Supply Chain Diversity, Inclusion and Compliance

My story is as author of “A Plan for Product and Service Contracting Diversity”, in “THE STATE OF BLACK PHILADELPHIA, Volume 11, Economic Power: LEVELING THE PLAYING FIELD (1998)”, as published by the Urban League of Philadelphia.

As a young corporate manager, I served on the Urban League of Pittsburgh, Economic Development Committee, led by Bob Sorrell. Following his appointment as Executive Director (1972 – 1978), I was elected to the Pittsburgh Board of Directors, serving until my 1977 career move to Philadelphia.

During my entrepreneurial years in Philadelphia as Founder & President of Shared Network Services, Inc. (1985 – 1997), I served in many professional collaborations with Bob Sorrell, then President of the Urban League of Philadelphia.

== REPRINT – See LinkedIn Experience, 1974 to 1998 ==

A Plan for Product and Service Contracting Diversity

By Morris Fountain

Background

           When I was asked to write this article, it was because I have been a persistent fighter for a better way for minority business inclusion in business contracting. The purpose, in the article, is to begin a plan of action for Private and Public Sector Product and Service Contract Diversity as it relates to African-American businesses.

           Before integration swept across the nation, stirring up promises of fair play, there was an economic culture that moved within the African-American community. It wasn't perfect, but it delivered a sense of control to our people and a relative stability. Once we gave ourselves up to inclusion and the new racial order, we became the unknowing victims of a cyclical force that was like an undertow sucking the life from us as a people.

           Yes. We broke down some doors, and we jumped into the whole; some of us even bobbed up to the top. But as the years passed, most of us became lost in the economic mix. It was not what we had expected. What went wrong?

           The ironic answer is that it never went right. In fact, what happened is a classic example of "winning the battle and losing the war." We fought hard and long to achieve a platform for our economic concerns, but we didn't gain control of the process that manages outcomes. We didn't ensure our economic future. We had a lesson to learn: True economic empowerment is not had in gaining a few good jobs and a few good contracts.

           There are five imperatives that comprise true economic empowerment: 1) jobs, 2) contracts, 3) representation on corporate boards, 4) corporate philanthropic contributions to community-based nonprofit organizations, and 5) access to capital and credit. In the years of post-integration, segments of our community have demanded a response by the White power structure to each of these components, and received it. However, since segregation fell, there has not been a collective demand from the African-American community body.

           The result is that economic apportionment became a segmented proposition. Those who rose to the sanctums of leadership achieved, and they grew dependent upon that achievement. They formed themselves into a new breed of men and women who were successful and loyal to the individuals, companies and factions that ushered them to their hierarchical standing, while the masses languished, economically speaking, outside the purview of influence and economic opportunity, becoming to the African-American achievers what the African-American community as a whole was to the White power structure - a threat.

           Our community has been slowly sinking into a pit of have's and have-nots, made possible because we didn't negotiate for control of the inclusion process. There was no collective community plan requiring leaders who "achieved" to make room for new "community" leadership.

Contract Diversity Introduction

           A particular economic empowerment weakness is in the area of contract participation. African-American businesses providing product and services to corporate America were the last consideration in the scheme of attaining our economic parity.

           Nearly 10 to 20 years after integration and its subsequent Civil Rights Act of 1964 requiring corporate jobs programs, legislation was passed mandating minority contract opportunities. The long-awaited action, titled Public Law 95-507, requires all entities doing contractual business with the federal government to have a plan for the involvement of minority businesses as subcontractors or vendors. This applies to all recipients of federal funds and federal contracts exceeding $500,000 (or $1 million for construction projects).

           By 1976, a Public Works Act was passed requiring state, county and municipal governments seeking federal grants to set aside 10% of their contracts for minority contractors.

           We all know what has been occurring in the last two years to tear down these minority contract programs. But, it is important to stay mindful of the historical opportunities that were available to minority contractors. It is also important for us to remember that the minority community never gained control of the processes and systems to manage, monitor and enforce these programs for minority inclusion in product and service contracting. In fact, we were put in the frustrating, and at times, humiliating position of scrapping over bits and pieces of the pie, while Corporate America moved forward with business as usual.

Collective Community Plan of Action

           Our action plan for contract diversity as it affects economic parity involves four elements. For purposes of the Contract Diversity Plan, the elements are referred to as the four "Advocates." These four Advocates are: 1.) our national community organizations, 2.) corporate top management, 3.) our business organizations, and 4.) the corporate purchasing authorities. Parity requires all four Advocates to be acting toward a positive dollar outcome. When any element is inactive or negative, we are moved away from parity. Our eye needs always to focus on just one thing: the almighty dollar. Parity is a collective balance between those buying and those selling.

           The four Advocates are a combination of two relationships. First is the relationship between the African-American community and Corporate America. Second is the relationship between the buyer and the seller. Sometimes our community is the buyer and sometimes we are the seller. And, sometimes Corporate America is the seller and sometimes Corporate America is the buyer. Today, Corporate America is not buying from our businesses at the same proportionate rate that our community is buying from Corporate America.

           Now, in order to be about the business of the community, we must put some organization - some structure - to the process. Some of us must lead, others serve as the supporting cast, and the rest must lock step and follow for our common good. The community plan must define our leaders in terms of organizations, not individuals, for to be organized, we need organizations. And we should call our leaders Advocates in order to make clear that they are speaking for us, collectively.

           In order to achieve parity in contract participation, we must first negotiate from our strength, which is our consumer purchasing power. The most appropriate Advocates for our community are our national community organizations such as the Urban League and the NAACP. Advocates for Corporate America should be top management, and we should accept nothing less during this critical period. Our supporting cast, who must be able to motivate and mobilize the total community, includes, for example, our media, our churches, and our mosques. Our national community organizations and corporate top management make up the macro-approach team. Annual or semi-annual meetings for minority contract participation parity should review total results, set targets and timetables, implement and adjust the necessary enforceable corporate procedures, define tracking standards and assign accountability across every entity within the corporation having budget and purchasing authority.

           The micro-approach team includes our business organizations as Advocates from the community, such as the African-American Chamber of Commerce and the Minority Contractors Association. Micro-team Advocates within the corporation are all entities with purchasing authority. Purchasing authority includes, but is not limited to, the purchasing departments. For example, purchasing isn't the entity that contracts for outside accountants. Shared information, whether it is real-time, daily, weekly or monthly, must be exchanged between the micro-team business organizations and the purchasing authority Advocates. This information should include buyer and supplier contacts, buyer and supplier business organization affiliations, and, most strategically, contract data representing both individual open contract opportunities and contract award outcomes.

           Therefore contract diversity as it effects economic parity is a function of the positive involvement of four Advocates: our national community organizations, corporate top management, our business organizations, and corporate purchasing authorities. Any of these four Advocates being inactive or negative in the process influences against achieving parity.

Current Pennsylvania Minority Contract Program Examples

           In order to illustrate both the potential and the macro-team and micro-team process, let's look at four examples.

           In 1995, Independence Blue Cross received the Corporate Award at the African-American Chamber of Commerce's second annual awards dinner for their achievements in minority contracting. The commitment by Blue Cross resulted in improvement from $707,000 in minority contracts, in 1991, to over $23.6 million as of year-end in 1997.

           Both IBC top management and IBC purchasing authorities have accomplished the current performance. However, our community organizations and our business organizations have had little direct involvement. It is recommended to Blue Cross that our business organizations participate in the verification that minority vendors are, in fact, minority vendors. And, secondly it is recommended that Blue Cross minority contract inclusion is benchmarked based on a fair share of the total Independence Blue Cross product and service opportunities.

           Home Depot Stores agreed to be the demonstration company for what we will call the NAACP Installed Sales Project. Installed sales involves items we purchase such as carpet, floor tile, kitchen cabinets, window blinds and garage doors, in which case the store uses independent contractors to do the installation. The project's purpose is to ensure that when members of our community buy from stores such as Home Depot and Sears, we want to see a fair share of the installation contractors coming into our homes, from our community.

           Home Depot headquarters in Atlanta was approached. From the outset, Home Depot was responsive and defined their goal toward being a model example for the project. The headquarters contact volunteered that the next new store to open would be in Pittsburgh. They passed the first test by willingly turning over to the NAACP their confidential list of every authorized installer in the Philadelphia market.

           Since the NAACP's role was to represent the community consumers, the Minority Contractors Association was designated to be the Advocate for our contractors. The Home Depot region manager of installed sales traveled to the Pittsburgh Minority Contractors Association Office, explained their program, delivered a supply of applications and made us aware that there was not one, but three new Home Depot Stores opening in one week in the Pittsburgh area. But, after four weeks, the Minority Contractors Association could only refer one contractor to Home Depot. Clearly, improvement is needed in the way we communicate with one another.

           In the Home Depot example, all four Advocate elements, macro and micro, community and corporate, were involved and all positively intentioned. Perhaps the effort would have been even stronger had there been a more concerted effort to utilize our supporting cast to motivate and mobilize our individual contractors. Could we have gotten the word out more effectively with the help of our media and possibly our churches and mosques, too? It is an option that bears exploring in the future.

           The third example involves Pennsylvania's major utilities. The Pennsylvania State NAACP, in representing the community, entered into an arrangement in August 1995, with the Pennsylvania Public Utility Commission's (PUC) Diversity Office, representing the utilities, whereby the NAACP would work with the Commission and the utilities. This would include analysis of the utilities annual diversity reports on employment and procurement.

           The NAACP initially analyzed utility product and service contracting, based on PUC procedures, and reported during the NAACP's 1995 state convention that the PUC's policy was comprehensive and sufficient; second, the utility reporting is incomplete and not meeting minimum levels for minority procurement, and, third the minority community has been absent from the process. (We did not attempt to make a judgment as to whether the community was not informed or, simply unresponsive). In other words, the PUC case demonstrated a good process, poor compliance and lack of community participation.

           The PUC established a Utility Diversity Advisory Committee in March 1996 to improve results and the process. However, the PUC and the utilities disagreed regarding community representation on the committee. In this example, only the two corporate Advocates, both top management and the purchasing authorities were involved. In order to achieve parity, the community Advocates must become involved, at both the community organization and then at the business organization levels.

           The final example involves the Commonwealth of Pennsylvania. The Commonwealth's minority purchasing program is based on an executive order of the governor and is intended to ensure compliance with federal regulations by both the state government and the prime contractors. Elements of the Pennsylvania program promotes three objectives: 1) access to opportunities, 2) awards to prime contractors based on minority subcontract commitments, and 3) contract compliance measured by minority sub-contractors actually receiving business based on prime contractor commitments.

           Based on my personal experience as a contractor to the Commonwealth, something is wrong. As an example, a minority business person in Philadelphia complained that nobody is looking out for the little person. Our assistance was requested because a prime contractor, who had committed to purchase $200,000 in construction supplies, totally ignored the contract commitment. We found that this business had 47 commitments from state prime contractors for a total of $800,000 in purchases from this minority supplier. And we found, looking at reporting both by the minority supplier and the prime contractors, that out of the $800,000 in commitments, this minority business was only paid $50,000. However, the 47 prime contractors received their $54 million anyway, in most cases, without contract compliance.

           Again, the corporate (in this case the state government) Advocate is involved, but the community is not actively at the table.

Opportunity Examples

           We need to understand the bottom-line dollar implications in order to become motivated to act on the recommendations of this article. Both the Urban League and the NAACP have become more active, but we have only begun the process.

           The Urban League recognized the 1995 work of the NAACP with Pennsylvania's major utilities. As the Pennsylvania NAACP project manager, I supported the Urban League's plan to continue the work by profiling the top Philadelphia corporations for their publication. In the Urban League's publication, written by Urban League Director of Research and Advocacy, Mark Barnes, the reader will find that of 150 corporations surveyed by the Urban League for input regarding black employment, contracts, board members, and other issues, only 28 (16%) responded.

           In terms of the "contract opportunities," our partial analysis from public information shows 59 of these corporations to have $166 billion in annual sales and 467,000 local employees. It is approximated that these 59 do $40 billion in annual product and service procurement. A 5% minority participation would equate to $2 billion in annual minority business contract opportunities.

           In 1996, my work with the NAACP revealed that the major Pennsylvania utilities reported $5 billion in annual total procurement for that year, yet only $46 million went to minority businesses - less than 1%. The NAACP estimated the total procurement to actually be $20 billion. A 5% minority participation statewide would have equated to $1 billion in annual minority business contract opportunities.

           The Commonwealth of Pennsylvania is estimated to do $10 billion in annual product and service procurement ($8 billion in services, $1.5 billion in products and $500 million in construction). A 5% minority participation statewide would equate to $500 million in annual minority business contract opportunities.

Conclusion

           Today, our economic power is driven by our community purchasing power, estimated at $7.5 billion a year in Philadelphia. Collectively, the community must track the whole economic pie to ensure our fair share of goods and services contracts; of employment; of board of directorships; and of philanthropic contributions. Our individual businesses are controlled by the marketplace and, therefore, our community must control that marketplace in order for our businesses to be able to respond in the collective interests of our community.

           We must re-establish our purchasing power (and our vote) as our strength. If we lead with the private sector, the public sector will follow. We must re-focus on unity, alliances, coalition-building, open processes and inclusion. In order to level the playing the field, initially we must reverse the present processes, most of which have become barriers to us.

           In the spirit of the Million Man March, on October 17, 1995, the day after the March, Shared Network Services turned over rights for Minority Business Network to the community in the name of the NAACP. Understanding that "Information is Power," our collective community must be in control of contract diversity information. The goal is $2 billion in annual revenue for our businesses in the Greater Philadelphia area.

The Urban League of Philadelphia recently published this article and fifteen more in THE STATE OF BLACK PHILADELPHIA, Volume 11, Economic Power: LEVELING THE PLAYING FIELD (1998).