Benchmarking MBE Practices to Revitalize Minority Sourcing
Eberhard E. Scheuing, Ph.D., C.P.M.
Eberhard E. Scheuing, Ph.D., C.P.M., Professor, St. John's University, New York, NY 11439, 718/990-6770.
Debra K. Goldmann
Debra K. Goldmann, Staff Manager, Telesector Resources Group, New York, NY 10016, 212/338-6758.
Michael C. Rogers, J.D.
Michael C. Rogers, J.D., City Chief Procurement Officer, Office of the Mayor, New York, NY 10038, 212/788-0010.
79th Annual International Conference Proceedings - 1994 - Atlanta, GA
Sourcing from Minority Business Enterprises (MBES) seems to have plateaued in the United States, at least from the private sector. To help reignite passion for this crucial national resource, we undertook a study to identify best practices in minority sourcing. This paper reports our early findings. In part one, we explore the nature and importance of benchmarking. In part two, we discuss the nature and role of MBEs in an organization's supplier pool. Part three is devoted to a review of MBE sourcing practices and the identification of selected best practices to help revitalize and reenergize existing minority sourcing efforts.
THE NATURE OF BENCHMARKING
We define benchmarking as the process of comparing one's products, services, and practices against those of world leaders to guide continuous performance improvement toward "best in class" status. Like the ripple effects of a stone thrown into a quiet pond, this process creates its own dynamics. It proceeds in a number of stages as follows:
|(1) Benchmark Against Own Performance Goals||Internal|
|(2) Benchmark Against Other Internal Units||Organization|
|(3) Benchmark Against Leading Competitor||Industry|
|(4) Benchmark Against Best in the Country||National|
Any well-managed purchasing function sets performance goals for itself and measures actual performance against them. In this sense, it is already engaged in the first stage of benchmarking since benchmarking essentially involves comparing one's results against a standard. The scope of this process broadens when one starts comparing one's own performance against that of other functions or other purchasing groups within the same organization. Comparing notes in this manner with colleagues in the best-performing groups of the same organization expands the limits of the possible and eliminates lame excuses for inadequate performance.
A quantum leap of sorts occurs when a purchasing function compares itself with the best in its industry. At first blush, it might appear that such a comparison would be either unwise or illegal or both. To share confidential performance information could affect competitive advantage. And might not such sharing run afoul of antitrust laws? The answer to both issues could be a resounding yes. But any such problems can easily be overcome by involving a disinterested third party. In fact, the Center for Advanced Purchasing Studies (CAPS) has been acting as a clearinghouse for purchasing benchmarking information for years, publishing industry-specific information while protecting the legitimate interests of the organizations involved.
An even greater challenge presents itself when a purchasing function reaches beyond the boundaries of its industry to measure itself against the best in the country. The Guidelines for the Malcolm Baldrige National Quality Award clearly advocate such a move since it encourages world class performance and enhances competitiveness. The ultimate goal of this comparative analysis is to outperform the best in the country.
THE BENCHMARKING PROCESS
The powerful tool of benchmarking is used primarily for three reasons:
- Know where you stand
- Track relative improvement
- Achieve competitive advantage
The benchmarking process proceeds as a continuous cycle that essentially follows the pattern of Plan-Do-Check-Act in a series of six phases:
- Select benchmarking object and target
- Determine data collection method and measure current performance
- Collect target data and compare
- Establish action goals and plans
- Implement plans
- Measure performance, compare, and raise the hurdle
At the outset of the benchmarking process, one needs to determine what is to be benchmarked. Once this object has been identified, the benchmarking target has to be selected. This target will start out as purchasing's own performance goals but will ripple out from there in successive stages to the organization as a whole, the leading competitor, and ultimately the best in the country. This round is followed by the determination of the data collection method to be used, and the measurement of current performance levels.
Only then will it be meaningful to identify and contact any benchmarking target outside the purchasing function itself and solicit its cooperation. The cardinal rule in benchmarking is to ask only for information that one is willing to share in return. After all, benchmarking is a reciprocal arrangement designed to yield mutual gains in knowledge and performance. Once a benchmarking agreement has been reached, appropriate data are collected from the target via questionnaires, reports, and personal visits, and are used to evaluate the adequacy of one's own performance. This comparative analysis enables the establishment of action goals and plans to improve performance. After these plans have been implemented, a new round of measurement, comparison, and planning for improved performance will take place that will raise the hurdle every time a new performance goal has been reached to eventually outperform the best in the country and reach best in class status.
THE NATURE AND ROLE OF MBEs
A Minority Business Enterprise (MBE) is a business that is at least 51% owned, controlled, and operated by one or more U.S. citizens belonging to a recognized minority group. The recognized minority classifications include:
- Asian Pacific Americans
- Hasidic Jewish Americans
- Native Americans
- African Americans
- Hispanic Americans
- Subcontinent Asian Americans
Sourcing a portion of the goods and services needed by an organization from MBEs is both meaningful and essential. It is meaningful because we live and operate in a multicultural society and economy where groups of many different heritages make significant contributions. It is essential because MBEs are vital employers and sources of value and creativity.
Many MBEs fall into the small business category and are thus at times subject to stereotyping and misconceptions about their ability to serve an organization's needs. Such misconceptions may include notions that:
- MBEs are unsophisticated
- MBEs are unreliable
- MBEs have insufficient capacity
- MBEs have inadequate equipment
- MBEs perform substandard work
- MBEs charge more
- MBEs do not provide what we need
The facts clearly refute such misconceptions, once they are presented to purchasing decision makers. Most MBEs are every bit as sophisticated and reliable as their majority counterparts. They often possess adequate capacity or are able to expand to meet a customer's needs. The free enterprise system would not allow them to stay in business if they performed substandard work or did not utilize state-of-the-art equipment. MBEs are also often quite competitive and responsive as suppliers, particularly in spot buying situations where smaller purchases are involved that frequently receive limited attention from major suppliers. And they provide a broader range of goods and services than is commonly known. It is accordingly a key purpose of the Councils that represent minority business enterprises to overcome these knowledge barriers and misconceptions and present the impressive capabilities of MBEs to purchasing decision makers.
The objective of such communication and promotional efforts is quite simple: to provide minority enterprises a fair opportunity to participate in the sourcing programs of all types of organizations, public or private. In the public sector, laws have been put in place to ensure such participation and require prime contractors of government agencies to involve MBEs as subcontractors. In the City of New York, Mayor Dinkins issued an Executive Order instructing all City agencies to strive for a target of placing 20% of their procurement dollars with MBEs. In the private sector, enlightened industry leaders have created MBE sourcing programs that enhance their participation in the companies, external resource pool.
The current trend toward downsizing of supplier bases, however, may well have a negative impact on MBE participation. Many companies are moving to single-sourcing and even supplier partnering, often drastically reducing the number of suppliers they do business with from several thousand to just a few hundred. Due to their greater capacities, this process tends to favor large suppliers over small businesses, and may thus result in many MBEs being dropped from pools of active suppliers. Because they might lose significant volume opportunities in the process, great vigilance and active marketing efforts are required by minority suppliers and their in-house advocates to counteract this potential threat. Some companies, though, have taken impressive action of their own by incorporating a strong emphasis on MBE sourcing in their subcontracting plans. They not only urge their key suppliers to include MBEs as subcontractors in significant ways but also monitor compliance and make sure that the prime contractors do not claim credit for these MBE purchases elsewhere.
A REVIEW OF MBE SOURCING PRACTICES
Most organizations have policy statements about doing business with MBES; some set MBE dollar volume or percentage targets for individual purchasers. The identification and selection of MBEs generally mirrors the approaches used for majority sources. minority Purchasing and Supplier Development Councils, though, play an essential role in helping purchasers find appropriately qualified MBES through databases, meetings, conferences, and trade fairs. They and others, including TRY US, publish valuable directories and provide referrals. The criteria and process used in selecting MBEs are generally the same as for all other suppliers. A waiver of selected conditions, such as insurance requirements, may be necessary and appropriate, though, because of the small business status of many MBES. But the record of majority customers in helping MBEs get started in business has not been very impressive.
In terms of cooperation and assistance, many organizations have a unit or at least a coordinator specifically devoted to fostering and monitoring sourcing from MBES. This unit uses a number of tools to promote MBE sourcing, including presentations, newsletters, memos, and internal trade fairs where minority suppliers present their capabilities to the organization's purchasers. While few have formed advisory groups of MBE representatives who provide advice on minority sourcing issues, a good number of organizations belong to Councils. Their support and participation, however, are generally limited to paying dues and infrequent attendance at meetings. Some organizations provide free educational programs, technical support, and consulting advice to MBES.
With regard to performance evaluation, virtually all organizations with active MBE programs monitor MBE purchases made by individual purchasers. But the measurement of MBE supplier performance is still rather limited and only a few organizations communicate the results in a constructive and actionable manner to their MBE suppliers.
EARLY BENCHMARKING RESULTS
We conducted a series of personal interviews with MBE managers in companies that represent a broad range of geographic locations and industries, including telecommunications, defense contractors, food products, pharmaceuticals, and computers. The best practices we distilled from these extensive conversations showed remarkable similarities which can be classified into six broad categories:
- Highly visible CEO involvement and support
- Effective dedicated MBE unit
- Third party leverage
GOAL SETTING AND PLANNING
- Company-wide MBE policy
- Part of business and subcontracting plans
- Individual MBE objectives
- Easily accessible MBE database
- Frequent reports in internal newsletter
- Recognition of purchasers and suppliers
EDUCATION AND TRAINING
- Courses for MBEs in modern management methods
- Courses for purchasers on MBE sourcing
COOPERATION AND ASSISTANCE
- Sponsoring and mentoring of MBEs
- Selected progress or advance payments
MEASUREMENT AND REPORTING
- Certification of MBE status by Councils
- Purchaser performance appraisal
- MBE performance evaluation
LEARNING FROM THE BEST
Organizations of all kinds can benefit from our findings in reinvigorating and redirecting their minority sourcing efforts. In our research, we leapfrogged to stage 4 of the benchmarking process by looking for best practices on a national scale. Here are the insights we gained, as summarized in the list above.
Commitment. The single most important success factor for an outstanding MBE program is a Chief Executive Officer who "walks the talk" and thus models the desired behavior of active MBE sourcing. This means letters to suppliers and attendance at award presentations, trade shows, conferences, and other special events. This effort is greatly facilitated by the activities of an effective dedicated MBE unit, staffed with knowledgeable, enthusiastic advocates who energize and monitor the organization's minority sourcing. The impact of the company's own MBE purchases is magnified when it exercises third party leverage by requiring its prime suppliers to report the extent of their sourcing from minority businesses.
Goal Setting and Planning. A key success element of outstanding MBE programs is a clearly enunciated and frequently reinforced company-wide policy on MBE sourcing. In leading organizations, MBE sourcing has been fully integrated into the business planning process. Its implementation involves the setting of MBE sourcing objectives for individual purchasers.
Communication. Minority sourcing is greatly facilitated by the availability of an easily accessible internal database or directory of approved MBE suppliers. The dialog is further enhanced if a directory of purchasers and their commodity specializations is provided to current and prospective minority suppliers. Frequent articles on successful MBE sourcing actions or relationships in internal publications create valuable exposure and stimulate others to consider minority suppliers. A large percentage of our benchmarked companies also utilized purchaser and supplier recognition programs to highlight and publicize MBE sourcing successes.
Education and Training. A strong and unrelenting commitment to continuing education and training is the hallmark of any leading organization. Many of the companies we studied provide specialized courses on modern management methods to their MBE suppliers or enable them to participate in general in-house management development programs. They also communicate their commitment to MBEs by training purchasers in minority sourcing to improve their awareness and attitudes. A key change agent in this regard has been Reginald Williams of Procurement Resources, Inc. who has been retained by a significant portion of the firms in our sample to present in-house seminars on "Doing Business with Minority Suppliers."
Cooperation and Assistance. Benchmarked organizations offer assistance and support to MBEs in many ways. One approach is to "sponsor" one or more MBEs by paying the tuition for key individuals to participate in a prestigious minority supplier development program offered by a well-known university. other firms offer to "mentor" MBEs by having experienced executives provide free one-on-one consulting and advice. To help smooth cash flow problems, a few organizations will make selected progress or advance payments.
Measurement and Reporting. Leading companies rely on the Councils they support to ensure the integrity of their minority supplier pools. They also carefully monitor the minority purchasing performance of their purchasers on an individual basis, linking their compensation to the results they achieved. And they measure minority supplier performance on an ongoing basis, regularly communicating their findings to encourage and facilitate improvement.
A few other observations appear worth sharing. we were genuinely impressed by the longevity of many MBE sourcing programs. Many of them had been in existence and a genuine factor in their organizations' sourcing practices for 15-20 years which refutes the notion that they are just the politically correct thing to do. Our respondents were quite adamant that their organizations do not use set-asides to foster sourcing from minority suppliers.
MBEs are recognized and appreciated as vital external resources by many leading organizations. Our study confirmed the fact that minority suppliers are highly capable and reliable sources of goods and services. We were able to identify a broad range of practices that have worked well and enhanced value for both sides. It is our sincere hope that purchasing leaders in other organizations will be inspired by the best practices we identified to enhance the effectiveness of the MBE programs in their organizations for mutual benefit. We are eager to see minority sourcing grow.