Even as billions have been spent, it’s been a challenge to get promises from the top of companies to translate into spending from the bottom.
(Bloomberg) — Three years ago, corporate America pledged nearly $80 billion to diversify its supply chain by granting contracts to minority-owned businesses — but money spent hasn’t necessarily translated into long-term success for those companies.
Natalie King, the chief executive officer of Detroit-based manufacturer Dunamis Charge, is one of the beneficiaries of those efforts. Since 2020, the lawyer turned clean-energy entrepreneur has participated in Apple Inc. and carmaker Stellantis NV’s minority supplier programs, aimed at advising business owners on operations or how to gain new orders. She even met President Joe Biden when she presented at a White House event in March. But her company has yet to receive enough orders to scale her business. The lone assembly line at company’s factory is making about 400 electric vehicle charging stations a month for testing purposes, while the cavernous building that surrounds it is designed to eventually support 400,000 a year.
“We don’t need pep talks,” King said in an interview from her manufacturing site, less than a mile from where General Motors Co. has its massive Factory ZERO electric vehicle plant. “We need substantive opportunities to grow our companies. What we hear is ‘You build it, all of it, then we’ll see.’”
It’s difficult to measure progress: There isn’t much data out there tracking these types of diversity initiatives. For its part, the Business Roundtable, made up of the CEOs of the many of the largest US companies including Amazon.com Inc., PepsiCo Inc. and Walmart Inc., said its members have spent $33 billion since 2020 to support Black- and Latino-owned small businesses, including suppliers, alongside additional billions to support lenders that focus on loans for minority supplier development. But according to interviews with suppliers, advocates and business leaders, diversifying supply chains has been more difficult than anticipated — and with inflation, job cuts and a possible recession, some worry the pressure to advance such efforts will abate.
The Billion Dollar Roundtable, a two-decade-old consortium of 32 businesses focused on increasing business with minority suppliers, said in a 2022 report that expenditures jumped to $96 billion in 2021 from $76 billion in 2020. The group, which includes both Apple and Stellantis, has a combined $1.3 trillion in annual procurement spending, according to the report.
The challenges are myriad. In the months after the murder of George Floyd by police in 2020, America’s largest companies pledged more than $300 billion to address racial inequality, including with suppliers. The Business Roundtable’s report found some member companies lack effective means to track and implement programs, and some minority organizations are not equipped to absorb large capital investments and scale their operations in a short period of time.
Other times, it’s a matter of these smaller companies getting noticed in the first place. There isn’t sufficient data on where suppliers are located, what sort of capacity they are capable of and how to link them up with companies such as the 3 million members of the US Chamber of Commerce, said Rick Wade, the chamber’s senior vice president of Strategic Alliances and Outreach. There are also lots of gaps and overlap in terms of how suppliers are even designated as minority-owned.
“The challenge is to actualize those investments,” said Wade. “Some of that I think is connecting the dots. How do we make them more visible to companies?”
Nonprofit National Minority Supplier Development Council’s 15,700 certified minority-owned businesses pulled in more than $300 billion in revenue last year, up 21% from the year prior, according to CEO Ying McGuire. Her goal is to get that figure to $1 trillion. The companies’ current revenue accounts for only 1% of US gross domestic product, yet minorities make up about 40% of the population, she said.
While hundreds of new suppliers and corporate sponsors have joined the group since 2020, it’s been a challenge to get promises from the top of companies to translate into spending from the bottom. Many companies only open up low-margin commodity purchasing to suppliers and are less likely to tap under-represented groups for high-margin tasks such as managing investment funds, she said.
McGuire recounted a recent meeting with a newly appointed chief procurement officer at a health-care company in which she was initially told that her members would be eligible to bid on about $2 billion of the company’s $6 billion total procurement spend. When pressed, the executive told her that the other $4 billion was for higher-margin work such as professional services that would go to bigger companies. After she questioned the fairness of that rationale, the executive re-visited the policy with superiors and said that the entire $6 billion would be up for her members to bid on, McGuire said.
Such logic is not lost on Tam Nguyen, whose Houston-based technology and human resources firm NB Business Solutions has struggled to seal the deal on new contracts with some bigger companies despite the wealth of new opportunities.
“While we’re appreciative of being in front of the right people, it’s getting over that bigger hurdle of ‘can you provide the services?” And the answer is yes, but you have to convince whoever that is, and they have to be willing to take the risk,” Nguyen said. The attitude can be, “‘We don’t want to get fired because we hired Tam Nguyen.’ Because we don’t have that brand. That’s part of the risk.”
That’s not to say there aren’t successes. Natalie Boden’s Miami-based BODEN Agency was hired to do development, marketing and outreach for PepsiCo Inc.’s $50 million Juntos Crecemos (Together We Grow) program, that provides grants and guidance to Hispanic-owned restaurants, bodegas and other businesses. After that, Pepsi tapped Boden to help develop Latin music-themed soda cans and a campaign aimed at Latina moms for subsidiary Marias Gamesa cookies, she said. PepsiCo was not her first customer for such work, but it has allowed her company to expand, she said.
“PepsiCo has opened more doors for us,” she said.
And King, the electric vehicle charger manufacturer, credits Apple, DTE Energy Co, powertrain supplier Cummins Inc. and other companies for supporting her as Dunamis moves toward eventual full production. She’s had an energy consulting company for more than a decade and she knows getting customers for a new venture can take time, especially for minority-owned companies who are not already on vendor’s go-to lists.
She says hopes to soon shift to a more full-scale production speed and begin hiring production workers — maybe up to 50 by the end of this year. Units are being tested at an engineering site in Detroit and a powertrain supplier has agreed to help her validate the design to improve the confidence of potential buyers, she said. She is working on her own pilot program to install units at nonprofits and houses of worship. She formed the consortium Blacks in Electric Vehicle Infrastructure (BEVI) to make it easier for potential customers to find minority suppliers. She does have some early commitments for production, and now she says she hopes that will grow to big enough orders to fill the factory.
“At some point you’re going to have to hit those that get it done, the decision makers,” King said. “The ones that are doing the estimations, taking the bids, evaluating the bids, determining the quality of the vendor, the risk. So many people act from a place of fear, it creates an impediment.”
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