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October 24, 2012

Supplier Diversity, or Why the Network Matters

Supplier Diversity, or Why the Network Matters

Written by James Schmeling, IVMF Managing Director and Co-founder

I was going to title this post, “It’s the Network, Stupid: Supplier Diversity,” but a little Googling shows how overused that phrase has become, appearing in everything from medicine to social media and marketing to grassroots politics. So, title change notwithstanding, I’m still going to focus on why the network, of suppliers and buyers, is one of the most important factors in supplier diversity, and therefore entrepreneurial success for businesses which supply goods or services to other businesses.

During the recent U.S. Business Leadership Network (USBLN) national conference, I focused much of my time on their supply chain track. Their Disability Supplier Diversity Program is at the beginning stage of something very important—creating networks of suppliers, as well as buyers. Of particular importance is knowledge sharing about supply chain—how the supply chain works, and how small businesses can become part of it. The emphasis here isn’t selling directly to the top company in the supply chain by the diverse suppliers, but on how suppliers become part of the supply chain. This may include partnering with other suppliers or becoming a supplier to other suppliers.

The Houston Chronicle published a useful article [1] on tier one, two, three and four supplier definitions, with tier one supplying directly to the top company in the supply chain, tier two to tier one, tier three similarly supplying to tier two and tier four being a supplier of raw materials. As you might imagine, each of these tiers will have supply chain needs, whether for goods or services, and suppliers may have opportunities at each level that fit their business model.

What may be difficult, though, is breaking into those opportunities (or even knowing they exist), and that’s where the network comes into play. Networking with other suppliers may be one of the most important opportunities. Networking may happen in many forums— in industry specific settings, buyer/supplier networks, or through supplier certification bodies and their networking opportunities.

There are several supplier diversity certifications that may be relevant to our veteran entrepreneurs, including certification as a Service-Disabled Veteran-Owned Small Business, as a woman-owned small business, as an ethnic minority-owned small business or as an LGBT-owned small business. Each type of business is built around similar models, pioneered by the National Minority Supplier Development Council, and then adapted by Women’s Business Enterprise National Council (WBENC), the National Gay and Lesbian Chamber of Commerce (NGLCC), Supplier Diversity Initiative (SDI) and the USBLN Disability Supplier Diversity Program (DSDP). The basic premise is that the supplier certification bodies examine business records to determine the legitimacy of the business (e.g., is it owned and operated by the apparent owner, and do the financial records show that), and if the owner has the diversity characteristic claimed (e.g., is the owner a woman, or a veteran with a disability, as claimed).

Importantly, each entity shares with the others their programs and processes, and each have agreements to accept business financial reviews by the other when a supplier applies for more than one certification. So, a business owned by a service-disabled woman veteran might be certified by both the WBENC and DSDP but only needs to create financial reviews for one, with the other in large part accepting the review as part of the overall certification.

Each of these diversity certification providers has a network of business and industry partners which accept their certifications for use in supplier diversity programs. They also have networks of suppliers who come together in conferences or regional meetings. Between their links to both buyers and suppliers, they are important players in the supply chain who should not be overlooked as opportunities for suppliers to network with one another.

Some suppliers have questioned the value of networking with other suppliers. In a nutshell, it’s about the network of opportunities. No supplier has all of the goods or services that a buyer needs, and they can either buy from others and pass through, or partner with others to meet the needs of their buyers. Importantly, strong networks of suppliers not only create opportunity to be suppliers, but the business relationships formed may also be the basis for “past performance” qualifications necessary to compete as successful suppliers in the supply chain when bidding on future work. Awareness of the goods and services available from peer suppliers may create opportunities to pursue supply chain opportunities when a given supplier has neither the expertise nor goods and services sought, when the scale may be beyond a supplier’s ability to deliver or when the geography of the contract spans boundaries of multiple organizations’ capacity to serve. Strong awareness of others capabilities leads to business opportunities, as does the referral network that may be formed among suppliers who come to know and trust their peers.

Buyers also encourage suppliers to collaborate and network, knowing that the ability to call on partners increases the likelihood of being able to meet supply chain needs of higher level supply chain entities. Mentoring programs from buyers in business and industry encourage networking among peers. Mentoring decreases knowledge barriers for suppliers, familiarizes networks with opportunities and processes to engage in those opportunities, and creates business relationships that can meet needs in a timely manner.

A quote from Harvard Business Review’s recent blog, “Never Say No to Networking” by Kathryn Minshew [2], highlights the reasons networking is important: “[M]any of my most fruitful relationships have resulted from a meeting or call in which I was not entirely sure what would or would not come of the conversation. You could call it making your own luck, by increasing the odds of making the right connection.”

Becoming part of a supplier diversity network (and networking!) may not only increase your chances of making the right connection, but can provide access to new opportunities or build your own network of diverse suppliers to meet your business needs.



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