Will ‘supplier diversity’ survive as a social justice strategy?

On the face of it, procurement is a term for the process by which any organization selects goods and services. As any organization grows in size, it seems that process grows more convoluted, which makes procurement under perpetual reform.

“Procurement is just basically a way to operate efficiently and effectively,” said Khan, the founding president of the Delaware Black Chamber of Commerce, which launched in 2020. “It doesn’t always work that way.”

Why is supplier diversity part of procurement reform?

Each time a school district chooses a toilet paper distributor or a university selects a cybersecurity vendor or a big corporation pilots a marketing agency, overlapping teams and priorities slow the process. This has a natural tendency to benefit incumbency, which often means bigger, more established service providers.

“Some small businesses are deterred sometimes because they look at the process and it’s so convoluted,” Khan said. Her signature issue is “supplier diversity,” which has been a sleepy procurement reform priority since the Civil Rights Era. Big organizations are advised to use a range of vendors to distribute risk but Khan and her predecessors advocate for something more: special priority for businesses owned by women and people of color.

These so-called “set asides” have long been controversial, but they’re getting a new wave of criticism. A high-profile Supreme Court ruling this summer on affirmative action (itself a phrase dating from the 1960s) sparked a lawsuit against a fund directed at businesses owned by women of color — accusing it of discrimination. That action by the Alliance for Equal Rights has been followed by complaints from America First Legal, backed by a former Trump adviser, against diversity efforts from a dozen large firms. Diversity initiatives are on notice, and supplier diversity efforts are among them.

Both a corporate philanthropist and the founder-CEO of a program for Black-women entrepreneurs told me this week they’ve considered altering their own programming. Others have already told Technical.ly that they are watching the outcome of these legal disputes to influence their own priorities.

Why does supplier diversity matter?

Government procurement and the private market have many differences, but supplier diversity advocates and their legal adversaries are interested in all forms because there’s so much money at stake.

The federal government spent more than $650 billion in fiscal year 2022 on outside contractors, according to a Bloomberg analysis. Most went to defense contractors and larger firms, but nearly $65 billion went to civilian vendors with fewer than 500 employees, according to the Government Accountability Office. At the state and local level, an average of $1 out of every $4 spent each year goes to procurement, according to the Manhattan Institute. A trio of massive federal spending programs will put an additional trillion dollars in additional spending over the next five years for state and local projects. Non-governmental procurement budgets are smaller but meaningful, and 82% of the biggest American companies have supplier diversity programs, according to a March 2022 McKinsey analysis.

That either makes supplier diversity a serious tool to combat race-based wealth inequality — or an especially nefarious form of race-based discrimination. Before this round of legal scrutiny, change had come. For example, the procurement spend by a sample of 350 large companies on vendors owned by Black people, women or other underrepresented groups grew by an average of 54% between 2017 and 2020, according to a Bain & Company analysis.

As any enterprise sales executive will tell you, once you get in the door, it’s a lot easier to stay there. Trusted partners with established systems save time. As the old saying goes: Nobody ever got fired for hiring IBM. Hence the competition to become as familiar and as entrenched as an old procurement mainstay like IBM.

Baltimore Mayor Brandon M. Scott pledged first-term procurement reform, in a state that already has a reasonably good reputation for supplier diversity. In Philadelphia, procurement has been a priority for successive administrations and legislators. Universities and big corporations, too, often go through campaigns to make their procurement processes more efficient and effective. Ensuring a range of vendors to encourage new ideas and manage risk is uncontroversial, if itself a difficult balance.

Khan argues that’s not enough. Wealth and racial inequality need to be addressed anyway they can, and government and big organizations can contribute while exposing themselves to new approaches and becoming more resilient to supply-chain shocks.

“We want to see more diverse businesses, the smaller businesses, get involved in procurement opportunities because it’s a way for them to build wealth, to help their communities, to create jobs,” Khan said.

Legal wrangling may determine how directed efforts can be. Prioritizing the demographics of ownership may remain under scrutiny. Khan argues there’s still ways to guide business owners with how to put their best foot forward in a procurement process that others know how to handle, due to incumbency and network effect.

“Corporations, the state, the federal government need to be intentional and provide a remedy that is going to help these businesses get to that point,” Khan said. “This is a responsibility.”