SMI Supplier Diversity Playbook

Chapter 6. Diverse Supplier Development and Capacity Building

Executive Summary

Often, traditional procurement practices create barriers for diverse suppliers, even cost-competitive diverse suppliers. Adjusting internal practices to facilitate connections between the purchasing department and diverse businesses increases opportunities for bid participation. For example, a prominent challenge for diverse suppliers is awareness of upcoming bids. To reduce this potential barrier, purchasing department team members and the marketing department could collaborate on outreach and education strategies geared towards diverse suppliers.

Connection strategies, such as those described above, result in intentional procurement practices with more transparency in the bid process and methods for diverse businesses to participate. Supply chain buyers can identify existing diverse suppliers through community partners or supply chain integrators

who work with diverse businesses and are familiar with their capabilities. Key strategies to building connections with diverse suppliers include creating transparency in the purchasing process and criteria, identifying diverse suppliers aligned with your organizational needs, and collaborating with key supply chain integrators focused on suppler diversity and economic development.

Capacity strategies increase the ability of the diverse business community to meet supply chain needs. This can occur through diverse supplier sub-contractor requirements, mentor-protégé programs, promoting business incubation, and providing technical assistance. Cultivating a strong supplier diversity program requires investment in capacity building of existing suppliers and entrepreneurs, and strategies to connect diverse businesses with contracting opportunities.

Introduction

How to identify and cultivate a backlog of new diverse suppliers and build the capacity of existing diverse suppliers.

In this chapter, we will cover three strategies for diverse supplier engagement. This includes:

How to identify diverse suppliers for contracting opportunities
Methods to engage diverse suppliers in the bid process
Capacity building strategies for diverse suppliers and entrepreneurs.

Capacity building strategies typically focus on an organization’s existing supplier base and prioritize business growth and upskilling. Connection building strategies focus on building a network of diverse businesses and providing opportunities to participate in bid opportunities.

Critical Strategies to Identify Diverse Suppliers

Often, traditional procurement practices create barriers

for diverse vendors to participate in the bid process with large institutions. Connection strategies aim to reduce barriers to contracting opportunities by identifying diverse businesses to participate in the bid process. Adjusting internal practices to facilitate connections increases opportunities for diverse businesses to be awarded contracts. Key strategies to identifying diverse suppliers include creating transparency in the purchasing process and criteria for selection, identifying diverse suppliers aligned with your organizational needs, and collaborating with key community partners and supply chain integrators

focused on suppler diversity and economic development.

Create a transparent purchasing process and criteria for diverse suppliers

Prepare your internal purchasing decision makers to engage diverse suppliers by understanding the “must have” and “nice to have” items in each contract. Clearly define the scope of contracts and expectations of suppliers in advance to prepare diverse suppliers for what is required to successfully respond to a bid. Engage the primary purchasing decision-makers and outline upcoming bid opportunities. Leverage Table 1 as a template to explore upcoming bid opportunities and to understand what information can be transparently shared with suppliers. It’s also important to provide an onboarding process for diverse suppliers to engage with your organization. Create a “front door” for potential suppliers to engage with your organization’s supply chain department (for example, a supplier diversity landing page on your organization’s website) including a transparent bid process, bid calendar, and supplier diversity goals.

Develop a process for diverse supplier relationship management

Cultivating a strong diverse spending program requires more staff time, especially at the onset when health systems will need to create new supplier relationships. A best practice is to create a full-time role situated within the supply chain department. Often, supply chain leaders and buyers have limited capacity for additional projects and diverse suppliers need a primary point of contact for engagement. Key activities a supplier diversity professional can be found here.

Commit to flexibility within the supply chain purchasing process while engaging diverse suppliers. Below are several examples of equitable engagement:

Commit to open and transparent communication throughout the bid process. This could include providing open office hours, question and answer sessions, or 1:1 support to review the bid process with a supplier.
Clearly communicate to diverse businesses if there is any flexibility in contracting requirements once a business has been awarded the bid, such as reduced payment terms and/or reduced terms for a master service agreement.
Cultivate a long-term growth strategy with key diverse suppliers to increase your organizational spending with the vendor over time. Achieving this requires a deeper understanding of the supplier’s short-term capacity, the organizational commitment to shifting volume of purchases towards a diverse supplier over time, and potentially additional financial investment from the diverse supplier to achieve the scale required.

Develop a vendor portal for prospective suppliers to provide information about their service or product offering.

Engagement and inclusion of diverse suppliers can occur in a multitude of ways. Table 3 Identify your external partners

is a template of types of external partners to engage for support. Leverage external partners such as certifying agencies or Group Purchasing Organizations, host networking events and member presentations, and share lists of existing diverse suppliers. Engage partners such as your Group Purchasing Organization or Healthcare Anchor Network, often host networking events, member presentations, and share lists of existing diverse suppliers. Supply chain peers, including providers and industry partners, may have recommendations for diverse suppliers currently in the market. Explore any large purchasing organizations in your network such as universities or manufacturers who may be able to create connections with diverse suppliers.

Critical strategies for Engagement and Inclusion of Diverse Suppliers

Once connected with diverse suppliers, intentional engagement requires a deeper understanding of their experiences with your organization’s purchasing department. Either by yourself or working through a community partner (for example, a local chamber of commerce), conduct focus groups or interviews with diverse vendors to assess how they perceive working with your institution:

What do diverse businesses like and dislike? What do diverse businesses think your organization does well? What could be improved?
What are the barriers to doing business with your organization?
Are diverse businesses equipped to provide invoices that are compatible with your internal invoicing system?
Are diverse businesses paid in a timely enough manner?
Are diverse businesses satisfied with the existing technical assistance support in your community? If not, where do they believe further investment is necessary?
Are diverse businesses aware of upcoming contracting opportunities?
Is your current system for submitting bids easy to navigate?
Are smaller diverse businesses aware of any tier two or subcontracting goals?
Do diverse businesses know who to engage at the institution around contracting opportunities?
What are the other gaps?

Leverage upcoming construction and capital expansion projects

Capital expansion projects offer the opportunity to set clear supplier diversity goals and create more transparent bid opportunities for diverse suppliers. Often capital projects have a designated budget, timeline and purchasing requirements. If a general contractor is hired to oversee a construction project, an institution can create clear supplier diversity goals with them and partner in cultivating additional support of diverse supplier goals. If tier one diverse suppliers are not available, work with your general contractor to create a plan for inclusion of diverse suppliers as subcontractors. Examples to include in your inclusion plan can be found here

Engage in the diverse entrepreneurial community

Building trust and authentic relationships with community partners, business owners, and entrepreneurs is an important part of cultivating a network of diverse business connections. Several methods to engage with the entrepreneurial community include:

Grow transparency and awareness to sourcing process and opportunities.
Make connections and grow the network of diverse suppliers.
Invest in your community through diverse entrepreneurial support organizations such as the local chamber of commerce. Ways to engage include:

Understanding the role or entrepreneurial support organizations in diverse business growth.
Attending, hosting and sponsoring events.
Becoming members of diverse business organizations, such as local chapter of the National Minority Supplier Development Council.
Donating to funds that support diverse entrepreneurs.

Capacity strategies to strengthen the diverse business community

Capacity strategies are tools that increase the ability of the diverse business community to meet healthcare organization supply chain needs. The aim is to increase the capacity of existing businesses. A capacity-building approach helps address supply chain demands, meet specific product needs, and improve the efficiency and resiliency of the supply chain.

Capacity-building strategies are focused on the ability of diverse businesses to meet the healthcare supply chain purchasing requirements. Examples of capacity-building strategies include diverse supplier sub-contractor requirements, mentor-protégé programs, promoting business incubation,

and providing technical assistance.

At the core of capacity building strategies is a commitment to supporting diverse suppliers and cultivating relationships within the diverse business community.

Health systems can utilize the expertise and purchasing power of their network of larger industry partners to help grow the capacity of diverse businesses. This can take two forms:

Promote tier two supplier diversity spend by encouraging or requiring industry partners to subcontract with diverse businesses.
Increase the capacity of diverse suppliers through ecosystem support.

Methods to encourage industry partners to subcontract with diverse businesses are described below.

Require majority-minority contracts and subcontracting to diverse vendors.

Requiring existing suppliers to subcontract with diverse businesses provides an entry point for diverse businesses who might not yet have the capacity to take on the full contract for a particular good, service, or capital project. Establish supplier diversity as a priority during the bid process and request a majority-minority contract plan from tier one suppliers in their bid response.

This strategy provides a means for increasing the capacity of the tier two suppliers in an environment that mitigates risks to the hospital and tier one supplier. The tier two suppliers do not take on too much too quickly, which helps to ensure they can complete contracts successfully and creates opportunity for growth.

Scale diverse businesses by finding the right supply chain partners

A strategy to scale diverse procurement efforts is to partner with other purchasing organizations. Aggregating the demand of multiple organizations can help create sufficient volume for a diverse supplier to scale to competitive pricing. For a supplier to expand, or a business incubation project to get off the ground locally, multiple organizations must be lined up to work with the entity to help justify the required investment. Identifying areas of shared demand can help channel contracting opportunities to diverse suppliers, allowing these businesses to scale and diversify their customer base. An example of this approach can be found in the Cincinnati Health Collaborative, a group of hospitals based in Cincinnati, Ohio that focus on supplier diversity.

Increase the capacity of diverse suppliers through ecosystem support.

Facilitate mentor-protégé programs

Another strategy to leverage the expertise of existing suppliers is to facilitate a mentor-protégé program. More commonly employed in construction, mentor-protégé programs help build capacity across the supply chain, as protégés receive coaching around important business practices, such as putting together bids and organizing the back office.

Programs can take the form of informal mentorships, which encourage relationships between tier one and tier two vendors (as noted above), or formalized programs where the health system acts as a matchmaker and facilitator. Particularly in construction, subcontracting can be viewed as a form of mentorship, even if there is not a formal mentor-protégé program. For example, in Ohio, Cleveland Clinic and University Hospitals collaborated to create a mentor-protégé program called the DEI Supplier Accelerator Program, which, in addition to providing participants with business development coaching and direct access to supply chain leadership at the two institutions, also includes a $10,000 cash prize upon completion.

Promote diverse business incubation and expansion.

Business incubation encourages growth of new diverse businesses and provides an avenue for wealth creation. Through targeted business incubation within the diverse business ecosystem, an organization can support health equity, meet supplier diversity priorities, and encourage more diverse business and entrepreneurs. Often, public and philanthropic resources can be mobilized to support business incubation initiatives. Aside from financial resources, in-kind resources such as commercial space, technical information, or even just communication about future contracting opportunities can help considerably. Organizations can also provide grants or leverage their investment portfolios to provide resources for business incubators, or to provide start-up, working, and expansion capital to new, local, diverse businesses.

Connect diverse suppliers to technical assistance and capacity-building training

Expanding diverse supplier access to technical assistance and training opportunities, by offering them directly or through partnerships, is another critical strategy for building diverse business capacity. Institutions have many assets they can leverage to help scale diverse businesses through technical assistance. Critical assets institutions have at their disposal that can be leveraged as technical assistance include subject matter experts with knowledge about healthcare contracting, marketing, risk assessment and legal support, and accounting expertise. Facilities can be offered up for supplier outreach events and training, or even as warehouse space. Staff time and expertise and information on the contracting process can also be shared as resources.

A successful supplier development program includes building the capacity and capabilities of diverse-owned businesses and entrepreneurs. Advanced partnerships with diverse suppliers focus on intentional collaboration and supporting supply chain community partners. Review the Request for Proposal (RFP) process within Chapter 8 for more details and sample language to support supplier diversity within your existing bid process.