity of its supplier train¯and opportunities for new suppliers of all sizes could grow astronomically as the automakers began outsourcing more and more of their work. GM had launched the industry’s first supplier diversity program in 1968, a year after civil rights riots left 43 people dead and part of Detroit’s Black community in smoldering ruins.
 
“We viewed ourselves as good corporate citizens,” explains Diane Freeman, the automaker’s senior manager for diversity, “and we wanted to secure inclusion of minority suppliers in the manufacturing process. The program evolved from just diversifying purchasing, to identifying suppliers who are adding real strategic value to the supply chain.
 She says, “We rely on the suppliers to bring innovation and technology to our cars.”

Thirty years later, when GM decided to get away from vertical integration and farm out virtually every aspect of its cars except for the power trains and sheet metal, the automaker knew opportunities were going to open for minority vendors to help design the cars of the future, rather than just fill orders. The problem, however, was getting small minority-owned firms in the door in this new manufacturing world¯it takes deep corporate pockets to work on products when you won’t be paid for at least three years when the assembly line is finally running.

And that gave Johnson Controls an idea. The company informed GM that if awarded the contract, they would partner with a minority firm, serving as subcontractors for warehousing and engineering design, and build the production plant in Detroit’s underperforming, inner city empowerment zone. The minority partner firm would become, overnight, one of the nation’s largest commercial enterprises.

JCI approached John Ron Hall, then president of the Michigan Minority Business Development Council, and offered him a partnership in a new seat-making venture, with Hall owning 51 percent.

Hall formed Bridgewater Interiors and says, “I made up my mind we were going to be the best quality seat company we could possibly be.”

It is an exacting business. When a car chassis starts down an assembly line, it receives a serial number, which is transmitted to Bridgewater.

“Our computer tells us what color seat, what fabric, what options they want,” Hall explains, “and we will have that seat built and shipped into their assembly plant within three hours time for them to install it when it comes down the assembly line.

“We have to match our assembly line speed to their assembly line speed. Typically, we are shipping 54 car sets¯the front and back seats¯every hour and a half.”

He hired primarily Detroit workers and soon won additional business from Honda, building a production plant in Alabama for their Honda Pilot, and then built a third plant in Warren, Michigan. To build seats for Ford’s F-150 pickup truck, the Lincoln Navigator, and Ford Expedition. Last year, Bridgewater reported $700 million in revenues and in the process, bought parts from 72 different vendors – many of them black owned.

GM now does more than $4 billion annually with minority vendors, a level matched only by the other American corporate giant, Wal-Mart, which has a $25 million equity fund dedicated to helping minority vendors expand to be able to join their supplier chain.

“We understand that when we increase the number of women- and minority-owned businesses, we are increasing our relevance to our customer base,” says Wal-Mart spokeswoman Linda Blakley (cq). “Often these businesses employ people in the communities we are already serving with our stores, and we can tap into the suppliers’ understanding of that segment of the market.”

Diversity has been a hallmark of operations at IBM for more than a century. “In 1899,” says Michael Robinson, the computer company’s program manager for supplier diversity, “IBM hired three women 20 years before women were given the right to vote, and its first Black employee 10 years before the NAACP was founded and just 30 years after the Emancipation Proclamation.”

IBM founder Thomas Watson set a policy of equal pay for equal work in 1935¯nearly half a century before most of the nation’s newspapers dropped separate and unequal pay scales.

For IBM, says Robinson, “Building and maintaining a community of diverse suppliers gives us the opportunity to gain access to different solutions that meet our customer needs. Supplier diversity is not a social program, it is not a giveaway. They have to bring value added to the supply chain.

“When we purchase from diverse suppliers, it aids their financial stream and contributes to their ability to purchase quality products from IBM.

We are the only IT company to spend over $1 billion with diverse companies.”

 IBM’s relationship with its suppliers is not a proprietary one. Indeed, they have set up a corporate mentoring program, pairing small firms with IBM executives to help them establish long-term growth plans.
 “We don’t want the company dependent on IBM,” says Robinson, “because our business strategy may change and we may not need them. We help them increase their business with us and with other companies.”

Springboard Technology is a prime example of a firm that has leveraged its IBM experience into contracting work for other IT firms. Anthony Dolphin, an electrical engineer and a former plant manager for Digital Equipment Corp.’s Springfield, Massachusetts operation, bought their facilities in a leveraged buyout in 1992. He set up Springboard and offered computer disc storage services, primarily repairing and refurbishing hard drives and recovering data from damaged systems.

But the IT industry was beginning to outsource many of its basic functions¯just as the auto industry had¯and Dolphin decided to retool his company accordingly.

“We began with IBM doing their third-party purchasing of equipment,” Dolphin explains. “That ranged from displays to power sources and storage devices we purchased on their behalf and stored the inventory. When their field engineers went onto a site and found there was a defective unit, they called us and we provided it. We became part of the solution.”

In time, he says, IBM asked them to participate in a pilot program, taking on more of their in-house responsibilities, such as warehousing, fulfillment, and actually repairing defective units under warranty. From there, Springboard expanded into reverse supply chain solutions for IT firms.

“IBM will go onto a site and have a blanket contract covering all equipment there¯someone may have to service all their Dells, or all their Compaqs, or a mixture of computers. They then partner with us to actually provide that support.”

The company also provided mentoring in the form of town meetings for minority contractors, where executives would discuss where IBM and the industry is headed and outline trends that could provide new opportunities for them.

The nation’s largest employer of minority contractors is the Department of Defense (DOD), which spends some $7.7 billion annually on firms headed by African Americans, Hispanics, and Native Americans. That figure, however, amounts to less than four percent of the agency’s $200 billion in annual purchases.

“DOD is different from some of the other branches of government,” says Frank Ramos, director of the Defense Department’s Office of Small Business Programs. “You can try to adjust your statistics when your needs are generic, but ours usually aren’t.

“Here, if you don’t have a business providing the proper materials for the new F-22 or the new joint strike fighter, the F-35, then no matter what you do to solicit interest, you are not going to get it.”

But DOD does urge its contractors to seek products from minority firms, and aerospace and technology giant Lockheed Martin generally buys more than $1 billion annually on these types of companies out of a total annual purchasing bill of $14 billion.

Michael Bush, director of Lockheed’s diversity supply program, says that for more than a decade, the company has been mentoring small minority businesses that can grow in the defense arena and reaching out to others through trade shows and conferences. For Lockheed, it’s a matter of innovation.

“Most of the new technologies come out of small business,” says Bush. “They have lower overhead structures and rates which, in theory, make them more competitive than other companies. We look to partner with them to make us more competitive.”

Lockheed turned to DigiFlight, a small, Black-owned firm headed by Stanford Olliver, to help with some of its Black programs. Olliver, one of the first Black Hawk attack helicopter pilots, handled acquisitions of information technology¯particularly electronic spying¯for large-scale systems involving tanks and aircraft for the Department of Defense before retiring in 2002. Then he set up DigiFlight to assist companies in navigating the meticulous DOD purchasing process.

But Olliver soon expanded to servicing these “Black-op” systems, providing everything from testing and evaluation of acquisition systems, to simulation and system engineering for huge systems where Lockheed is the prime contractor.

“We went in and talked to Lockheed and they gave us a contract¯and the company took off from there,” says Olliver. “There was a push from Lockheed for diversity, and they have been one of the best large businesses I’ve dealt with. Without the help of companies like that, it is really impossible to get involved in this kind of work.

 “National security really trusts large companies to deliver. They have no room to just give work to small businesses when experience is really important because it protects people’s lives. You need large companies to partner with you and bring you in.”