To Compete During Economic Uncertainty, Minority Suppliers Must Network, Form Alliances and Conquer the Internet

Black Enterprise, June, 2001 by April W. Klimley

Let's face it. An economic downturn is hard on everyone, large and small businesses alike. But there may be a silver lining to this cloud for Minority Business Enterprises (MBEs).

"This downturn has already created tremendous cracks in the `old boys' network," explains Ralph Moore, a Chicago-based minority purchasing expert, who has advised many Fortune 500 corporations on their MBE programs. "In fact, the downturn, coupled with the technical revolution, is creating unique opportunities to reshuffle the deck," he says.

Alliances Are One Key to Success

As evidence of these opportunities, Moore points toward innovative ways certain larger MBEs have responded to the most potent trend in purchasing: corporate America's move toward "strategic sourcing," that is, reducing the number of suppliers, and frequently moving from local to national or even international purchasing contracts to lower costs and streamline operations.

A growing number of MBE's are forming alliances with other MBEs or majority companies to compete in this environment and move to the next level. Integrated Packaging Company (IPC) of New Brunswick, New Jersey, for instance, has been able to reinvent itself and expand its reach. Initially, a broker for corrugated boxes, IPC signed a contract to purchase a New Jersey manufacturing facility for corrugated boxes from Jefferson Smurfit, a majority company, in 1995. What made it possible for IPC to get the financing for the purchase was the five-year contract that one of its largest clients, Pepsicola, was willing to sign; as well as Jefferson Smurfit's willingness to supply the raw materials. The three-way deal catapulted IPC into a position as a national supplier and owner of its own manufacturing facility.

This type of cooperative arrangement reflects a new strength and depth among minority businesses. Forty years ago, many MBEs served primarily minority customers. Today a significant number of MBEs have the experience, management heft, size and balance sheet to handle national and even international contracts.

MBE's Have Boomed in the 1990s

At the same time, a number of minority-owned businesses boomed during the 1990s. From 1987 to 1992, the number of African American-owned businesses grew by 42 percent, from 424,165 to 620,912, significantly greater than the 26 percent average growth rate for all businesses. The number of women-owned African American firms jumped 75 percent.

Corporate America is responding to this growth. Despite a wobbly economy, major corporations continue to support active minority purchasing programs. A certain percentage of these Fortune 500 companies have incorporated minority purchasing into their strategic business objectives, according to consultant Moore. And minority businesses continue to receive contracts through the Sect. 8(a) Minority Enterprise Development Program of the Small Business Administration, as well as support from the Department of Commerce's Office of Small and Disadvantaged Business.

On the corporate front, the National Minority Supplier Development Council (NMSDC) reports that it added 50 companies to its national roster last year, and minority purchasing by corporate members rose 17 percent from 1998 to 1999 (from $41.0 billion to $47.8 billion), the most recent years for which data is available.

The continued importance of minority purchasing undoubtedly reflects America's changing demographics. Companies want their purchasing programs to mirror America's customer base which is increasingly multi-cultural. Within a decade to two, African Americans, Hispanics, Asian Americans and other minority groups are expected to make up nearly 50 percent of the U.S. population.

The Importance of Becoming E-Enabled

To experts like Maye Foster-Thompson, Executive Director of the Chicago Minority Business Development Council (MBDC), the real challenge today is dealing with technology, not the faltering economy. "Suppliers have to be electronically savvy," Foster-Thompson says. "All their systems have to be `e-ready.'" Purchasing and supply chain management is conducted in real-time at larger corporations. Just having a website may not be sufficient. MBEs must be interactive and be able to receive purchase orders electronically.

The NMSDC and its regional councils are helping MBEs become more savvy technology users. Last year, for instance, the Chicago MBDC offered its supplier members a six-week course in e-business including case studies and a variety of perspectives. This year it plans to offer an even more sophisticated version of the seminar.

Purchasing Consortiums Spring Up

The rapid growth of the internet has fostered this transformation. Today, many large companies give their buyers electronic purchasing cards. This may mean that a supplier must be electronically connected to the company's ordering system. At the same time, companies are creating large internet purchasing consortiums. Eighteen months ago, experts predicted these consortiums would replace person-to-person purchasing relationships. But that hasn't happened. Many major corporations are still engaged in building their own private exchanges, and some are making special efforts to ensure inclusion of first-tier minority suppliers.