In the sourcing supply chain, diversity is a strength, purchasing execs say

— by Julie Sneider

The recession may have prompted North America's largest freight railroads to pare back their 2009 and 2010 capex plans, but it didn't temper their resolve to boost their spending with small disadvantaged businesses, and minority- and women-owned suppliers.

And with the American Recovery and Reinvestment Act (ARRA) providing more than $1 billion for transportation projects that could have economic and environmental impacts on cities and regions nationwide, freight and passenger railroad purchasing execs see even more opportunities to nurture their supplier diversity programs. So, they've continued to expand their outreach efforts, in part by participating in local, regional and national supplier development councils, such as the National Minority Supplier Development Council.

"We want our supply base to mirror our customer and employee base," says Leigh Ann Vernon, BNSF Railway Co.'s director of strategic sourcing and supply, echoing the sentiments of some of her Class I counterparts.

And from a strategic perspective, supplier diversity brings more competition into BNSF's strategic sourcing supply chain, Vernon adds.

BNSF's supplier diversity program started as a strategic sourcing initiative in the late 1990s and now is part of the Class I's corporate diversity initiative. During the past decade, BNSF's annual spend with diverse suppliers grew to more than $400 million, increasing every year except for 2009, when, like most companies, the Class I bought less services and goods. This year, BNSF's spending is "showing signs of getting back on track," Vernon says.

Three years ago, BNSF began encouraging suppliers to spend more with minority and women-owned companies. The railroad also is active with the National Minority Supplier Development Council, Women's Business Enterprise National Council, the U.S. Small Business Administration (SBA), and affiliates of those organizations at regional and state levels.

To participate in supplier diversity programs, businesses must be certified as a minority business enterprise (MBE), women's business enterprise (WBE) or small disadvantaged business through a qualifying agency.

With Diversity Comes Competition

Union Pacific Railroad launched its formal supplier diversity program in 1982, making it the first among the Class Is to establish a formal program for doing business with WBEs and MBEs, according to UP. The railroad purchases a variety of services and supplies through the program, including fuel and maintenance services.

In the program's first year, UP spent about $10 million with minority- and women-owned businesses; that figure has grown to more than $300 million. Today, the railroad conducts business with about 550 diverse suppliers, with "diverse" defined by ethnicity and gender, says Jacqueline White, assistant vice president of strategic sourcing of UP's supply group.

"We think doing business with these diverse suppliers creates a competitive market for all those involved," she says.

For its suppliers, the UP program offers competitive opportunities, business networking and guidance and the potential for professional development education. Last year, the railroad co-sponsored a minority-owned firm's president to attend the Kellogg School of Management's Advanced Management Education Program at Northwestern University.

The Class I's efforts haven't gone unnoticed. In 2009, UP was honored as "Corporation of the Year" by the Great Plains Minority Supplier Development Council. The award recognized UP for its efforts to increase and improve its relationships with minority suppliers and help other companies understand the value of supplier diversity.

Norfolk Southern Railway also is focused on increasing business opportunities with and for MBEs and WBEs — in part because many of NS' biggest customers expect it. The NS material management department oversees the railroad's supplier diversity efforts, through which NS spends about $80 million a year with minority- and women-owned businesses, peaking at about $95 million in 2007, says Larry Deel, manager of purchasing of wireless services. About 80 percent of NS' diverse business is with women-owned firms.

In addition to Class Is, passenger railroads are casting a wider purchasing net. Many passenger roads, which rely on public funding, have been doing it for years. At Amtrak, a supplier diversity program has been in place since 1976. The program provides procurement opportunities ranging from common hardware, electrical, plumbing, cleaners and solvents, tools and shop supplies, to fuels and lubricants delivered to storage tanks or directly to locomotives across the United States, says Walt Livingston, Amtrak's director of supplier diversity.

Setting Goals

The national passenger railroad makes procurement opportunities available to small businesses as defined by the SBA, socially and economically disadvantaged business enterprises (DBEs), and minority- and women-owned firms. In 2009, about 11 percent of its total spend went to MBEs, WBEs and DBEs, down from 12 percent in 2008 and a high of 23.5 percent in 2001.

Amtrak purchasing officials see many opportunities to enhance supplier diversity under the ARRA, for which Amtrak has set goals for doing business with certified small firms and DBEs, Livingston says. ARRA included $1.3 billion in grants to Amtrak for safety improvements; repair, rehabilitation and updates to railroad infrastructure; and for expanding passenger-rail capacity.

The railroad has pledged more "transparency" in its procurement opportunities and, as a result, set up a website (procurement.amtrak.com) to direct contractors on how to bid on ARRA-related business detailing those opportunities and other information about Amtrak's supplier diversity program, Livingston says.

Although railroad spending with diverse suppliers may have declined in 2009, the roads continued their outreach efforts to make diverse suppliers aware of available procurement opportunities by hosting diverse supplier events, sending out email blasts and offering information promotions on websites.

One challenge railroads have faced in meeting their own supplier diversity goals has been identifying and attracting enough viable, certified and price-competitive diverse suppliers that can meet the demands of the highly capital-intensive railroad industry.

"When you look at the types of things we buy, there aren't a lot of suppliers out there that build freight railroad cars," says BNSF's Vernon.

Reaching Out

For railroads, that's meant getting more aggressive on the outreach and supplier development fronts — including introducing non-certified minority- and women-owned businesses to certification agencies and walking them through the certification process.

When railroads reach out, the connections can pay off handsomely. Witness J.L. Patterson & Associates Inc., an Orange, Calif.-based firm that provides engineering design and construction management services for the rail industry. Founded in 1990 by Nicaragua native Jacqueline Patterson, the minority- and woman-owned business has grown into one of the fastest-growing Hispanic businesses in the United States, with 95 employees and annual revenue of more than $18 million, by focusing exclusively on rail projects, says Marc Ca–as, the firm's assistant vice president.

Although Patterson has felt the effects of the recession during the past two years, business has picked up this past year thanks to federal stimulus dollars going toward infrastructure improvements in rail corridors. As the economy continues to strengthen and imports pick up, "we'll see that increased need for capacity and improvement," Ca–as says. "Both UP and Burlington Northern are starting to see the need for additional capacity again."

Additional opportunities also may come via the Chicago Region Environmental and Transportation Efficiency (CREATE) program. This month, the National Minority Supplier Development Council plans to hold its quarterly meeting in Chicago, where rail industry representatives were likely to be on hand to meet with minority suppliers interested in the $1.5 billion CREATE program, says David Thomas, executive director of the Chicago Minority Business Opportunity Center.

CREATE is a partnership of public and private entities, including Amtrak, BNSF, UP, NS, CSX, CN, Canadian Pacific, the Association of American Railroads, Belt Railway Co. of Chicago, Indiana Harbor Belt Railroad Co., Metra, and the Illinois and Chicago Departments of Transportation.

Thomas, who has been involved with supplier diversity issues for the past 10 years, would like to see the major railroads pick up the pace of their supplier diversity efforts.

"I can't necessarily say I've always known the rail industry to be a major player in supplier diversity, even though they obviously had their supplier diversity programs," he says.

Purchasing execs at the major roads say they're ready to step up to the plate.

"To me, there are more opportunities out there for diverse businesses to bring a strategic advantage to the table," says BNSF's Vernon. "I think the doors have been opened much more in the last 10 years. There are opportunities out there. They have an advocate not only within BNSF but within the rail industry as a whole."

Julie Sneider is a Waukesha, Wis.-based free-lance writer.