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What’s the definition of Supplier Diversity?

In the United States of America diversity suppliers are defined as businesses that are at least 51 percent owned, operated and controlled by one or more persons who are:

  • A racial or ethnic minority, including African American, Asian Indian American, Asian Pacific American, Hispanic American and Native American
     Female
  • Gay, lesbian, bi-sexual or transgender
  •  U.S. veteran or U.S. service disabled veteran

Additionally, businesses certified as Small Disadvantaged Business (SDB) or Historically Underutilized Business Zone (HUB Zone) by the U.S. Small Business Administration, are considered diversity suppliers.

In countries other than the U.S., definitions vary. Generally to be considered a racial or ethnic minority, persons must be citizens of the country where their business is headquartered and be of an officially recognized socially or economically disadvantaged ethnic minority group.

What are the different types of diversity certifications?

Federal Certifications

8(a) Certified or 8(a) Joint Venture: The 8(a) Business Development Program provides business development assistance to companies owned by socially and economically disadvantaged individuals.

Small Disadvantaged Business: SDB strictly pertains to benefits in Federal procurement. When competing for government contracts, SDBs receive a 10% price evaluation adjustment over non-disadvantaged business owners

HUBZone Certification: Historically underutilized business zones, referred to as HUBZones, provides contracting assistance to small businesses located in economically distressed communities. E.g. Alpine CA, Lassen CA counties in California

Disadvantaged Business Enterprise, Certification States: Issued by state departments of transportation

 Ownership Certifications

  • Minority Owned –
    • Native American Owned
    • Tribally Owned
    • Alaskan Native Corp (ANC) Owned
    • Native Hawaiian Org (NHO) Owned
    • Other Native American
  • Other Minority Owned
  • Community Development Corporation (CDC) Owned
  • Disabled Veteran Owned
  • Veteran Owned
  • Woman Owned
  • Self-Certifications
    • Self-Certified Small Disadvantaged Business Service

Definitions of certification types:

Minority Business Enterprise (MBE): For profit enterprise presently located in the United States or its trust territories, and is at least 51% owned and operated by a U.S. citizen(s) who is a member of one of the following groups:

  • African American: Black racial groups of Africa
  • Hispanic American: Spanish or Portuguese speaking areas of Latin American or the following regions: Mexico, Central America, South America and the Caribbean basin
  • Native American: American Indian, Eskimo, Aleut and Native Hawaiian. Individuals must be regarded as such by the community of which the person claims to be a part. Native Americans must be documented members of a North American tribe, band or otherwise organized group of native people who are indigenous to the continental United States or who otherwise have a special relationship with the United States or a state through treaty, agreement or some other form of recognition.
  • Asian Pacific: Japan, China, Indonesia, Malaysia, Taiwan, Korea, Vietnam, Laos, Cambodia, the Philippines, Thailand, Samoa, Guam, the U.S. Trust Territories of the Pacific or the Northern Marianas
  • Asian Indian: India, Pakistan and Bangladesh

Woman Business Enterprise (WBE): For profit enterprise presently located in the United States or its trust territories, and is at least 51% owned, controlled, and operated by a woman or women of U.S. citizenship. Individual(s) must be involved in the day-to-day management of the business.  

Disabled Business Enterprise (DBE): For profit enterprise presently located in the United States or its trust territories, and is at least 51% owned by an individual(s) of U.S. citizenship with a permanent physical or mental impairment which substantially limits one or more of such persons’ major life activities. Individual(s) must be involved in the day-to-day management of the business. 

Veteran-Owned Business: For profit business presently located in the United States or its trust territories, and is at least 51 percent owned, controlled, operated and managed by one or more veterans of U.S. citizenship.

Disabled Veteran Business Enterprise (DVBE): For profit enterprise presently located in the United States or its trust territories, and is at least 51% owned by an individual(s) who have performed active service in one of the United States armed services and has/have a disability. Individual(s) must be involved in the day-to-day management of the business.

Service Disabled Veteran Business Enterprise (SDVBE): A for profit enterprise presently located in the United States or its trust territories, and is at least 51% owned by an individual(s) who have performed active service in one of the United States armed services and has/have a service-connected disability. Individual(s) must be involved in the day-to-day management of the business. 
 
HUBZone Small Business Concern (HUBZone): A small business, located in a HUBZone (Historically Underutilized Business Zone), owned and controlled by one or more U.S. citizens, and at least 35 percent of its employees reside in a HUBZone.

Small 8(a) Business: A small business unconditionally owned and controlled by one or more socially and economically disadvantaged citizens of the United States, and demonstrates potential for success.

Small Disadvantaged Business (SDB): For profit enterprise presently located in the United States or its trust territories, and is at least 51% owned, controlled, operated and managed by a socially and economically disadvantaged individual or individuals, who must have a net worth of less than $750,000, excluding the equity of the business and primary residence and must meet applicable size standards for small businesses in their industry.

Lesbian, Gay, Bisexual, and Transgender (LGBT): For profit enterprise presently located in the United States or its trust territories, and is at least 51% owned, controlled, operated and managed by a LGBT individual(s) of U.S. citizenship.

What is NMSDC?

The supplier diversity movement traces its roots back to 1972, when the  National Minority Supplier Development Council (NMSDC) was chartered to provide a direct link between corporate America and minority-owned businesses with a mandate to provide increased procurement and business opportunities for minority businesses of all sizes.

Why should I think about having supplier diversity when business strategy talks about supplier consolidation?

That’s a perfectly valid question. As the world is more about consolidation and adding value through aggregation, why should one go for supplier diversity?

Since most diverse suppliers are also small businesses, companies find that diverse suppliers offer greater flexibility, more customer focus, and lower cost structures. The vast number of diverse suppliers and the fierce competition for business is also seen as a powerful driver for innovation.

As supply chain industry is driving more towards the diversity suppliers for reliability and flexibility and innovation that they provide –as the same thing may not be possible for big suppliers with quick turnaround time – more and more enterprises are turning to their supplier base to have this information in their database. They have started making sure that the specific percentage of their supplier base is from diversity suppliers. They ask more suppliers to come forward and register themselves for their status.

Thanks

Prashant Mendki

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3 Comments

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  1. Tridip Chakraborthy
    Hi Prashant, thanks for blogging this on SCN and having a cross-post on the #procurement linkedin group, yes, in our Supplier Qualification and On-boarding process, we too have a great emphasis on the Supplier Classification process, this was a field also that was mandated on the Contract & RFP templates to help identify how much Government Spend or contract spend was spread across the Minority owned, Women owned or other cultural diversity classification, also there is a rule in Government Bids that if you bag the contract, a huge chunk of that, if outsourced needs to be clustered across minority / women owned businesses, great points, I am putting this comment even on SCN, so that the folks dont miss out on this, thanks for a great POV on the topic of Supplier Diversity Program, not just a mere Corporate Social Responsibility Initiative, but a big leap forward for the way you solicit and establish a diversified Supply Base for a mutual win-win cheers, Tridip
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  2. Gretchen Lindquist
    Prashant,
    Great post! Your observation about small businesses often being more flexible and competitive really resonated with me. So often it is assumed that “big box”-style suppliers will always offer the best pricing, so that was a good reminder to challenge such assumptions.
    Cheers,
    Gretchen
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    1. Prashant Mendki Post author
      Thanks for the comment Gretchen. In my view diverse suppliers – especially one categorized as a small business – are local base. So they provide more nimble model when it comes to responding the supply situation. Its more relationship based business, reachable. The big boxes may not be able to do that as size and process doesn’t allow them many times to be nimble enough.

      Prashant Mendki
      Follow me – twitter – @pmendki

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