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Suppliers' Roles in Diversity Development

  The last ten years have seen substantial gains for minority-owned businesses in the automotive industry.

 

The last ten years have seen substantial gains for minority-owned businesses in the automotive industry. Whether you look at dollars spent on purchases from minority sources, the infrastructure that facilitates use of minority suppliers, or the number of participants, it is clear that the industry has changed its modus operandi to support the inclusion of this group. Before anyone starts resting on laurels, though, there is likely to be more change.

A natural consequence of progress is that the most pressing issues shift over time to aspects that might have been a luxury in the early days. Some of the hot topics now for those concerned with supplier diversity development are:

  • Consideration of the types of purchased products and services, not just the amount, to achieve higher value-add
  • Dealing with growth management, as opposed to getting the first contract
  • Developing a large enough pool of minority suppliers so that everyone with a purchasing target can meet it. Some lower-volume OEMs have had trouble attracting minority suppliers, who would rather work with higher volume customers.

These issues reflect the advances the industry has made beyond the start-up phase of finding minority-owned businesses to work with. The emphasis has shifted from the intake valve to the construction of a whole pipeline that mirrors the lifecycle of the supplier population at large. In this pipeline, entrepreneurs and small businesses will continuously enter the auto industry. Some of these companies will grow, some will remain stable by choice or by circumstance, and some will fail. Growing suppliers will either serve more customers, develop deeper relationships with existing customers, add products and capabilities, or expand their geographic breadth. In a mature state, the pipeline will contain a flow of numerous companies at every stage.

To manage the job of working with minority suppliers who are moving further into the pipeline, it is likely that the way roles and responsibilities are arrayed across the supply chain will also evolve. As has often been the case in the auto industry, consequences roll downhill. The new configuration of duties might look something like the following:

Automakers. “Chief cheerleader” will still be part of the OEMs’ job description because leadership in promoting the goal of increased minority sourcing must come from the top. The OEMs will also still be the point of entry in most cases, simply because they are the names best known to aspiring suppliers. Their intake function will be more limited, however, and they will direct inquiries to the Tier Ones for further assistance. The bulk of the automakers’ work going forward will be with a smaller number of suppliers selected for their potential to handle larger chunks of business, manage sub-suppliers, and provide modules and systems.

Tier Ones. The systems integrators will continue to assume more responsibility for the basic intake, qualification, and development of qualified minority suppliers. This is consistent with the OEMs’ desire to streamline supply relationships and deal directly only with companies that have a greater degree of responsibility. The cost of playing a role in supplier diversity development will be spread across a larger number of companies, since there are many Tier Ones with active programs in this area, and more are likely to join.

The Tier Ones will be a feeder system to the Tier Twos, when appropriate, offering matchmaking, supplier directories, and internal trade shows to facilitate commercial relationships. Their own minority purchases and joint ventures will continue to add up, as well.

Tier Twos. The role of the lower tier suppliers is sticky, since they are often competing for the same business that might go to minority suppliers. This initiative is on their radar screen as part of the competitive environment, but a proactive supporting role might be part of a good defense against displacement.

The Tier Twos will be working most closely with the part of the pipeline consisting of commodity producers that have already gained automotive experience but who fit appropriately into the tiered supply system at this level in terms of size and sophistication. While the Tier Twos will not be investing in a great deal of supplier training, there are additional responsibilities associated with the minority sourcing initiative. These might include appointing an internal coordinator, attending trade fairs, or joining a local minority purchasing council.

Small- to medium-sized majority suppliers have also been known to facilitate creation of minority-owned enterprises, identifying individuals with an interest in entrepreneurship, for example, and setting them up with some space and equipment. The overall impact on minority sourcing dollars is minuscule, but this type of activity ensures that the pipeline does not become weighted too heavily toward the large companies in the later stages of advancement.

It is probably not very realistic to think of minority sourcing as a mission that will ever be pronounced complete. One viewpoint holds that the final objective is for minority purchasing to parallel the percentage of the automakers’ sales to minority customers. Before the industry reaches the point of declaring success, majority suppliers, large and small, will engage more intensively with some part of the minority supplier pipeline.

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