2012 Best Companies for Diversity

Michael L. Thompson, CEO of Fair Oaks Farms L.L.C., and his relationship with McDonald’s USA demonstrate how the nation’s largest fast-food company makes supplier diversity work. Fair Oaks Farms (No. 15 on the BE Industrial/Service Companies list with $288.7 million in revenues) supplies McDonald’s with breakfast sausage for approximately 35% and strip bacon for about 75% of the U.S., in addition to some of McDonald’s international markets.

Thompson has expanded Fair Oaks through retail and food service growth opportunities, including additional business with McDonald’s. “We have a strategy to grow with all our key customers,” he says. “Our business has more than tripled since becoming a majority owner of Fair Oaks Farms in 2003. We’ve been extremely blessed to have McDonald’s as our largest customer.”

Before becoming a supplier to the $27 billion giant, Thompson worked as a vice president for McDonald’s in both operations and supply chain, so he knew the culture and process well. “Knowing both the operations and supply sides of the business helped me to understand their needs at a higher level,” he says. Thompson’s Pleasant Prairie, Wisconsin-based business also supplies food products to Walmart, Sam’s Club, Papa John’s, Denny’s, and Olive Garden. One of the most important lessons he’s learned as a supplier is to leverage whatever is unique about his business. “Yes, customers want low prices,” says Thompson, “but they want other things, too. In my world, it’s food safety and quality.”

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Thompson is part of McDonald’s expanding diverse supply chain network. In 2011, McDonald’s purchased nearly $817 million in goods and services from companies owned by African Americans. In the past five years, the fast food giant’s overall purchases from African American suppliers have increased 24.3%. The McDonald’s U.S. system annually purchases more than 50% of its total food, distribution, and paper from minority- and women-owned suppliers. “One of the things I’m most proud of is how our team continues to make diversity a priority,” says Pat Harris, the company’s global chief diversity officer. “They demonstrate every day that at McDonald’s, D and I [diversity and inclusion] is everyone’s business.”

View the 2012 Best Companies for Diversity here.

McDonald’s exemplifies what it means for a corporation to truly value supplier diversity and demonstrates that commitment by expanding contracting opportunities and development programs with minority vendors. Such efforts are critical at a time when corporations are restructuring and consolidating their supplier base. As may be expected, those corporations with the largest minority procurement spend can be found on our l

ist of the 40 Best Companies for Diversity. Other criteria for being on our list are expansion of senior management, composition of corporate directors, and employee recruitment and retention. In each area, some companies performed better than others. (See “How We Compiled the 40 Best Companies for Diversity.”)

Although several companies are expanding their diversity initiatives, B.E. Research found hundreds that aren’t. Scores failed to complete surveys or return calls from our researchers.

This year BE focused on supplier diversity, because winning contracts to provide products and services is the lifeblood of most businesses. Corporations spend hundreds of billions of dollars a year purchasing an array of goods and services from suppliers. Although diversity among suppliers has come a long way, it still has a long way to go.

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In 2011, the more than 460 corporate members of the National Minority Supplier Development Council spent more than $100 billion with NMSDC-certified Minority Business Enterprises, or MBEs, up from about $63 billion spent in 2001 and nearly a six-fold increase from the $17.9 billion spent in 1991. Moreover, from 2009 to 2010, companies designated as Billion Dollar Roundtable members increased overall corporate spending with minority- and women-owned suppliers. Established in 2001 to recognize corporations that spend at least $1 billion with minority- and woman-owned suppliers, Billion Dollar Roundtable promotes and shares best practices in supply chain diversity.

Despite such progress, studies show that minority suppliers still have to fight for their fair share of corporate contracting dollars. When the office of U.S. Sen. Robert Menendez released its Corporate Diversity Report in August 2010, it revealed that Asian-owned firms received 3.21% of total procurement dollars, Latino-owned firms won 2.69%, and African American-owned firms were awarded 2.58%. (The report uses data from a smattering of the nation’s 500 largest publicly traded companies that responded to the senator’s survey).

View the 2012 Best Companies for Diversity here.

Today, diversity is much broader than just race and gender; it includes the disabled, veterans, and the LGBT (lesbian, gay, bisexual, and transgender) community. A growing number of companies, including IBM and Pacific Gas & Electric–both of which made this year’s list–have expanded their outreach to companies owned and operated by veterans (including service-disabled vets) of the wars in Iraq and Afghanistan. NBCUniversal L.L.C. (a joint venture between Comcast Corp. and GE) and Comcast, also on this year’s list, spent a combined $60 million with veteran-owned businesses in 2011 and provided assistance on doing business with both companies, such as exploring the sourcing and procurement process, learning how to leverage supplier diversity, and understanding their expectations.

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Notwithstanding, why do most corporations continue to underperform when it comes to supplier diversity? Many are still climbing their way up a learning curve. “They have to understand why it’s being done,” says Sharon Patterson, Billion Dollar Roundtable’s president and CEO. “Once they understand the business case for supplier diversity, they generally get on the bandwagon and try to increase it. There are the best practices they have to understand, too, that will help them increase their procurement spend. They are learning. As they advance on that learning curve, they’ll do better.” Furthermore, consolidation continues to be an issue. Large corporations have long been reducing the number of suppliers they contract with, but their spending has started to increase since the Great Recession. “When the economy took a downturn in 2008, many minority businesses adapted their products and services to other industries, introduced new products, and implemented other strategies to keep their businesses healthy,”  says Joset Wright, president of NMSDC.

Still, securing their business isn’t easy. “Suppliers have to embrace all the hard work it takes to get in the door,” says Patterson. “They have to bring value to the proposition. Value means more than just having a product that meets quality standards.”

Best Practices in Effect
Our top 40 companies  on this year’s roster are recognized as having solid track records in total procurement dollars spent among diverse suppliers and the strong practices mentoring a diverse supply chain network. Early last year, IBM spearheaded a website called Supplier Connection as an efficient way to help small suppliers do business with large corporations (including IBM) that include fellow list members AT&T, Bank of America, Citigroup, JPMorgan Chase, Kellogg, and Wells Fargo, as well as AMD, Amylin, Caterpillar, Dell, Facebook, John Deere, Office Depot, Pfizer, and UPS. Supplier Connection, a common portal in the cloud likened to the undergraduate Common Application, enables suppliers to access $300 billion combined in procurement spend from these corporations. There is no charge to register your small business on the site.

View the 2012 Best Companies for Diversity here.

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“Supplier Connection is a platform to open the door for a supplier to begin a relationship with a large enterprise,” says Patrice Knight, vice president of global procurement, IBM Integrated Supply Chain. “It gives them information that can accelerate them from the matchmaking to the business making.” In 2011, IBM spent more than $3.1 billion worldwide with diverse suppliers, $2.6 billion of which was first tier, that is, it was spent directly with the suppliers.

Clear, unambiguous communication helps, too. “Our success stems from providing clear expectations to our suppliers,” says Marion Gross, vice president, Field and Supply Chain Services, U.S. Supply Chain Management, McDonald’s USA.  “We encourage new suppliers to learn as much as possible about McDonald’s business, to network with other McDonald’s suppliers, and to bring us a compelling value proposition. We also ask them to clearly articulate their expertise, their company’s capabilities, competitive advantage in the marketplace, and track record of customer satisfaction. It’s better if their business already has a broad customer base and is not solely dependent on McDonald’s.”

Making supplier diversity a part of corporate policy, developing education and mentorship programs, and ensuring that diverse spending is accurately tracked so that the effectiveness of diversity efforts can be evaluated have all been helpful. Less than half of respondents to Sen. Menendez’s survey provided racial supplier data; some said they did not track this data. Thus, a key recommendation was for corporate buyers to track supplier diversity in terms of ethnicity/race. Wright, the president of NMSDC, says its corporate guidelines include establishing a comprehensive minority supplier development process with an active mentoring and training program for MBEs, as well as capacity-building measures to help minority firms engage in joint ventures and strategic partnerships. Such efforts help prepare MBEs to compete for larger contracts.

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“Our diverse suppliers need to build capacity and scale so they can take advantage of those major contracts,” says Patterson. That means making sure adequate financing is in place to grow.

Supplier diversity best practices are being applied globally as well. “Major corporations are beginning to expand supplier diversity programs overseas,” says Patterson. NMSDC initiated international matchmaking opportunities for minority-owned companies about a decade ago. To expand, minority firms must broaden their reach across borders to become part of the global supply chain.

View the 2012 Best Companies for Diversity here.

BANK OF AMERICA:
Providing Credit Access and Technical Assistance Bank of America spent close to a half billion dollars with African American-owned suppliers in 2011. “As our company evolves and economic dynamics change, our commitment to helping African American businesses grow remains unchanged and as strong as ever,” says Tiffany Eubanks-Saunders, senior vice president and supplier diversity and development executive. “We look for suppliers that are willing to work with us to balance quality, performance, innovation, and cost with effective risk management. Our supplier diversity program ensures that we focus attention on the revenue-generation and capacity-building for the African American suppliers in the communities we serve.”

To support the economic growth of small and diverse suppliers, Bank of America has developed a Small Business Credit and Supplier Development Opportunity Seminar that brings together Bank of America’s Small Business Banking team, the Small Business Administration, and community development financial institutions to provide information about credit options and technical assistance. Also, Bank of America sourcing teams are brought in to identify and review potential suppliers for upcoming proposal requests.

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Bank of America’s supplier diversity policy also holds its suppliers accountable for “paying it forward” by including diverse supplier subcontracts for products and services provided to Bank of America. And the bank’s mentoring programs provide MBEs with a comprehensive company assessment, coaching, guidance, and training.

William Haygood, CEO of Global Networkers, recently completed a one-year mentoring program with Bank of America. “The program enabled us to build invaluable relationships with senior leadership and gain exposure,” says Haygood. “It’s charter was to build our capacity for increased competitiveness in the global marketplace.”

Since its inception in 2000, Global Networkers has generated more than $30 million in revenues. The Charlotte, North Carolina-based information technology consulting firm provides application development, infrastructure support, and program management to customers nationwide.  “Bank of America has been very instrumental in our company’s success and growth,” says Haygood. “We are tracking 18% to 20% growth in 2012.”

View the 2012 Best Companies for Diversity here.

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Global Networkers, like most companies, experienced a decline in new business acquisition in recent years. “We decided to leverage our established relationships and focus on developing new business with our existing customer base,” Haygood says. An 8(a) SBA-certified minority business, it currently provides services to the federal government and municipalities as well as the commercial sector. “We are pretty well-diversified in these segments. We began as a Tier 2 [not having a direct contract] staff augmentation supplier with Bank of America. As we expanded our service offerings over the years, we were given the opportunity to extend those capabilities at the bank.   We are now a Tier 1 provider of consulting services.”

FORD: Building Capacity and Scale
Ford Motor Co. is another business that has used supplier diversity to fuel profitable growth. “The Ford team is committed to ensuring that this growth includes the development of MBEs in commodities and services that support our global programs and facilities,” says Burt Jordan, executive director, Global Vehicle and Powertrain Purchasing and Supplier Diversity. “The high quality vehicles we manufacture at Ford would not be possible without the hard work and dedication of our suppliers.”

The automotive giant spent $5 billion with minority-owned companies and $1 billion with women-owned firms in 2011. For the third consecutive year, Ford exceeded its 10% goal of U.S. production and non-production purchases with diverse suppliers.

Sourcing incremental new business, providing loans through Dearborn Capital Corp. (a Ford subsidiary), and facilitating acquisitions or joint venture partnerships are some of the ways Ford helps build the capacity and scale of its diverse suppliers. Part of the automaker’s supplier diversity development program has been encouraging Tier 1 suppliers to spend at least 6% with minority-owned Tier 2 suppliers, 3% with veteran-owned Tier 2 suppliers, and at least 2% with women-owned Tier 2 suppliers. In 2011, Tier 1 suppliers spent $1.6 billion with minority firms, up from $1.2 billion in 2010.

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Ford’s Aligned Business Framework, Joint Technology Framework Program, and Executive Heightened Awareness Meetings represent examples of how the automaker helps diverse suppliers through creating collaborative relationships and enhancing their business models and brand image in the marketplace.

View the 2012 Best Companies for Diversity here.

Devon Industrial Group, a commercial construction firm, and Devon Facilities Management, both subsidiaries of Devon Contracting, exemplify an African American-owned supply company that benefited from Ford’s Aligned Business Framework. “We’ve been able to go through the tough times with Ford,” says Devon CEO David Burnley Sr. It was under the automaker’s direction that his company teamed up with Walbridge, one of the nation’s largest construction firms. That partnership gave Devon the ability to secure larger contracts with automotive clients. Today, Devon counts Ford, Toyota, Chrysler, Honda, and the University of Michigan among its roster of blue-chip customers.

Located in the heart of downtown Detroit, Devon now employs about 650 people. It reached gross revenues of $110 million in the past year. Burnley says such growth was largely a byproduct of its relationship with Ford. Devon’s construction, janitorial services, and maintenance contracts with the $30 billion automaker represent 25% of its business.

Burnley first handled construction work with Ford 20 years ago, leading to the establishment of Devon Industrial Group in 1999. He says, however, that evolving from construction to facilities management was critical, and that Ford was instrumental in fostering the formation of Devon Facilities Management in 2007. As large corporations increase their outsourcing of janitorial, landscaping, and infrastructure oversight functions to suppliers, Devon has found a lucrative sweet spot with a committed partner.