Diverse strengths

From the December 2023 print edition

During the Richard Nixon administration, in 1968, there was a notable effort to incorporate minority-owned businesses into the United States federal government’s supply chain.

In response, the government made a significant decision to allocate five per cent of its procurement spending for minority-owned enterprises in the US.

Kiruba Sankar is a global supply chain executive and a recent graduate of the Kellogg Schulich global executive MBA.

However, this initiative encountered challenges, including the emergence of corrupt practices such as creating fictitious business partnerships. To address these issues, the National Minority Supplier Development Council (NMSDC) was established in 1972. Its primary purpose was to initiate the verification of supplier ownership and certification procedures within the US.

Interestingly, despite the passage of over five decades, the fundamental rules governing diverse supplier certification in the US have remained largely unchanged. While numerous governments around the world have undergone transformations in various aspects, the certification requirements in the US have remained relatively stable.

Nevertheless, there have been significant shifts within the certification category over the past half-century. Originally centered on minority suppliers, it has since expanded to encompass women-owned, LGBTQ-owned, veteran-owned, and disabled-owned businesses. In the corporate world, procurement professionals closely consider risk management. Businesses often begin with a single product or service, but as they evolve, they typically diversify their offerings. This strategy allows them to mitigate the risk associated with potential failures in one area by maintaining other viable products or services.

Similarly, supply chain structures are designed with redundancy, incorporating dual or multi-channel approaches. If one supplier encounters challenges or disruptions, alternate suppliers can step in to ensure the continuity of operations. As this multi-channel approach has gained prominence, customer segments have also expanded. To cater to diverse demographic populations, companies have diversified their supply chains, enabling supplier diversity to flourish. These strategies are commonly employed in the private sector’s procurement practices.

Canadian comparison
In contrast, the public sector in Canada appears to have different priorities. While Canada benefits from a rich tapestry of immigration from various countries, the government’s focus has primarily been on providing opportunities for immigrants to find employment in the country. The immigration process is structured to meet the nation’s skill demands and foster its growth. However, there is no explicit goal within the public sector to actively foster the success and growth of diverse business owners or suppliers. Business owners in both the private and public sectors adhere to similar tax rules and credit policies.

In the private sector, there is a clear emphasis on attracting a diverse customer base. This approach aims to support the prosperity of diverse customers, which, in turn, contributes to the private sector’s business stability and growth prospects. This commitment to an inclusive economy serves as a catalyst for private sector expansion, as they help suppliers in diversifying their operations.

Conversely, the public sector’s primary objective is to promote the social good. This involves allocating grants and community support services through various programs, including those targeted at underserved communities. In the public sector, procurement decisions are often based on suppliers meeting specific requirements and offering the lowest price to secure tenders. For procurement transactions exceeding $100,000 in value, the majority of processes are competitively posted and open to all potential suppliers. This stands in contrast to the private sector, where competitive procurement processes are typically conducted through invitation and not publicly posted. Moreover, in the private sector, supplier proposals are evaluated based on factors beyond just the lowest price, including overall value, risk assessment, and compliance considerations.

In the realm of private sector procurement, particularly in industries subject to regulatory oversight, a significant emphasis is placed on ensuring that suppliers meet the stringent requirements set by industry regulators. This regulatory compliance is a critical factor in supplier evaluation, and suppliers who are well-versed in adhering to these regulations tend to have a competitive advantage. Awareness and adherence to industry regulations greatly enhance a supplier’s prospects in securing business within these sectors.

Conversely, the public sector approaches supplier evaluations from a different angle. The evaluation criteria typically encompass a broader spectrum, including compliance with requirements, competitive pricing, adherence to policies, and legal considerations. This comprehensive approach can result in evaluators placing a heavy focus on strict rule adherence.

In the private sector, evaluators often receive compensation based on the value they bring to the organization. This may include cost reduction, increased customer value, or other performance enhancements. This incentivizes evaluators to seek innovative solutions and alternative options that can improve overall business outcomes.

However, the public sector’s evaluators are primarily driven by the imperative of rule-following and compliance. This can discourage suppliers from presenting innovative solutions or suggesting alternative approaches, as the primary objective is to meet established rules and regulations.

Many large private sector organizations have adopted a centralized approach to their operations as they mature. This centralization often results in strategic sourcing teams having the capacity to advance their category management practices. They can leverage their buying power to negotiate more favorable costs for high-volume purchases. Furthermore, strong vendor relationships are cultivated, leading to improved service quality, innovation, and a more reliable supply chain with fewer disruptions.

Decentralized structure
In contrast, many large public sector organizations operate in a more decentralized manner. Different divisions within these entities often act autonomously to meet their specific needs. This decentralization can place substantial pressure on the purchasing teams, requiring them to manage numerous transactions with multiple suppliers, often on short-term contracts. This decentralized structure can make it challenging to implement robust category management practices and establish effective vendor management relationships.

In summary, while both private and public sectors engage in supplier evaluations, they do so with different focuses and incentives. The private sector tends to emphasize regulatory compliance and the value added by evaluators, fostering innovation and strong vendor relationships.

Conversely, the public sector prioritizes rule adherence, which can sometimes stifle innovation and create challenges in procurement practices, especially within decentralized organizations.