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Supply and Demand Diversity

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by Peter Galuszka

Public universities in Virginia, as in many states, have generally not paid much attention to diversity among their suppliers. For years, state expenditures for outside contracts went to the usual suspects — White contractors from well-established companies.

Then, four years ago, former Gov. Mark Warner, a progressive Democrat from the high technology sector, shook things up. He launched a statewide study to determine if there were disparities in how contracts were awarded. Warner didn’t like what he learned. While avoiding quotas, he ordered colleges and other agencies that make purchases for the state to make sure that they were including minority and female-owned businesses when they solicited services.

That is where Bill Cooper came in. The publishing industry veteran and entrepreneur was recruited in 2005 by the University of Virginia as a diversity supply officer. He quickly set about collecting information about the university’s vendors and their contracts, and created an updated list of minority-owned suppliers who could be contacted when the university invited bids for projects.

In December 2006, Cooper organized a “marketplace” event designed to put more than 2,000 university buyers in touch with 45 contractors, including 15 minority-owned firms. “Most universities probably have an interest but haven’t acted yet because there’s no interest from the top since it might upset the status quo,” he says.

Anecdotally, at least, there seems to be some limited progress in minority-owned businesses getting a share of the university market. “Overall, there is an increase in activity, and it seems to be a growing thing,” says Harriet Michel, president of the National Minority Supplier Development Council.

State governments and universities seem to be overcoming the fallout of California’s controversial Proposition 209, the 1996 ban on racial quotas at state institutions. Although Prop. 209 has legal clout only in the Golden State, its impact has been felt nationally.

Estimates vary, however, about just how much progress is being made. “There really isn’t a lot of data. It’s actually quite variable,” says Dr. James Renick, senior vice president for programs and research at the American Council on Education.

One problem is that higher education funding fluctuates from year to year. Another is that colleges often don’t centralize their purchasing. Before any assessment can be made of how many minority-owned firms are getting opportunities, universities must do a basic job of getting a handle on their buying. The purchasing is far flung, involving cafeteria food, laundry services, construction, book sales, landscaping, accounting and computer system consulting, among other goods and services.

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Some estimates of university buying run as high as $320 billion a year, but other experts say the total is much smaller. Whatever the amount, it is clear that minorities still aren’t getting a very big piece of the pie.

Reginald Williams, a supply chain consultant who has studied minority sales for 32 years, says he can’t put a number on total higher education spending, but he believes that minority and women-owned firms represent less than 3 percent of the purchases. That’s even smaller than the same groups’ shares of total private sector purchases, which is a combined 4.7 percent, according to Williams. “There has been a significant decrease in the level of state business going to minority and women suppliers,” he says. “Only recently have these organizations repositioned their procurement activities to withstand legal scrutiny while at the same time increasing diversity.”

Cooper, Renick and Williams all agree that minority businesses — which represent about 15 percent of all business — seem to get included only when there is a top-down effort to make it happen, whether from a university chancellor, president or state governor. States with higher educators sensitive to minority contracting include Georgia, Ohio, North Carolina, Illinois, Virginia and Maryland, experts say.

One firm benefiting from top-down attention is Quality Biological, a minority-owned laboratory supply firm based in Gaithersburg, Md. The small, 24-year-old firm supplies molecular materials and serum-free media for stem-cell research, among other items. Quality Biological has carved out a place for itself, in part, because several nearby top-flight research universities have deliberately extended a hand to minority and women-owned businesses. Marketing director Basile Whitaker praises Johns Hopkins University and UVa specifically for working more with minority firms. “They go out of their way to ensure that [minority-owned firms] have a seat at the table,” he says.

Whitaker says the physical proximity of colleges to Quality Biological’s headquarters has played a crucial role in the firm’s success.

“We see it as the 80/20 rule. About 80 percent of our revenues come from schools and businesses about 100 miles from us.

The other 20 percent comes nationally and from 60 foreign countries,” he says.

Location and adaptability are also keys to the success of minority-owned Thompson Hospitality. The Herndon, Va.-based company has emerged as a major player in the food services market, competing against industry stalwarts like Aramark, Chartwell, Sodexho Alliance and Gourmet Services Inc., a minority-owned firm based in Atlanta.

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Warren Thompson, the president and chairman of Thompson Hospitality, says his company has succeeded by being especially responsive to changing market needs. In the past five to 10 years, he notes, university cafeterias have become much more health conscious and want more organically grown, healthful foods.

“If I bid with fast food, I’m not going to win,” says Thompson.

What helps most of all, he says, is that higher education buyers have become much more financially astute over the past 10 years and look for more competitive bidding. That actually helps minority-owned businesses break into new markets. “They are much better at evaluating proposals and the contracts tend to be longer and that allows bidders to put more capital at risk,” says Thompson.

Among other clients, his firm supplies food service to the University of Delaware, Northern Virginia Community College and a number of historically Black institutions, including Norfolk State University, Virginia State University and Virginia Union University. Higher education represents about 20 percent of the firm’s revenues, and Thompson says it’s a prime area for growth. A recent opportunity for the company was its acquisition of Austin Grill, a Tex-Mex restaurant chain in the Maryland and Washington, D.C. areas. Thompson says he plans to develop smaller versions of the restaurant for college campuses, malls and airports.

Construction is another major source of potential business for minority-owned firms, although much of that industry is controlled by enormous national companies. Dallas-based builder Trammel Crow, for instance, has done $2 billion worth of business building student housing at colleges and universities.

But minority-owned businesses aren’t necessarily being automatically shut out. Turner Construction Company has won recognition for sharing the wealth. Last year, it sublet 2,800 contracts, worth $1 billion, to minority and women-owned businesses. Turner has done at least $1.4 billion worth of higher education work recently, including building student housing at Northeastern University in Boston and the Center for Nanofabrication and Molecular Self-Assembly at Northwestern University in Evanston, Ill.

Sodexho Alliance has also worked to open opportunities to minority businesses. The French-owned corporation provides food services to 900 higher education institutions, earning about $3.75 billion a year. The firm has been recognized by Latina Style and Hispanic Trends magazines for being attentive to Hispanic-owned companies and is on DiversityInc.’s “Top 50” companies lists.

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All in all, the food services giant works with 2,500 minority-owned firms. “Sodexho is committed to providing small businesses, including minority- and women-owned companies, with opportunities for growing and developing their businesses, and we actively seek to bring these vendors into our network of suppliers,” says Richard Macedonia, the president and CEO of Sodexho North America. He says expanding the supplier base benefits vendors, local economies and customers.

“Products and services from a diverse supplier base provide us with the finest products for our menus, high-quality goods and great service, making our offerings to our customer stronger and more competitive,” he says. “In turn, our vendors benefit from wider exposure and our best practices — a win-win for both companies.”

One minority-owned subcontractor that works with Sodexho is FDY Inc., a contract management firm based in Charlotte, N.C. Keith Haywood, FDY’s vice president for sales and marketing, says his firm has worked with Sodexho for about 15 years. FDY manages Sodexho cafeteria and concession contracts at Bowie State University, Howard University, North Carolina Central University and South Carolina State University, among others.

The future for minority-owned suppliers in the competitive higher education service industry essentially comes down to good communication more than anything else. As UVa’s Cooper has done, schools can make sure they have a handle on their spending and know who is in the pool of possible vendors. Experts say that sometimes the problem is that minority-owned businesses don’t respond or don’t want to bid on new business.

The Internet can help, too. Whitaker of Quality Biological says business-to-business communication has grown enormously on the Web. “It lets us do a heck of a lot,” he says, noting that he can search for new business and communicate with potential clients faster online. And, enterprising vendors can use the Internet as a service packaged with their contract bids. Thompson Hospitality has a Web-based calorie-counting service that lets students log on and learn the caloric values of available foods.

Whatever progress minority-owned businesses have made, however, it seems that results so far are modest at best. While many understand that working with minorities is good business, it still only seems to happen when university leadership decides to let them dine at the table.

–Peter Galuszka

 

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