Warren Berger is a journalist and speaker who talks about thinking and creativity in a podcast with Farnam Street.

“There’s a great definition that I came across from this group called The Right Question Institute. They’re a non-profit group that studies questioning. They describe questioning as a tool that enables us to organize our thinking around what we don’t know.

“There’s a lot of stuff out there we don’t know. Through questioning, we can attack it, and the different forms of questions you use will allow you to come at this unknown thing from a different angle.”

It is too easy to assume that we know the correct question and to jump into answering it.

Answering may actually be the easy part. The more difficult and more important thing to accomplish is to figure out what the question should be. This is especially true in an Internet age (and now an AI era) where we have what seems like unlimited information (and robotic judgment) at our fingertips.

To get to the right question involves, ironically, asking a whole set of other questions first. We need to fill in the empty areas on our map. We need to add as much dimensionality to our understanding of the problem to be able to say that if we do X, we obtain Y in response, so how do we make X happen? But what we need most is confidence that if we obtain Y, we are acting to improve our situation the way we want it to improve and we realize the underlying goals we set for ourselves.

Ask the wrong question, obtain the wrong outcome.

Let’s consider social procurement.

Here’s the definition from the City of Toronto:

“Social procurement is the achievement of strategic social, economic and workforce development goals using an organization’s process of purchasing goods and services. The City’s Social Procurement Program is comprised of two components: Supply Chain Diversity and Workforce Development.

“What is Supply Chain Diversity?

“Supply Chain Diversity is a business strategy that promotes a diverse supply chain in the procurement of goods and services for any business, not-for-profit, government or private organization. In the City’s Social Procurement Program, Supply Chain Diversity applies to Departmental Purchase Orders from $3000 to $100,000.

“What does Workforce Development mean?

“Workforce development is an interconnected set of solutions to meet employment needs. It prepares workers with needed skills, emphasizes the value of workplace learning and addresses the hiring demands of employers. In the City’s Social Procurement Program, Workforce Development requirements will apply to Request for Proposals and tenders over $5 million.”

What is the problem we are trying to solve by implementing social procurement?

I suspect that a lot of people will wave their hands about the benefits of diversity and the importance of a level playing field in a multi-cultural society. They are correct at a general level. But that doesn’t justify it as a procurement policy, per se. We could address these issues in other ways such as philanthropy, for example.

When it comes to social procurement, the more appropriate question we should be asking is this: how can we reduce risk and increase capacity in our value chain by ensuring that our supplier partners and their contractors have a fair and open process that encourages suppliers from all backgrounds to participate in our third-party spend, directly or indirectly. The ancillary benefits to the disadvantaged communities will come on their own if we get this right. These include economic empowerment, workforce development, and a rise in the general level of welfare. By acting in its economic self-interest to reduce risk and increase capacity, the large purchasing organization will end up doing the right thing.

It’s too easy to rage against the dying of the light and to descry the current inadequate and less-than-proportionate participation of vendors from disadvantaged backgrounds in our direct supplier ken. Buyers need to have visibility into their chains to know how risky they are, in any event. (Something almost none of them has.) With this insight comes the opportunity to de-risk those chains by forcing contractors at every level to compete the business and to develop the capacity, capabilities, and capital of their sub-contractors. Transparency will be the great motivator here. One reason why these supply chains have been slow to diversify is the opacity of the current set-up.

What is the actual problem then?

Buyers don’t have visibility into the supply chains and value ecosystems. What happens if we fix this problem? We can see precisely how diverse our supply chains are. And our contractors can, too. Our contractors will know that we know. So we have an opportunity to de-risk them by fleshing them out, including with diverse suppliers. Our subcontractor will have no excuse. Comply or get off the boat.

This is what we have built with EdgeworthBox. Our set of tools, structured data, and community helps B2B buyers buy the right solution, from the right supplier, at the right price. It also can be used in a way to expose the supply chain on a project or set of procurements with full visibility and interactivity. This leads to lower risk and greater effectiveness when it comes to social procurement by cracking open what are often fixed supply chains to let in suppliers who can develop their capacity and capabilities. Maybe even throw in some mentorship. If you’re interested in learning more or if you just like social procurement, please shoot us an email. We’d love to hear from you.

ESG has become more important over time. As recently as 2021, improving ESG ranked only seventh on the list of priorities. Society is changing. The contemporary enterprise must adapt and evolve to reflect this dynamic.

However, the recent Supreme Court decision on affirmative action in the context of college admissions casts uncertainty over what organizations can and cannot do. If Harvard cannot include diversity in its recruiting objective function, then what does that mean for companies that seek to source goods and services from a broader array of suppliers?

While this Harvard Business Review article talks about diversity in hiring, its conclusion extends to sourcing:

“So long as employers do not use protected characteristics like race and sex when making concrete employment decisions, they are free to promote a more inclusive culture and break down barriers preventing women, people of color, and other marginalized groups from thriving in their workplaces.”

The same conclusion applies to sourcing. If business-to-business buyers can purchase goods and services in a way that removes barriers inhibiting suppliers with historically disadvantaged backgrounds, then they can obtain the ESG outcomes they prioritize. There are many ways we can describe what it means to remove obstacles. We could say that we are “leveling the playing field,” for example. What we’re talking about is making procurement more competitive for everyone.

Some of the challenges include the bureaucracy, the difficult systems, the back-and-forth, the length of the cycle, the difficulties obtaining buyer internal consensus, etc. All of these discourage engagement by smaller vendors.

Making it easier for smaller suppliers to compete for business is good for diversity.

Competitive sourcing leads to diverse sourcing because so many members of historically disadvantaged groups seek economic independence through entrepreneurship. Potential suppliers are increasingly diverse. Myriad studies confirm this, including this one from the Kaufman foundation.

There are many stories of immigrants who have come to Silicon Valley and started up technology companies with blistering success. A far more common path is for people from historically disadvantaged backgrounds to start up a small business that plugs into a broader supply chain. Imagine, for example, a small office cleaning company that is part of a larger supply chain in maintaining a large office building.

Why do these people want to have their own businesses? For the same reasons anyone hangs out their own shingle. The possibility of economic independence and control is attractive. Ironically, workplace bias may encourage entrepreneurship in diverse communities by forcing people into it. Maybe these people didn’t (or couldn’t) succeed in a corporate environment, or they couldn’t get hired in the first place because of cultural reasons. Let’s not forget that the original large rallies for civil rights talked about jobs, too.

Entrepreneurship and equity ownership are pathways to wealth in the Western world. Combine that with control over one’s destiny and working conditions and it’s easy to understand why so many people from minority groups establish their own businesses.

What do buyers want from suppliers? Capacity and capabilities.

How do suppliers get this? They need experience, which in turn requires relationships and access  to capital. Too often, it’s a vicious spiral. Diverse suppliers lack relationships, so they can’t get contracts as part of established supply chains. Without this experience, it’s hard for them to access capital to fund growth. Smaller companies aren’t exactly in a position to bid for prime contracting positions.

Relationships are central to the problem.

Large enterprise buyers can require prime contractors and every contractor beneath them in the chain to open their networks to smaller and growing businesses with mentoring, opportunities, and references.

The key word here is “smaller.” Cast a wide enough net for smaller firms and there will be more than enough diverse companies in their supply chains.

Large enterprise buyers can demand visibility into the chain for specific projects to ensure they understand the characteristics of each vendor. This has the additional benefit of aiding risk management. The large enterprise can count the diverse suppliers in the chain towards their own ESG goals.

Of course, this requires a tool for sourcing visibility. But it needs more than that. The right platform engenders an ecosystem. Ideally, these new relationships grow roots that transcend the initial project, providing growth opportunities for these smaller vendors in subsequent new projects.

Some people may argue that it’s not feasible to purchase goods and services in this manner.

Look at the tremendous strides New York State has made by strongly encouraging their prime contractors to develop smaller ones.

“The Governor also announced that New York State has surpassed its goal for MWBE utilization on New York State contracts with a utilization rate of 30.64 percent during the 2022 Fiscal Year, the highest MWBE utilization rate in the country for the second year in a row.”

Diverse sourcing is still possible in the aftermath of the Supreme Court decision, but CPOs focused on ESG need to approach this objective from the right angle: removing barriers to competition faced by smaller companies throughout supply chains. The key link here that CPOs can exploit is the strong and growing relationship between entrepreneurship and diversity. We know that it can work. New York State shows that it can. Primes get deeper subcontractor networks. Buyers get full visibility into how their third-party spend is helping smaller companies develop capacity and capabilities and access capital. All of this matters for the same reason that ESG matters. It reflects a broader societal push to change and evolve.

This is what we have built at EdgeworthBox. We have built a procurement technology solution that makes it easier for buyers to engage suppliers with a simple user experience. We offer a pathway to full supply chain visibility in procurement with our social networking functionality. We help build supplier ecosystems that helps promote the development of smaller vendors. We’d love to talk to you about your specific situation. Give us a shout.

These articles typically say two things.

One, cost savings in procurement is job one.

Two, this is the year that the procurement role will assume its proper seat at the strategy table. Procurement’s category knowledge and process expertise will create significant value. The CPO group will help with product development, risk management, and financial planning.

In the wake of the Covid pandemic, one might expect a greater emphasis on risk management. After all, we have seen (and continue to see) no shortage of risks: supply shortages, commodity price risk, the risk of rising global trade tensions, cyber-attacks, IP theft, shipping constraints, etc.

Yet, according to Deloitte’s 2021 CPO Survey, none of these three truisms held.

The interesting thing from this survey is that CPOs recognize that they need a more general approach. Deloitte calls it “agility.”

“It turns out that agility is indeed a sort of antidote that helps inoculate firms against complexity and risk so that they deliver healthy performance results even in the toughest of times.”

The traditional hidebound, bureaucratic approach to procurement does not work.

It turns off talent who might participate in the procurement process. It hinders the full use of enterprise knowledge. It may not work on an end-to-end basis. It is not driven by data, preferring anecdote. It may not be nimble enough to keep up with dynamic expectations of different stakeholders across and outside the enterprise.

During the pandemic, management teams needed to make rapid-fire decisions. More importantly, they needed to be able to trust the quality of these decisions.

If you get this comprehensive approach right, then everything else will follow, including cost savings and risk management.

“The agility masters outperform their peers on all the major performance metrics: hitting savings targets, hitting other targets, spend influence, stakeholder influence, C-level influence, and stakeholder satisfaction.”

No wonder Deloitte reports, “In this year’s report, for the first time in its 10-year history, CPOs did not name ‘reducing costs’ (traditional spend reduction) as their top priority.”

Unexpectedly, after a year in which risk management came to fore, the goal of “enhancing risk management” was unchanged in its priority, even as there were large jumps in the perceived importance of digital transformation and enhancing corporate social responsibility.

EdgeworthBox is built for this new orientation. Our solution is a platform that sits as a layer in the procurement technology stack. We augment the incumbent approach to acquisition with tools from financial markets. Buyers improve the quality and the quantity of the proposals they receive in their RFx reverse auctions by making it easier for suppliers to work with them. Easier onboarding, data for market intelligence, and a social network for collaboration with external partners, as well as with internal partners make for the kind of agile, nimble, dynamic responsiveness Deloitte describes. Give us a shout. We’d love to talk to you.

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If there were ever a year in which procurement should be treated strategically, it is 2021. The massive Pandemic-induced supply chain disruptions showcased the lack of visibility, the concentrated vulnerability, the geographic risk exposure, the cost of weak supplier relationships, the suitability of systems for remote work, etc.

What does it mean to say that a business process is strategic? What is strategy?

A business strategy determines where a business seeks to go and how it plans to get there.

What markets will the firm target? What products will the firm sell? How will we allocate our scarce resources to make this happen in a sustainable, profitable manner? What does this mean for the way the enterprise organizes and finances its operations? How complex are our operations? Where are the risks to our success and how should we mitigate them?

Tactics on the other hand revolve around the execution of this strategy on a day-to-day basis.

How do I deliver a particular project for a specific customer? What do I have to do right now to make good on my promises to customers and other stakeholders? How do I onboard new vendors? What does my spend cube look like?

Here’s the real question: is procurement strategic or is it tactical? How do you drive internal collaboration around procurement?

The truthful answer is that it is both, but that companies have relegated it to the realm of the reactive and the quotidian.

Chief Financial Officers and pliant procurement staff have coalesced around the notion that procurement is about cost reduction. Value-for-money in this view is about the lowest price. In this characterization, procurement is entirely tactical.

Covid 19 revealed the weaknesses of this thinking.

Procurement is also strategic in that it spans questions about sustainability and macro direction.

What kind of firms do we want as suppliers? How do diversify our exposure to different vendors so that we can reduce the vulnerability of the firm to supply network disruption? Once we have decided upon a particular market to target, what inputs will we choose for our products? How will we purchase goods and services from third-parties? How do we manage supplier relationships so that we get the most benefit?

We’ve spoken before about how Boards should think about procurement.

“The lessons of the Pandemic are that strategy at the firmwide level is about managing the risk profile to maximize the upside and minimize the downside subject to resource constraints and that sourcing is an integral part of this strategic management of risk.”

We have also talked about complexity and strategy, quoting the Deloitte CPO survey of 2019:

“Complexity can be exploited to expand procurement’s influence beyond traditional sourcing-centric spend management toward a broader engagement model and service offering. This includes efforts to more broadly influence business stakeholders in strategic areas (e.g. capital expenditures, enterprise risk management), as well as to more deeply influence stakeholders through demonstrated leadership in areas such as corporate development.”

The best way to do this is to bring the key strategic decision-makers into the procurement conversation.

To do this we need a forum for the conversation. Experience tells us that it is profoundly difficult for procurement to insert itself into the “room where it happens.” Out of sight is out of mind.

Key people from across the firm need access to data and processes, delivered in an inclusive manner, to be able to want to talk about procurement.

If the VIPs aren’t going to log into the ERP module to check out procurement, then the CPO will have to bring this process to them.

This is precisely why we built EdgeworthBox.

By layering on an inexpensive platform that not only connects buyers and suppliers but also people within the purchasing firm to one another across differing functional responsibilities, CPOs can bring procurement data and processes to critically important internal players. This is the way to make procurement strategic.

This may be the only way to make procurement strategic.

We incorporate features from capital markets in a tool that augments the existing purchasing approach; there is no need to rip out the expensive plumbing. EdgeworthBox is a way to expose procurement’s function firmwide, for the general benefit. Give us a shout. We’d love to talk to you.

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Strategy is defined in the dictionary as “a plan, method, or series of maneuvers or stratagems for obtaining a specific goal or result.” Before the Covid-19 crisis, many thought of the world as deterministic. While there might be volatility or uncertainty in financial instruments leading to crises like the Global Financial Crisis, this was perceived to be separate from low levels of real volatility. Globalization increased monotonically, technology evolved, and the world seemed to have converged on profit-maximizing corporatism. The only shocks to the system came from contained natural disasters like tsunamis or earthquakes or floods. Even climate change was deemed to move in one direction.

In a regime in which volatility seemed limited or, at least, something the firm could hedge with the right insurance coverage, and one in which companies did not have any acknowledged responsibility to stakeholders other than their shareholders, then the target for strategy was simple: lower costs.

It is a cliché that the first place anyone seems to turn for cost savings is procurement. You see this in merger announcement press releases, in restructuring plans, , and in regular corporate presentations to investors. Companies announce that they will obtain procurement cost savings from vendor rationalization, the elimination of duplication, or even digital transformation.

In practice what did this mean for procurement?

It meant outsourcing much of a company’s supply chain so that only the final stages of value addition were performed domestically and internally. In the limit, companies would outsource research, development, and production, retaining only distribution.

It meant concentration of purchasing with a single vendor (or a small number of vendors) to obtain discounts driven by scale.

It meant offshoring to countries where the wage gap with the developed world had not yet closed.

It meant that the corporation ignored issues of social importance, like race and inequality. Milton Friedman’s dogma on social responsibility prevailed:

“… there is one and only social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

As Warren Buffett is reputed to have said, “Only when the tide goes out do you discover who’s been swimming naked.”

Companies who focused on cost-minimization exclusively or primarily were self-insuring against risks they did not perceive, confident that all of their competitors were doing the same thing.

When the Pandemic lock-downs started to bite in the Spring of 2020, it was clear that the world was not deterministic. Economic losses due to lost revenue and higher costs started to roll in with the concurrent realization of multiple risks.

By outsourcing their supply chains, companies discovered that they lacked visibility into who was providing them with what. They definitely knew who their prime contractor was. They might know from whom their prime contractor sourced his inputs. But they almost certainly did not know who these sub-contractors sourced from and so on and so forth. This was critical because the points of failure were more likely to be located deeper in their supply chains. Without the ability to identify these vulnerable third-tier (and beyond) suppliers, it was even more difficult to mitigate risk ex post facto.

In concentrating purchases with a single vendor, buyers found that they had foregone the benefits of diversification for marginally cheaper unit pricing.

Many procurement teams found that they had weak relationships with alternative suppliers. Solvent alternative suppliers began to allocate limited capacity with an explicit preference for customers who had supported them before the Pandemic. The higher pricing that the ex-ante cost minimizers were forced to pay to access capacity ex-post ate into the accumulated profits from the pre-crisis salad days. After all, those prior savings were like the insurance premiums they had avoided paying for not purchasing the hedges that would have smoothed their results in the crisis times.

The Pandemic’s effects were not restricted to health and productive capacity; they also sparked geopolitical tensions as rivalries erupted in competition for positioning and resources. For those who had sourced from countries in the developing markets, they risked having their access to products they needed desperately limited, diverted, or delayed.

The effects of the lockdown combined with a series of tragic events to provoke a re-examination of the corporate social contract. Companies had to ask themselves, what were they doing to promote diversity and inclusion?

Naturally, the principal focus here was on hiring and internal advancement. But buyers have an even greater ability to empower diverse suppliers with contracts that help these typically smaller companies develop capacity, capabilities, and relationships necessary for sustainable wealth generation. How would perceptions about corporate behavior affect brand and, ultimately, revenue?

The lessons of the Pandemic are that strategy at the firmwide level is about managing the risk profile to maximize the upside and minimize the downside subject to resource constraints and that sourcing is an integral part of this strategic management of risk.

Most companies are (or should be) preparing Board-level discussions of how to revamp their approach to supply chain risk. Expect these to be discussed and debated intensely later this year and early next year now that we are through the most reactive phase of the crisis.

The first thing they need to do is to spell out the different dimensions of sourcing risk that they face with procurement. Here are just a few that could affect the value of the firm.

• Price: Have they obtained the best price?
• Supplier Concentration: Have they diversified and limited their exposure to individual suppliers?
• Geographic Concentration: Have they diversified and limited their exposure to individual countries?
• Subcontractor: Do they have visibility into the supply chain and have they taken steps to mitigate the risk associated with subcontractor suppliers?
• Inventory: Do they maintain adequate inventories for a variety of scenarios?
• Supplier Relationships: Do they have strong relationships with the best suppliers?
• Market Intelligence: Do they have access to real-time intelligence about potential supply chain shocks in their markets and sourcing locations?
• Revenue and Brand: How does the firm’s engagement with diverse suppliers affect its revenue? Is membership in supplier and diversity organizations sufficient, or will companies need to increase their direct engagement with these suppliers materially?

These risks (and potentially other risks specific to the individual buyer firm) bear upon the kind of technology solution the procurement department requires.

One solution is unlikely to span all these dimensions comprehensively. Firms need to have a procurement technology stack, combining several solutions each of which addresses a subset of the overall risks.

To date, digitization in these tools has preserved the antecedent analog business process with its one-buyer-to-many-suppliers transactional orientation. These software solutions were more about executing a simple process. They were not built to manage risk.

In planning digitization as part of the strategic re-engineering, Boards should think about ways in which they can get the information they need, when they need it.

This doesn’t have to mean pulling out the plumbing and starting from scratch. That’s a straw-man argument in favor of the status quo that becomes less feasible every month the world is mired in this new normal.

The ideal solution is going to have features from financial markets risk management software. That’s why we built EdgeworthBox. It’s a layer that sits in the procurement technology stack to augment the existing approach. Whether you’re using email and spreadsheets or you’re using a cutting-edge cloud-based source-to-pay functionality, EdgeworthBox can help you access market intelligence and a community of other users the same way that financial market participants do using structured data and communities. And we do it all while making things simpler, fairer, and faster for suppliers so that more of them want to engage with buyers, creating more options. Check out this video. Give us a shout. We’d love to talk to you about procurement.

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BDC defines small and medium-sized enterprises (“SMEs”) as those with fewer than one hundred employees. By number, they make up 98.2% of firms in Canada.

In the US, coincidentally, 98.2% of businesses by number have fewer than one hundred employees.

Before the Covid pandemic, in Canada, large enterprises won a massively disproportionate share of government third-party spending on goods and services. Businesses that represent 1.8% of businesses by number won 65% of spend by value.

Many SMEs are owned by women (39% in the US), visible minorities (29% in the US), and indigenous people.

We have written elsewhere about the importance of diversity and inclusion in procurement. It has never been more important, perhaps, than in this moment.

So, the question arises: what does sourcing in a post-Pandemic world mean for SMEs?

A deterministic view of the world is one that argues for optimizing for cost in procurement, like an engineering problem. An uncertain world, however, requires a risk management approach to acquisition that maximizes the potential upside, while minimizing the possible downside.

Risky behaviors that seemed okay in a pre-Pandemic world exposed the downside of cost minimization including actions such as concentrated purchasing in sketchy overseas locations to obtain lowest price, or the existence of suppliers to suppliers who were financially or operationally vulnerable to disruption, etc. In a pre-Pandemic world, everyone wrote naked puts, to use the parlance of financial markets.

Part and parcel of the post-Pandemic environment is the concomitant focus on social justice. Customers want to make sure that the companies which make the goods and services they purchase source in a way that is sensitive to the interests of those who have been disadvantaged.

Combined, these concerns make for a tremendous interest in supplier visibility: the amount and quality of information about all the players in a buyer’s supply chain, including data about their financial and operational wherewithal. This is difficult to execute.

The easy out is to outsource, in effect, the judgment over a buyer’s supply chain to a large supplier. By shifting even more of their spend with third parties to large suppliers, purchasers rely more intensively on these prime contractors to manage the supply chain for them.

This relegates SMEs increasingly to the role of indirect suppliers, participating in the supply chain more and more so as sub-contractors, or shrinking their business if they cannot establish such relationships.

Buyers may not be paying attention to this issue in the immediate aftermath of Covid, but the social and commercial pressures to ensure (and to prove) that their prime contractor is sourcing appropriately from the right kinds of sub-contractors will build.

Large vendors should embrace this change and get in front of it.

By demonstrating that they are engaging and mentoring SMEs as sub-contractors, large suppliers can obtain a competitive advantage over their competitors who do not.

Of course, the prime contractor will need to consider the quality of these SMEs as suppliers first in their primary sub-contractor channel.

Put another way, it is best for these SMEs to approach prime contractors as suppliers, not as some of Corporate Social Responsibility obligation. SMEs that come through a Corporate Social Responsibility channel risk the prime discounting their quality and overestimating their risk excessively due to implicit bias.

Over time, more and more large buyers will include categorical points for demonstrating depth of collaboration with smaller sub-contractors (especially those from historically disadvantaged provenance) in evaluating bids. What is now competitive advantage (when few perform the function) will be seen as necessary. It is best to get in front of the trend now.

EdgeworthBox is a platform that sits in the procurement technology stack to augment inexpensively the functionality of the current purchasing infrastructure, be it a combination of email and spreadsheets or the latest whiz-bang source-to-pay system. Our objective is to make sure that when a buyer executes an RFP, they can do so in a way that leads to more supplier proposals.

EdgeworthBox is well suited for primes looking to manage the sub-contractor relationship and to demonstrate their performance to their customers.

Buyers get superior value-for-money, even as suppliers get a simpler process with less bureaucracy, lower costs of response, and a faster sales cycle. Give us a shout.

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In the panic of this moment, diversity policy changed from a feel-good conversation about good intentions to a reactive scramble to be seen to be doing something. Large corporations roll out money for projects related to education, justice, and increased opportunities, or they deposit cash with financial institutions serving primarily Black communities. Shocked into recognizing the homogeneity of their workforces, leaders express a newfound interest in outcomes.

All of this ignores the CEO’s greatest power to make the playing field more level for everyone: spending with third-parties. It is a truism that “business spend is a lever that can change the world.” According to Digital Commerce 360, annual U.S. business-to-business sales are $7.4 trillion.

Supplier diversity programs have been an obscure, middling corporate commission in which sourcing from businesses owned by members of historically disadvantaged groups often ends up segregated from mainstream procurement in a box-ticking exercise, consigned to providing inessential goods and services. It is nothing more than “window dressing and marketing fluff.” As McKinsey writes, “Talking purpose without walking it can expose you to claims of hypocrisy – ‘woke washing,’ in the memorable phrase of Unilever CEO Alan Jope.” In practice, corporate social responsibility was nothing more than an ideological diversion from strategy. Too often, supplier diversity quota-filling meant paying an extra couple of percentage points to a diverse managed service provider who then sourced from mainstream companies.

CEOs no longer have the luxury of treating supplier makeup as an administrative after-thought for their procurement departments to manage. The eyes of the world are focused on everything they do. Customers, employees, and governments all want to understand how companies do what they do, including how their supply chains work.

There are specific steps firms can take to ensure they give Black businesses (and small business, generally) fair access to all of their third-party spend:

Reduce Bureaucracy: The primary obstacle, particularly for small businesses, is the administrative burden buyers impose on suppliers, ostensibly as part of a risk management exercise. Vendor management systems require answering convoluted, company-specific questionnaires and supplying documents. IBM, for example, has approximately 70 steps to onboard a vendor with roughly 80% of the steps duplicated across vendors. It is often difficult to find out when buyers are in the market, issuing requests for proposals. Standardize vendor onboarding across firms, develop templates for commonly purchased items, and massively simplify the use experience.

Mentor Small Suppliers: Large buyers and their prime contractors need to develop relationships with smaller businesses so that they can mentor them as sub-contractors and, eventually, as prime contractors. Show them what they need to do to win your business instead of assuming that they should know as others with different networks and backgrounds might.

Implement a Rooney Rule for Sourcing: Just as the NFL requires teams “to interview at least two external minority candidates for head coaching openings, and at least one minority candidate for any coordinator job,” buyers should require that every sourcing project considers at least two businesses led by those from historically disadvantaged backgrounds, either as direct providers or as meaningful sub-contractors with a significant portion of the economics of the transaction.

Disclose Supplier Information: The SEC requires companies with publicly-traded securities to disclose material information so that investors can assess risk and opportunity. CEOs must acknowledge that the makeup of their supply chains is now a permanent risk to corporate viability. They should disclose their targets, their policies, and their performance alongside their financial results.

Of course, there are those who will argue that these suppliers are not chosen because they can’t deliver, that they are too high risk, and that the procurement bureaucracy exists to manage the firm’s risk. The blessing of 2020 has been to demonstrate how weak this argument is. Covid, trade disruptions, and cybersecurity events have shown corporate sourcing was too concentrated, geographically mismanaged, and, generally, brittle. If anything, diversifying the supplier base with local vendors can only strengthen the enterprise.

Corporate America will have to evolve their failed diversity policies into inclusion-driven behavior embedded in the enterprise DNA. Racism is an externality with consequences for everyone. It is a profoundly distortionary drag on economic activity. The biggest argument for eliminating economic racism is not about distribution but rather in terms of efficiency. Corporate procurement is central to unraveling this knot. Fix this and CEOs can have tremendous impact on both their own profits and the wellbeing of society.

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The Business Roundtable recently released a high-profile “Statement on the Purpose of a Corporation.”

What they are calling Common-Good Capitalism is a hot topic these days with politicians descrying the current state of capitalist affairs and promoting concepts like “common-good capitalism.”

A prior, more fundamental question is, “What is the purpose of a corporation?” something the Business Roundtable endeavors to answer after laying out a list of commitments most notably, “Dealing fairly and ethically with our suppliers.”

“Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities, and our country.”

A company, in this articulated vision, is an artificial construct generating value by providing goods and services, sharing the value it creates in an economically and social optimal way across its different “stakeholders:” government, management, workers, owners of capital, and communities.

We live in remarkable times.

The balance between different stakeholders is a topic of debate.

Some would argue that optimality is driven by the amount of value any putative distribution can create. Some allocations of value lead to a bigger pie than others.

Other argue that the fairness of the distribution is equally or more important than the size of the pie. Why? Because fairness implies sustainability. A company can generate much more cumulative value over time with a fair distribution than one that is perceived to be inconsistent with the times.

And the times, they are a changin’, as the bard wrote.

An important part of the shifting perspective on balance and fairness stems from our changing demographics. Women make up a greater percentage of the workforce and of the entrepreneurial class. There are more minorities proportionally than there used to be.  We are more sensitive to the historical injustice of the treatment of indigenous peoples. We are grateful for the sacrifices of men and women who were disabled in service to their country, as we should be.

From the 2016 Hackett Supplier Diversity Study:

Yet, according to UPS, there are big problems.

“According to the 2019 Supplier Diversity Study conducted by the Hackett Group, supplier diversity programs hit only half of their intended goals, and more than three-fourths of corporations say they lack funding for outreach and training.

“This is not how critical business functions typically work, and no amount of CEO statements or awards banquets can overcome the level of misalignment between supplier diversity and corporate strategy.”

More from the UPS citation of the Hackett study on diversity:

“Today, two-thirds of corporations find it difficult to get the organization to adhere to supplier diversity program policy …”

There’s the rub.

For supplier diversity to really take hold, everyone involved needs to understand why it’s important for generating value, to making the pie larger and/or more sustainable.

And it needs to be easier for these diverse suppliers to engage with large corporations. This means better user experiences, more engagement, more mentoring.

Again, from the 2016 Hackett report:

Just saying you’re going to spend more with diverse suppliers isn’t enough.

Buyers have to develop their suppliers with investments of time, money, and knowledge.

Get this right and there are plenty of benefits to investing in diversity in procurement.

• “Better ROI: From a financial perspective, a report from the Hackett Group, ROI Related Supplier Diversity, found that companies that participate in a long-term supplier diversity program generate a 133% greater ROI than those companies that use the suppliers they have traditionally relied upon. “On average, supplier diversity programs add $3.6 million to the bottom line for every $1 million in procurement operation costs.”
• “Lower operating costs and higher profits: Companies in the Hackett Group survey with supplier diversity programs spent an average of 20% less on their buying operations compared to similar companies operating without these programs. These “pro-diversity” organizations also drove an additional $3.6 million to their bottom lines for every $1 million spent in procurement operating costs.
• “Increased innovation: A Harvard Business review study reported that increased cultural diversity is a boon to innovation, and businesses run by culturally diverse leadership teams were more likely to develop new products than those with homogeneous leadership. As an added twist, a study conducted by Boston Consulting Group (BCG) showed that organizations with more than 20% of women in management positions are likely to see 10% more innovative revenue — revenue driven by radical new products or services– than their less-diverse peers.”

EdgeworthBox overcomes key obstacles to dealing with suppliers from traditionally disadvantaged backgrounds.

An easy user experience that requires little-to-no training, a cloud-based SaaS offering with no IT footprint, social networking and a data clearinghouse to facilitate mentoring and knowledge sharing, and a zero cost option for suppliers make it very straightforward to onboard diverse suppliers.

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