2020 was a year of many challenges, marked by a heightened awareness of racial injustice and economic inequity. As a result, there was an increased focus on utilizing, leveraging, and supporting diverse business enterprises (DBEs). Nowhere was this more apparent than in the utilities sector.
Because of our dependence on electricity, gas, and water for comfort in everyday life—and because many consumers and business owners have limited choices when it comes to providers—diverse business owners seek to be included as viable options in sourcing procurement decisions and opportunities. Fortunately, utilities have heard the voices of the DBEs and they are taking actions to change the methods and processes in which subcontractor inclusion decisions are made. Here we take a closer look at current best practices and the latest trends in utility DBE procurement.
The adoption of best practices within the utility industry regarding DBE inclusion has been in place for several years. The desire to adopt uniform practices grew out of industry groups like Edison Electric Institute’s Business Diversity group and the National Utility Diversity Council, whose members determined inconsistent supplier diversity practices among their utility peers caused confusion and distrust by small and diverse businesses and their customers. Within these business advocacy groups, members created peer cohorts to address and identify those inconsistencies. Using data, surveys, and interviews, the groups were able to recommend uniform strategies aimed at eliminating industry discrepancies. Many utility companies soon followed suit and adopted their own internal procurement best practices.
San Diego Gas & Electric created a best-in-class program to address the unique needs and challenges of companies with revenues greater than $5 million. Elements of their program include (1) a financial capability series aimed at helping potential suppliers strengthen their financial acumen, and (2) a directive to pay small and diverse businesses within 15 days rather than 45 days, which ultimately gives the business owner access to working capital sooner while increasing cash flow. Across the country, other utilities have also implemented similar agreements.
Focusing on building business relationships is another trending best practice. The more familiar business owners are with procurement professionals, the better the odds of the business owners having an opportunity to be top of mind when contract opportunities arise. That’s why some utilities have implemented measures to introduce small and diverse businesses earlier in the supply chain process cycle. Those measures include company-specific networking and matchmaking events, as well as targeted sessions on how to do business with the utility. Some utilities have taken the additional proactive step of directly introducing their large first-tier suppliers to diverse suppliers so that the respective relationships can grow and flourish.
Assisting in the development of small and diverse businesses goes hand-in-hand with building relationships. Utilities have learned that investing in sustainability programs not only benefits the DBE, but the partnering organization and the local community as well. Mentor-protégé and supplier development programs allow for meaningful relationships centered around addressing business needs and maximizing growth opportunities. The economic benefits to the communities served by the DBEs can last for years.
Link to compensation
Utilities are also learning the importance of having internal stakeholders vested in the success of supplier diversity programs. Targets are reached when action occurs, and then incentive pay and rewards are offered. Utility companies have also begun holding executives, directors, and managers accountable for achieving companywide DBE goals, with spending results linked to incentive compensation. Pay for performance for DBE utilization is certainly a forward-thinking concept. However, as utilities progress beyond the “it’s the right thing to do” mantra and into a “business as usual” mode, we should expect to see more of them incentivizing the inclusion of DBEs into their procurement policies and procedures.
The future of DBE procurement
The value that DBEs provide extends beyond the fact that they are owned and operated by women, racial minorities, LGBT, the disabled, or veterans. Their value is also derived from their ability to be innovative and offer competitive advantages; DBEs are often at the forefront of the next great idea, product, or service offering.
The embrace of diverse businesses as “the right thing to do” was frequently cited by any company looking to be inclusive within their supply chain. That statement is now a relic of the past. Our current environment dictates that not only is inclusion the right thing to do, but it is also the only way to thrive without intense public scrutiny and backlash. Going forward, we expect to see more utilities implement programs where the inclusion and utilization of DBEs will be based on competitive advantage tied to lower costs, supplier collaboration, and a focus on the customer.