Supplier diversity is not a new approach to ensuring fairness — it’s awarding business to organizations owned by traditionally underrepresented and underutilized people and communities. As a matter of fact, many large companies set aggressive goals to seek out and source from such businesses. According to a recent study conducted by The Hackett Group, a Miami-based consulting firm: by 2025, companies globally expect to increase their diversity “spend goals” by 50 percent to an average of 13 percent of spending. Nearly 30 percent of organizations indicated they are setting formal supplier diversity goals for the first time.
With the increased interest and commitment to racial justice that came after the murder of George Floyd and subsequent protests in 2020, many organizations pledged to increase their spending specifically with Black-owned businesses. The Hackett Group study estimated planned spend increases expected across the following diversity categories:
- Black-owned: 77%
- LGBTQ-owned: 66%
- Women-owned: 66%
- Service-disabled veteran-owned: 63%
- Hispanic-owned: 62%
- Asian-owned: 54%
While this intentional support gives me hope as part-owner of a small, Black-owned diversity, equity, inclusion, and justice consulting firm, it does not come without struggle and exasperation. As the person who oversees contracting and legal matters within our organization, I often find myself frustrated when trying to get the final t’s crossed and i’s dotted to move forward with an engagement. These large organizations often have outdated policies that create undue hardship for small businesses. Here are some recent examples.
Vendor Setup
I recently had an experience with a lengthy vendor setup process for an engagement with a global energy organization. It took nearly four months to finalize the contract due to one of their requirements. The service we are providing is virtually facilitated education. Part of the client’s process, regardless of the service to be provided, is to complete a nearly 200-question security assessment questionnaire. Half of the items were not applicable for the service we are providing. Our client point of contact was the “middle person” between us and the security/risk department. We went back and forth numerous times as the questionnaire was never completed to their satisfaction. We ultimately ended up having to hire a third-party service to complete the process for us — adding additional cost and time. These onerous and irrelevant requirements are not only time-consuming for me, but also impact our budgeting and forecasting, as we are delayed in the start of the project. Often, our direct client point of contact has their hands tied as well, as they are beholden to the process and procedure of other departments, not trained with an equity- or justice-focused lens.
Early Payments/Parked Money
Every fourth quarter, clients reach out to us to “park” current budgeted dollars to be used in the next fiscal year. It is a “use it or lose it” situation. They ask us to invoice them for future work. While this in theory sounds wonderful, as it helps to increase our cash flow, it does not come without repercussions. These advance payments are considered deferred revenue, a liability, on our balance sheet. Deferred revenue is defined as advance payments a company receives for products or services that are to be delivered or performed in the future. Deferred revenue is recognized as the product or service is delivered over time. After a certain amount of time, organizations must begin to pay taxes on the deferred revenue that has not yet been realized. We have had situations where clients have paid us in advance and then decided to not do the work. In these instances, we may be required to pay the organization back. This negatively impacts our budgeting and forecasting.
Adhering to Contractual Terms
Sometimes I wonder if our clients actually read the terms and conditions of our statements of work/contracts, or they just blindly sign away. In our contracts, we include terms around cancellation and postponement of event dates. This means, for example, if we have an education or keynote delivery scheduled for a specific date, there are implications if canceling or postponing within a certain time frame. Our consultants, for the most part, are owners of small businesses and members of underrepresented groups. When they hold time on their calendar for work with The Winters Group, they are not able to book other gigs during that time. Therefore, it is a hardship for them when clients cancel or postpone at the last minute. This policy is in place to deter that from happening.
I recently found myself in a conversation with a client around this policy. They reached out after normal business hours to cancel/postpone a session scheduled to take place the following day. My team member followed up to remind them of the policy. In response, our client mentioned how this is not something that has happened often with them, it was the first time, and they did not find it to be fair to be charged. We still had to pay the consultant as a part of our contractual agreement. So, fairness from whose perspective?
Lines of Credit
This past year we went through the process of obtaining a line of credit. Not because we needed one, but as a safety net for the future. After experiencing the uncertainty that came at the onset of the pandemic, we wanted to be prepared for anything that may arise in the future. Even though The Winters Group has been continuously in business for nearly 40 years, has excellent credit, no debt, and high levels of receivables, it still took nearly a year for us to get approved for a line of credit. Black owners have less access to capital and face higher interest rates than their white counterparts.
Justice-Centered Policies Help All Suppliers
Supplier diversity programs are a must have — without them, there likely would not be much, if any, focus on targeted spend with diverse suppliers. However, when considering your supplier diversity strategy, take the time to listen to those diverse suppliers you are seeking to support. We sometimes get invited to supplier diversity events that offer education to entrepreneurs on how to compete for contracts with large organizations. Procurement decision makers need to listen more to the challenges and barriers faced by historically marginalized suppliers rather than focusing on teaching them how to fit into their processes. An analysis that asks who is harmed by this policy and who benefits can uncover inequities. Justice-centered procurement policies will benefit all suppliers — not just us small Black-owned businesses.
