OVERDUE FINES: , 25¢perdayperiten .14: l’éfih‘. :3, RETURNING LIBRARY MATERIALS: $4432.“ '1” ""31 Place in book return to remove i" “"5”"? ""'-' charge from circulation records / .. , A! C} P "2 9 r33 ~y © 1980 LARRY CARL GIUNIPERO ALL RIGHTS RESERVED MINORITY PURCHASING PROGRAMS--AN EMPIRICAL INVESTIGATION BY Larry Carl Giunipero A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Management 1980 ABSTRACT MINORITY PURCHASING PROGRAMS--AN EMPIRICAL INVESTIGATION BY Larry Carl Giunipero The purpose of this research was to identify those variables nwst highly related to minority purchasing activity. Minority pur- chasing activity was measured in terms of percentage of annual dollar purchases from minority vendors, total number of minority vendors, annual minority vendor dollar expenditures, and respondent's Major independent self-perception of minority purchasing success. variables included: 1. Purchasing policies and procedures a. Corporate policy statement about minority vendors b. Chief executive support for minority purchasing programs c. Corporate minority purchasing goals d. Techniques used to locate minority vendors e. Techniques used to develop minority vendors 2. Geographic and demographic data a. Product categories in which purchases were made b. Minority groups from which purchases were made c. States where purchasing locations operated minority purchasing programs Larry Carl Giunipero 3. Differences in problems when purchasing from minority and non- minority vendors The need for this research is due to the increasing emphasis corporations and the Federal government are placing on expanding pur- chases from minority businesses. Corporate purchases from minority vendors increased from $86 million in 1972 to $1.8 billion in 1978. Public Law 95-507, passed in October 1978, requires strict reporting of goal achievement and actual dollars spent with minority businesses for prime government contractors. Data for the study were collected during March, April, and May 1979, via mail questionnaire. The research sample was composed of manufacturing corporations currently operating minority purchasing programs. Questionnaires were sent directly to the minority purchasing program coordinators at the corporations' headquarters. One hundred ninety usable or partly usable responses were obtained from the mail survey. Statistical procedures used to analyze the data were multiple regression, correlation analyses, t-tests, and one-way analysis of variance. Research sample profile analyses indicated that a majority of the respondents had (1) one individual responsible for coordinating their programs; (2) a minority purchasing policy statement; and (3) established corporate minority purchasing goals. By minority group, 66 percent of the annual purchase dollar was spent with black minority vendors. Supplies and Services constituted the largest minority pro- duct group (40 percent of the annual purchase dollar). Minority vendor development techniques perceived as most successful were providing technical assistance to minority vendors, Larry Carl Giunipero breaking up large purchases into smaller quantities, and allowing longer lead times for minority vendors to respond to quotations and to deliver materials and services. The two most significant problems faced when purchasing from minority vendors were lack of minority vendors at or near operating locations and lack of minority vendors supplying purchased items. Key findings and implications from the research were: Minority purchasing policies and procedures most highly related to minority purchasing activity were program support from top management and consideration of minority vendor goal achievement in buyer performance appraisals. The payment of a price differential to develop minority vendors was not a standard policy for the majority of respondents; however, it was successfully used by those corporations having active programs in developing additional minority vendors. Minority purchasing activity was highly related to the successful use of certain development techniques including managerial and financial assistance. Minority purchasing activity was more highly related to the successful use of selected sourcing and development techniques than the absolute number of techniques used. Problems encountered in purchasing from minority vendors were all significantly (p < .001) greater than those faced in purchasing from nonminority vendors. W. Larry Carl Giunipero Respondents in larger corporations who were more experienced in operating minority purchasing programs had higher levels of minority purchasing activity. Minority purchasing programs established after 1975 exper- ienced faster percentage growth in minority purchasing activity than those programs established prior to 1975 due to lower initial levels of activity. It appears that minority purchasing programs can be imple- mented in a programmatic manner and that program emphasis changes with experience. To Jan, Matthew, and My Parents ii ACKNOWLEDGMENTS This dissertation reflects the contribution of many people. I would like to express special thanks to my committee chairman, Dr. Robert M. Monczka, whose advice, guidance, stylistic and method- ological contributions were instrumental in this research. In addition, he has provided me with several valuable learning oppor- tunities in the purchasing area during my stay at Michigan State University for which I am deeply indebted. I also express sincere thanks to the other members of my committee, Dr. John H. Hoagland, Dr. J. Kenneth White, and Dr. Lawrence W. Foster for their invaluable assistance and encouragement. I am indebted to the National Association of Purchasing Management who helped support this study through a Doctoral Research Grant. Thanks are also due to the National and Regional Minority Purchasing Councils for providing their membership lists. In addition, I would like to acknowledge the generous help of the many corporate minority purchasing coordinators whose participation made this study possible. A special note of appreciation to Mr. George L. Hanson for his encouragement of my work in the purchasing area and his iii professional guidance during my years at Westinghouse. Additional thanks to Michael J. Dona, who provided assistance during the early stages of the research. Final consideration must go to my wife, Jan, who typed the rough draft under conditions of short notice, late hours, and illegible handwriting and maintained the perseverance, patience, and understanding which enabled me to complete this study. iv TABLE OF CONTENTS LIST OF TABLES . . . . . . . . . . . . . . . . . viii LIST OF FIGURES. . . . . . . . . . . . . . . . . Xi Chapter I. INTRODUCTION . . . . . . . . . . . . . . . 1 Research Hypotheses . . . . . . . . . . . . 4 Limitations of the Research. . . . . . . . . . 10 II. LEGAL AND OTHER SUPPORT FOR MINORITY BUSINESS . . . . 12 Legal Developments. . . . . . . . . . . . . 12 Public Organizations . . . . . . . . . . . . 20 Private Organizations. . . . . . . . . . . . 23 Summary . . . . . . . . . . . . . . . . 26 III. LITERATURE REVIEW. . . . . . . . . . . . . . 29 Government Publications . . . . . . . . . . 30 Loans and Capital Requirements Assistance . . . . . 32 Minority Enterprise Small Business Investment Companies . . . . . . . . . . . . . . 32 Minority-Owned Banks . . . . . . . . . . . 35 Training and Development Assistance . . . . . . . 38 Corporate Social Responsibility . . . . . . . . 44 Minority Purchasing Programs . . . . . . . . . 48 Summary . . . . . . . . . . . . . . . . 53 IV. METHODOLOGY. . . . . . . . . . . . . . . . 56 Development of the Mail Questionnaire . . . . . . 56 Pilot Testing the Questionnaire . . . . . . . . 59 Research Sample. . . . . . . . . . . . . . 60 Data Analysis . . . . . . . . . . . . . . 62 Research Sample Profile . . . . . . . 64 Dependent Variables—-Minority Purchasing Activity Measures. . . . . . . . . . . . 65 Statistical Techniques. . . . . . . . . . . 74 Chapter V. RESEARCH SAMPLE PROFILE AND DISCUSSION . . Descriptive Data . . Internal Purchasing Practices. . . . . Demographic and Geographic Data . . . . . . Program Coordinator Responsibilities . . Minority Vendor Sourcing . . . Development of Minority Vendors . . . . . . Differences in Problems Between Minority and Nonminority Suppliers . . . . . Minority Purchasing Activity Measures . Summary . . . . . . . . VI. RESULTS AND DISCUSSION . . . Internal Purchasing Practices . . . . . Corporation Size and Year of Program Initiation Geographic Data . . . Program Coordinator Responsibilities Minority Vendor Sourcing . . . . . . Development of Minority Vendors. . . . . . Differences in Problems Between Minority and Nonminority Suppliers . . . . . . . . . Additional Results . . . . . . . . . . . Establishment of Minority Purchasing Goals Sales to the Federal Government and Minority Purchasing . . . . . . . . Year- to- Year Changes in the Minority Purchasing Activity Measures . . . . . . . . . . VII. SUMMARY AND IMPLICATIONS. . . . . . . Summary of the Research Results. . . . . . Dependent Variables--Minority Purchasing Activity Measures . . . . . . . . . . Independent Variables-~Predictors of Minority Purchasing Activity . . . . . . . Summary of the Hypotheses Tests. . . . . . Overall Findings and Conclusions . . . . . . Implications for Practice. . . . . . . . . Newer Minority Purchasing Programs . . . . . Established Minority Purchasing Programs . . . Need for Future Research . . . . . . . . . vi 76 76 79 83 88 93 98 106 111 116 119 121 129 134 137 143 148 154 158 160 162 1‘2 169 169 169 169 171 176 183 183 184 190 APPENDICES APPENDIX A. QUESTIONNAIRE . B. PILOT TEST COVER LETTER. C. FOLLOW-UP COVER LETTER D. STATISTICAL ANALYSES UTILIZING PERCENTAGE CHANGE MINORITY PURCHASING ACTIVITY MEASURES E. MINORITY PURCHASING ACTIVITY MEASURES SELECTED BIBLIOGRAPHY. vii 192 200 201 202 205 206 Table LIST OF TABLES RECENT LEGISLATION AFFECTING MINORITY BUSINESS REGIONS RECEIVING MAIL QUESTIONNAIRES, AREA, AND NUMBER OF QUESTIONNAIRES SENT . . . . . TOTAL RESPONSE RATE BY REGION. . . . . . . . CORRELATION MATRIX OF MINORITY PURCHASING ACTIVITY MEASURES . . . . . . . . . . . . . . STRENGTHS AND WEAKNESSES OF MINORITY PURCHASING ACTIVITY MEASURES . . . . . . . . . . . . INTERNAL PURCHASING PRACTICES. . . . . . . . . FREQUENCY OF MINORITY PURCHASING PROGRAMS BY STATE. . RANKING OF PROBLEMS WHEN PURCHASING FROM MINORITY & NONMINORITY VENDORS . . . . . . . . . . . RANKING OF PROBLEMS UNIQUE TO MINORITY VENDORS . . MULTIPLE REGRESSION ANALYSIS OF INTERNAL PURCHASING PRACTICES AND MINORITY PURCHASING ACTIVITY MEASURES O O O C O I O I O I O O O O CORRELATION ANALYSES OF SUB-HYPOTHESES AND MINORITY PURCHASING ACTIVITY MEASURES . . . . . . . . CORRELATION ANALYSES BETWEEN CORPORATION SIZE AND YEAR OF PROGRAM INITIATION AND MINORITY PURCHASING ACTIVITY MEASURES . . . . . . . . . . . . MULTIPLE REGRESSION ANALYSES OF CORPORATION SIZE AND YEAR OF PROGRAM INITIATION WITH MINORITY PURCHASING ACTIVITY MEASURES . . . . . . . . . . . . CORRELATION ANALYSES BETWEEN NUMBER OF STATES IN WHICH CORPORATIONS HAVE MINORITY PURCHASING PROGRAMS AND MINORITY PURCHASING ACTIVITY MEASURES . . . . . viii 27 63 64 70 71 81 84 108 109 122 124 130 131 135 6.10. 6.11. 6.13. 6.14. 6.15. CORRELATION ANALYSES BETWEEN NUMBER OF STATES IN WHICH CORPORATIONS HAVE MINORITY PURCHASING PROGRAMS AND CORPORATE SIZE AND YEAR OF PROGRAM INITIATION . . . . CORRELATION ANALYSES OF FREQUENCY IN PERFORMING JOB RESPONSIBILITIES AND MINORITY PURCHASING ACTIVITY MEASURES . . . . . . . . . . . . . . . . MULTIPLE REGRESSION ANALYSES OF FREQUENCY IN PERFORMANCE OF JOB RESPONSIBILITIES . . . . . . . . . . . MULTIPLE REGRESSION ANALYSES OF PERCEIVED SUCCESS WITH SOURCING TECHNIQUES. . . . . . . . . . . . . MULTIPLE REGRESSION ANALYSES OF PERCEIVED SUCCESS WITH MINORITY VENDOR DEVELOPMENT TECHNIQUES . . . . . . RANKING OF MEAN DIFFERENCES IN PROBLEMS BETWEEN MINORITY AND NONMINORITY SUPPLIERS . . . . . . . . . . CORRELATION ANALYSES OF CALCULATED PROBLEM DIFFERENCES BETWEEN MINORITY AND NONMINORITY VENDORS AND MINORITY PURCHASING ACTIVITY MEASURES. . . . . . . METHOD OF ESTABLISHING MINORITY VENDOR GOALS AT CORPORATE AND BUYER LEVELS CORRELATION MATRIX . . . . . . . CORRELATION ANALYSIS OF PERCENTAGE OF SALES TO THE FEDERAL GOVERNMENT WITH INDEPENDENT VARIABLES. . . . . . . AVERAGE CHANGE PERCENTAGE OF ANNUAL DOLLAR PURCHASES, ANNUAL MINORITY VENDOR DOLLAR EXPENDITURES, AND NUMBER OF MINORITY VENDORS . . . . . . . . . . SUMMARY OF HYPOTHESIS TESTS UTILIZING MULTIPLE REGRESSION AND CORRELATIONAL ANALYSES. . . . . . . MULTIPLE CORRELATION ANALYSES OF THE INDEPENDENT VARIABLES WHICH BEST EXPLAIN MINORITY PURCHASING ACTIVITY O O O C O O O O O O O C . . O O . MINORITY PURCHASING ACTIVITY MEASURES--EXAMPLE CALCU- LATION OF CHANGE INDICES USING A SAMPLE RESPONDENT . . SIGNIFICANCE LEVELS FOR T-TESTS UTILIZING CHANGE INDICES ON MINORITY PURCHASING ACTIVITY MEASURES AND INDEPEN- DENT VARIABLES--MINORITY PURCHASING PROGRAMS ESTABLISHED 1975-1979 . . . . . . . . . . . . ix 136 140 141 146 152 156 159 161 163 166 173 180 197 198 Table D.3. SIGNIFICANCE LEVELS FOR T-TESTS UTILIZING CHANGE INDICES ON MINORITY PURCHASING ACTIVITY MEASURES AND INDEPEN- DENT VARIABLES--MINORITY PURCHASING PROGRAMS ESTABLISHED 1967-1974 . . . . . . . . . . . . 199 E.1. MINORITY PURCHASING ACTIVITY MEASURES RANGE, MEAN, AND MEDIAN . . . . . . . . . . . . . . . . . 200 nu- .ad -.1 nxv Figure 5.5. 5.11. 5.12. 5.13. 7.1. LIST OF FIGURES Allocation of Staff Time at OMBE Centers . . . . Year of Program Establishment . . . . . . . Internal Purchasing Practices-—Ranking by Percent Used . . . . . . . . . . . . Percent of Minority Purchase Dollar by Minority Group for 1978 . . . . . . . . . . . . Percent of Minority Purchase Dollar by Product Category for 1978 . . . . . . . . . . . . Responsibilities of Minority Program Coordinator-- Ranking by Percent Performed . . . . . . . Mean Ranking of Frequency per Year for Job Responsibilities Performance . . . . . . . Techniques for Locating Minority Vendors--Ranking by Percent Used . . . . . . . . . . Mean Ranking of Perceived Success for Techniques Used to Locate Minority Vendors . . . . . . . Techniques for Developing Minority Vendors--Ranking by Percent Used . . . . . . . . . . . Mean Ranking of Perceived Success for Techniques Used to Develop Minority Vendors. . . . . . . . . Annual Minority Vendor Dollar Expenditures per Corporation . . . . . . . . . . . . Percent of Annual Dollar Purchases from Minority Vendors per Corporation . . . . . . . . . . Total Number of Minority Vendors per Corporation . . Development of Minority Purchasing Programs . xi 41 77 80 86 87 89 91 95 97 100 103 112 113 114 188 CHAPTER I INTRODUCTION Industrial purchasing personnel have witnessed many changes in the business environment in the past decade. These changes included material shortages, high inflation rates, and increased government intervention into the private sector. Minority purchasing programs represent one of the new developments witnessed by purchasing personnel in the past decade. The purpose of this research is to determine those variables which best explained minority purchasing activity. This chapter defines minority purchasing programs, indicates why this research is important, defines the research objectives, and presents the research hypotheses and limitations of the research. Minority vendor programs in purchasing are aimed at increasing the volume of goods and services purchased from minority-owned busi- nesses through the development and utilization of such businesses. A minority-owned business is . . . a business in which more than 50% of the ownership interest, stock or otherwise, is owned by minority group members. The determination of minority status depends solely on ownership and is not related to employment of minority persons. Minority group members are Black Americans, Spanish Surnamed, American Orientals, American Indians, American Eskimos, and American Aluets.l Purchasing departments are often directly responsible for the success of minority vendor programs. Corporations are placing greater importance on such programs as illustrated by the increase in pur- chases from minority businesses. Corporate purchases from minority vendors have increased from $86 million in 1972 to $1.8 billion in 1978.2 In the future, it appears that minority vendor programs will receive increased emphasis due to several developments including: President Carter's call for the doubling of total Federal pro- curement dollars spent with minority businesses over the next two years. Public Law 95-507 passed October, 1978, which revises the Small Business Act and Small Business Investment Act of 1958 and requires strict reporting of goals on minority business for prime government contractors.4 National Association of Purchasing Management goals of support- ing purchases from minority-owned businesses.5 1Regional Minority Purchasing Council Handbook, Augustine R. Marusi, chairman (Washington, D.C.: National Minority Purchasing Council, 1978), p. 3. 2 . . . . . Nat1onal Assoc1ation of Purchas1ng Management/National Minority Purchasing Council Conference, Atlanta Georgia, March 28-30, 1979. 3 . . . Pre51dent J1mmy Carter, "The White House: Statement by the President," Access (Washington, D.C.), September/October 1977, p. 10. 4 . . U.S., Congress, House, Amending the Small Bu51ness Act and the Small Business Investment Act of 1958, H.R. 11318, 95th Cong., 2d sess., March 13, 1978, pp. 1-2. 5Frank J. Winters, C.P.M., "Let's Get With It!" National Pur- chasing Review (New York), January 1977, p. 12. - .. . - >4. , n‘ ’ 0...”, r~n- . -,. ~8- '- Continued growth of National and Regional Minority Purchasing Councils whose purpose is to increase purchases from minority- owned businesses.6 Despite this increased emphasis, very little published research has addressed the issue of identifying the specific methods that corporations use to establish and operate active minority pur- chasing programs. Conversations were also conducted with leading purchasing executives: Thomas Corey, Eli Lily Corporation; Phillip Drotning and Gordon Stone, Standard Oil Company (Indiana); Ben Torri- son, Allis Chalmers Corporation; Michael Dona, Westinghouse Electric Corporation; and John Haines, General Motors Corporation. Conver- sations were also conducted with Thomas Ahert, the Executive Director of the National Minority Purchasing Council, and with Frank Winters and Joseph Stagg of the National Association of Purchasing Management. These conversations indicated a strong need for research about minority purchasing. There were three objectives to this research. They included: (1) identification and evaluation of current organizational policies and practices used by manufacturing corporations in establishing, operating, and expanding minority purchasing programs; (2) identifi- cation of selected geographic and demographic characteristics associ- ated with minority purchasing programs; and (3) identification of differences in problems when conducting business with minority and nonminority vendors. 6National Minority Purchasing Council, Purchasing Power: How Corporations Can Locate and Utilize Qualified Minority-Owned Professional Services and Vendors (Washington, D.C.: NMPC, 1978), Introduction. . . . . 7 The research des1gn ut111zed was cross-sectional. Data were cxollected via mail questionnaire during March, April, and May of 1979. 1. The research involved: Collection of information about minority purchasing programs from selected manufacturing corporation headquarters through- out the United States. Comparison and analyses of minority purchasing programs using the individual corporation as the unit of analysis. Identification of key variables which predicted the degree of minority purchasing activity. Minority purchasing activity was measured in terms of self-perceived success, annual minority vendor dollar expenditures, total number of minority vendors, and percent of annual dollar purchases from minority vendors. The research results can be used to assist corporations in establishing new minority purchasing programs, to further develop existing programs, and for comparative purposes. Research Hypotheses The research hypotheses were primarily developed by reviewing the literature (Chapter III) on minority businesses and minority pur- chasing programs. Additional guidance was provided by the dissertation 7Gilbert A. Churchill, Jr. describes cross-sectional as an investigation involving a sample of elements selected from the popu- lation of interest at a single point in time in Marketing Research Methodological Foundations (Hinsdale, Ill.: Dryden Press, 1978), p. 651. 'v ‘ c committee, consisting of Drs. Robert M. Monzcka, John H. Hoagland, J. Kenneth White, and Lawrence W. Foster, and discussions with various purchasing executives. The hypotheses were structured to determine the independent variables which best explained minority purchasing activity. These independent variables are mentioned in the following hypotheses. Minority purchasing activity was measured in terms of self-perceived success, percentage of annual dollar purchases from minority vendors, annual minority vendor dollar expenditures, and total number of minority vendors. Explanation of and reasons for selection of these activity measures is provided in Chapter IV. All hypotheses are stated in terms of the null hypothesis. Further explanation is provided by a statement following the hypothe- sis. Hypothesis 1: There is no relationship between minority purchasing activity and the existence of the following purchasing policies, pro- cedures, and techniques: --a corporate policy statement about minority purchasing --chief executive support for minority purchasing programs --corporate minority purchasing goals --buyer minority purchasing goals --an individual responsible for coordinating the minority purchasing program --payment of a price differential to develop minority vendors --inclusion of minority vendor goal achievement in buyer performance appraisal --identification of minority vendors --development of minority vendors --frequency of reports of minority purchasing program results Tfluese variables were mentioned in the literature and in corporate brochures as necessary activities for establishing and operating minority purchasing programs. Hypothesis 2: There is no relationship between minority purchasing activity and the ten independent variables (listed in the previous hypothesis) and year of program initiation and corporate size. Hypothesis 3: There is no relationship between minority purchasing activity and corporation size and year of program initiation. It was thought that the size of the corporation and the years of experience in operating a minority purchasing program would influence the independent variables in Hypothesis 1. It was also thought that the size of the corporation and year of program initiation would be related to the minority purchasing activity measures. Hypothesis 4: There is no relationship between minority purchasing activity and the number of states in which a corporation operates minority purchasing programs. Those corporations operating minority purchasing programs in a larger number of states were thought to have more active programs. Hypothesis 5: There is no relationship between minority purchasing activity and the number of different responsibilities performed by the minority purchasing coordinator. These responsibilities include: --conducting in-house training sessions about minority vendors -—acting as a central data source in providing information about minority vendors --identifying minority vendors for purchasing departments --identifying minority vendors for other departments --identifying purchased items which have potential for minority vendor sourcing --providing assistance to purchasing personnel in solving minority vendor problems --providing assistance to minority vendors --participating in setting minority purchasing goals --monitoring purchases made from minority vendors. Hypothesis 6: There is no relationship between minority purchasing activity and the annual frequency with which responsibilities (as listed in the previous hypothesis) were performed by the minority purchasing coordinator. The responsibilities of the minority purchasing coordinator and annual frequency of performance of these responsibilities was thought to be related to minority purchasing activity. The ultimate goal, of course, is for the minority purchasing effort to be the combined effort of all who make purchases for the company, each accountable for his separate part. For this to occur, there should be one individual . . . to develop, guide, and monitor the program.8 Hypothesis 7: There is no relationship between minority purchasing activity and the number of sourcing techniques used to locate minority vendors. These sourcing techniques are: --buyer initiated contacts with minority vendors --advertising for sources in minority publications --distributing brochures describing products purchased --attending minority trade fairs --exhibiting at minority trade fairs --external directories --membership in NMPC or RMPC --membership in NAPM --interna11y developed corporate directories. 8Chicago United, A Practical Guide to Starting or Improving a Minority Purchasing Program (Chicago, 111.: Chicago United, 1975), p. 6. Hypothesis 8: There is no relationship between minority purchasing activity and perceived success in using the sourcing techniques (as listed in the previous hypothesis). Sourcing techniques enable corporations to identify potential minority vendor sources. Purchasing personnel can locate information about minority vendors from various sources including Regional Minority Purchasing Councils, trade fairs, and other corporations' purchasing departments. Minority Purchasing Council maintain headquarters in 38 metro- politan areas. Minority Business Opportunity Fairs bring sellers and buyers together. Also, the purchasing officers of the major corporations are usually eager to share their lists of minority-owned businesses.9 In addition, the amount of perceived success with these locating techniques were analyzed with the minority purchasing activity measures . Hypothesis 9: There is no relationship between minority purchasing activity and the number of supplier development techniques used to develop minority vendors. These supplier development tech- niques are: --broadening product specifications --breaking up large purchases into smaller quantities --requiring that your suppliers utilize minority vendors --simplifying paperwork requirements --awarding long-term contracts --providing longer vendor quotation times --providing special payment terms --providing technical assistance -—providing management assistance --providing direct financial aid --providing financial aid through company run MESBICs --providing prepayment on large dollar or long lead time items 9 . . . . . . Nat1onal Minority Purcha51ng Counc1l, Purchas1ng Power, p. 6. --providing a letter of credit to minority vendor‘s suppliers --helping minority vendors obtain funds from government loan agencies --helping minority vendors develop effective purchasing practices --helping minority vendors secure raw materials --paying a price differential --allowing longer lead times --broadening acceptable quality levels. Hypothesis 10: There is no relationship between minority purchasing activity and perceived success in using supplier development techniques (as listed in the previous hypothesis) with minority vendors. It was hypothesized that there would be a relationship between the dependent variables and those corporations which utilized supplier development techniques. "Many minority firms simply do not have the staff or the marketing expertise or the kind of sales effort that . . . 10 . is needed to sell a large company or organ1zat1on.“ This effort is congruent with supplier development as defined by England and Leenders: . . . the purchaser is aware that benefits will accrue to both the supplier and the purchaser, benefits of which the supplier may not be aware. These benefits may be limited to the order at hand or they may include more far reaching results, such as technical, financial, or management assistance . . . it is the aggressiveness and initiative by the purchaser that makes the difference.11 In addition, perceived success with these deveIOpment techniques was analyzed with the minority purchasing activity measures. 10Chicago United, A Practical Guide, p. 10. 11Wilbur B. England and Michiel R. Leenders, Purchasing and Materials Management (6th ed.; Homewood, 111.: Richard D. Irwin, 1975), p. 454. 10 Hypothesis ll: There is no perceived difference in purchasing problems between a corporation's minority and nonminority suppliers. These problems include: --inabi1ity to understand purchase order specifications --insufficient technological expertise --insufficient production capacity --failure to meet bid deadlines —-failure to respond to phone calls —-failure to submit samples -—failure to deliver on time --1ow quality/high rate of rejected material --long lead time required to correct quality problems —-consistently high prices --1ack of minority vendors at or near operating locations --lack of minority vendors supplying purchased items --lack of compliance with purchasing procedures --lack of qualified management personnel —-lack of qualified sales personnel --1ack of qualified engineering personnel --minority serving as front for nonminority business. Hypothesis 12: There is no relationship between minority purchasing activity and those corporations perceiving greater problem differences between minority and nonminority vendors (problems listed in previous hypothesis). There are many purchasing problems encountered in dealing with sup- pliers. Hypothesis 11 tested for statistically significant problem differences between minority and nonminority vendors. Hypothesis 12 tested the extent of problem differences and their relationship with the minority purchasing activity measures. Limitations of the Research The research contains certain limitations which impact upon the findings. These were: 1. The study was cross-sectional in design which limited the ability to infer causality. 11 The sample population was not chosen randomly. This non- random selection typically restricts the range of variance in the data. This restriction typically underestimates the true magnitude of the relationships in the population. The nonrandom sample selection typically limits the general- izability of the findings to those corporations having minority purchasing programs. Corporation size was not measured directly but was subse- quently calculated from the total sales of those corporations which identified themselves on the questionnaire. This restricted the number in the sample for this variable. The scale for question seventeen ("How successful does your corporation feel the minority vendor program 15?") started at "slightly successful" and went to "highly successful." This question assumed some degree of minority purchasing success and did not measure complete lack of success. The geographic data collected as to the number of states in which a corporation operates minority vendor programs does not indicate volume of purchases or the number of locations within each state operating minority vendor purchasing programs. The obtained multiple correlations will somewhat overestimate population values due to a finite sample size. CHAPTER II LEGAL AND OTHER SUPPORT FOR MINORITY BUSINESS This chapter discusses the various legislative acts and executive orders which are concerned with minority businesses. It also discusses the public and private organizations which support and assist minority businesses. Legal Developments The initial federal action in assisting minority businesses was Executive Order 11458 entitled, "Prescribing Arrangements for Developing and Coordinating a National Program for Minority Business Enterprise." This executive order was issued by President Richard M. Nixon on March 5, 1969. Each section of the order is summarized below: Section 1. Functions of the Secretary of Commerce. The Secretary was made responsible for promoting the mobilization of activities and resources of State and local governments, businesses and trade associations, and other groups towards the growth of minority business enterprise. Section 2. Establishment of the Advisory Council for Minority Enterprise. The council members were composed of members appointed by the President. The council was to serve as a source of knowledge and information on minority business enterprise. 12 13 Section 3. Responsibilities of Other Federal Departments and Agencies. This section required that each department or agency head keep the Secretary informed on programs affecting minority business enterprise.1 This executive order resulted in the creation of the Office of Minority Business Enterprise (OMBE), a division of the U.S. Depart- ment of Commerce. OMBE monies provided for the administrative costs of some three hundred private Business Development Organizations which offered business assistance to minority businesses. In order to carry out the purpose of Executive Order 11458, Federal Procurement Rggulations, Title 41: Public Contracts and Property Management of the Federal Procurement Regulations was amended on August 25, 1971, to include a provision for "Minority Business Enterprise." The revision required that all Federal contracts exceeding $5,000 contain a clause encouraging contractors to utilize minority businesses on a best effort basis. It also prescribed sub- contracting policies, procedures, and contract clauses designed to develop and encourage participation by minority businesses in the subcontracts awarded by Government prime contractors. Specific steps were outlined in the Title 41 amendment to promote minority business involvement in government procurement and included: U.S. Department of Commerce, Office of Minority Business Enterprise, The Interagency Council for MinorityyBusiness Enterprise (Washington, D.C.: Government Printing Office, 1976), P. 40. 2U.S. Department of Commerce, Office of Minority Business Enterprise, Minority Enterprise Corporate Involvement (Washington, D.C.: Government Printing Office, 1977), p. 2. 14 The contractor's agreement to establish and conduct a program which would enable minority businesses to be con- sidered fairly as subcontractors and suppliers. The contractor's designation of a liaison officer to administer his minority business program. The contractor's provision for adequate consideration of potentialities of known minority businesses in all make- or-buy decisions. The contractor's assurance that the known minority businesses would have equal opportunities to compete for subcontracts. The contractor's maintenance of records showing procedures for implementation of his program, the number of contracts awarded to minority businesses, and specific efforts made to award such contracts.3 The Minority Business Enterprise Subcontracting Program (of which the steps are outlined above) was to be implemented by those contractors whose federal contracts exceeded $500,000 and which, in the opinion of the procurement officer, offered substantial subcontracting possibilities.4 The Nixon Administration's Minority Business Enterprise Pro- gram was strengthened on October 13, 1971, by the issuance of Executive Order 11625.5 The order, entitled "Prescribing Additional Arrangements for Developing a National Program for Minority Business Enterprise," increased the authority of the Secretary of Commerce regarding minority business development.6 Basically, this order gave the Secretary of Commerce the authority to: 3Robert L. Kunzig, Administrator of General Services, "Title 41--Public Contracts and Property Management," Federal Register 36 (September 1, 1971), 17509. 4Ibid. 5U.S. Department of Commerce, Interagency Council, p. 1. 6Ibid. 15 Implement Federal policy in support of the minority business enterprise program. Provide additional technical and management assistance to disadvantaged businesses. Assist in demonstration projects. Coordinate the participation of all Federal departments and agencies in an increased minority enterprise effort.7 In compliance with Executive Order 11625, the Armed Services Procurement Regulations were also revised. The revisions stated that: . . . emphasis should be placed on utilizing minority enter- prises for procurement. . . . Liaison should be maintained with Governmental and private sources maintaining lists of minority enterprises. . . .8 In April of 1974, OMBE signed agreements with both the National Aeronautics and Space Administration (NASA) and with the Maritime Administration to increase cooperation among government and minority businesses to further insure that minorities were given the fullest consideration as suppliers. The agreement between OMBE and NASA provided a cooperative effort to transfer space-developed tech- nology to minority businesses as follows: . . . NASA and OMBE will jointly sponsor a pilot seminar program to provide information on new products and processes which have commercial applicability. . . . Both NASA and OMBE will provide follow-up assistance to develop new products and markets. OMBE's technical and management staff will then assist minority businessmen in fully implementing the technologies adopted.9 U.S. Department of Commerce, Office of Minority Business Enterprise, Progress of the Minority Business Enterprise Program 1974 (Washington, D.C.: Government Printing Office, 1975), p. 18. 8U.S. Department of Defense, Armed Services Procurement Regu- lations (Washington, D.C.: Government Printing Office, 1976), p. 1:74. 9U.S., Congress, Senate, Committee on Labor and Public Welfare, Economic Opportunity Legislation, 1974, Hearing, before a subcommittee on Employment, Poverty, and Migratory Labor, Senate, on S. 3870, 93d Cong., 2d sess., 1974, p. 390. 16 'Fhe agreement between OMBE and the U.S. Maritime Administration pro- vided a cooperative effort to assist minority businesses in becoming maritime subcontractors in that: . . . OMBE will provide management and technical assistance to minority firms interested in becoming maritime subcontractors and to those firms which win contracts. It will also seek to locate capable minority firms and will assist in development of financing from private sources for firms that need it.10 In May of 1977, the Public Works Employment Act of 1977 authorized a $4 billion Round Local Public Works program. This program contained the requirement that 10 percent of each grant approved under the program go to minority businesses. The legislation also authorized the Secretary of Commerce to waive the provisions in situations where it was unreasonable to require fulfillments of the quota. This requirement was the first of its kind legislated by Congress and represented a strong effort to overcome discrimination . . . . . . . . 1 against minority buSinesses in construction and related industries. The Commerce Department's Economic Development Administration (EDA) assumed the primary responsibility for implementing the 10 percent requirement. An interim report of the progress of the implementation was published in September 1978: Although final judgments on the MBE (Minority Business Enter- prise) effort must await completion on the program and EDA's monitoring activities, the results to date have been suffi- ciently impressive. . . . We are optimistic that such efforts will further the progress being made under the LPW program in fostering the development and expansion of minority firms.12 loIbid., p. 393. ll . . . U.S. Department of Commerce, Economic Development Adminis- tration, Interim Report on 10 Percent Minority Business Enterprise Re- quirement (Washington, D.C.: Government Printing Office, 1978), p. 1. 12Ibid. 17 On August 4, 1977, Public Law 95-89 was signed by President Carter. The primary purposes of the new law were to increase loan authorization and surety bond guarantee authority and to improve the disaster assistance and Small Business set-aside programs for small and minority businesses. The law also amended the Small Business Act to require separate reporting for minority businesses to the House and Senate Subcommittee on Small Business. With respect to minority small business concerns, the report shall include the proportion of loans and other assistance under this Act provided to such concerns, the goals of the Administration for the next fiscal year with respect to such concerns, and recommendations for improving assistance to minority small business concerns under this Act.13 On September 12, 1977, President Carter asked the Office of Federal Procurement Policy to review and revise procurement regu- lations and to require that recipients of major Federal contracts show how they would involve minority and small businesses before, rather than after, a federal contract has been awarded. President Carter also asked that all executive departments double their pur- chases of goods and services from minority businesses within the next two years. On September 16, 1977, Secretary of Transportation, Brock Adams, established a minority business enterprise participation goal of 15 percent for all recipients of financial assistance under the l3U.S., Congress, House, An Act to Amend the Small Business Act and the Small Business Investment Act of 1958, Public Law 95-89, 95th Cong., 2d sess., 1977, H.R. 692, p. 558. 14President Jimmy Carter, "The White House: Statement by the President," pp. 9~10. 18 Railroad Revitalization and Regulatory Reform Act of 1976 (the 4R Act). The 4R Act established nondiscrimination practices for Federally assisted railroad programs. The regulations called for Federal agencies to establish percentage goals for increased minority business participation. On October 24, 1978, Public Law 95—507 was signed by President Carter. This new law contained several amendments to the Small Business Act and Small Business Investment Act of 1958. First of all, Public Law 95-507 increased the size of the Minority Enterprise Small Business Investment Companies (MESBICs) program and the size of the individual MESBICs.16 MESBICs had been created in 1969 by an amendment to the Small Business Investment Act to "stimulate the creation of investment corporations strictly for minority loans."l Public Law 95-507 allowed: MESBICs formed as corporations to sell twice as much pre- ferred stock to the Small Business Administration (SBA) as was previously allowed. Small Business Investment Companies (SBICs) to invest idle funds in savings and loan associations in amounts exceeding $40,000. 5Kenneth E. Bolton, Director of Minority Business Resource Center, Department of Transportation, to Larry Giunipero, 28 November 1978. l I 6For further details on MESBICs see Chapter III, LITERATURE REVIEW. 17Harry Turton, "A Forgotten American Right," Access, January/ February 1977, p. 4. 19 MESBICs to make distributions to its shareholders without paying SBA any differential costs. 18 MESBICs to form as limited partnerships. Secondly, the law extended some legislative control over the 19 . . SBA's 8(a) program. In order to fac1litate the placement of sub- contracts with minority small businesses, an advisory committee composed of "five high-level officers from five United States busi- . . . . . 20 nesses and five representatives of minority small bu31nesses" was to be created. The committee members and chairman were to be appointed by the President. The chairman was to report the commit- tee's activities annually to the President and to Congress. Thirdly, Public Law 95-507 required that any bidder who is to be awarded a Federal contract exceeding $500,000 ($1,000,000 for con- tracts for the construction of any public facility) must submit to the relevant Federal agency concerned a subcontracting plan incor- porating the following: l80.8., Congress, House, Amending the Small Business Act and Small Business Investment Act of 1958, Report No. 95-949, 95th Cong., 2d sess., 1978, p. 15. 19Section 8(a) of the Small Business Act authorized the Small Business Administration to enter into contracts with Federal procuring agencies or departments for the purchases of goods and services. For performance of such contracts, the SBA is empowered to let subcon- tracts to business concerns. since 1968 this authority has been used to channel Federal purchase requirements to the socially or economi- cally disadvantaged owners of small businesses. Congress, however, had never extended legislative controls over the activities of the SBA's 8(a) program prior to Public Law 95-507. 20U.S., Congress, House, An Act to Amend the Small Business Act and Small Business Investment Act of 1958, Public Law 95-507, 95th Cong., 2d sess., 1978, H.R. 11318, p. 1765. 20 Setting percentage goals for the utilization of subcontractors of small business concerns and small business concerns owned and controlled by socially and economically disadvantaged individuals.21 Naming an individual within the employ of the bidder who will administer the subcontracting program of the bidder and a description of the duties of such individual. Describing the efforts the bidder will take to assure that small business concerns and small business concerns owned and controlled by the socially and economically disadvantaged individuals will have an equitable opportunity to compete for subcontracts. Assuring that the bidder will submit such periodic reports and cooperate in any studies or surveys as may be required by the Federal agency or the Administration in order to determine the egtent of compliance by the bidder with the subcontracting plan. 2 Public Law 95-507 provided the basis for more capital to minority businesses, provided more control over the 8(a) program, and placed the burden on corporations for determining the amount of minority business prior to receiving federal contracts. Public Organizations This section contains information about public organizations which assist minority businesses. lSocially disadvantaged individuals are those individuals who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group with regard to individual qualities. Economically disadvantaged individuals are those socially disadvantaged individuals whose ability to com- pete in the free enterprise system has been impaired due to dimin- ished capital and credit opportunities as compared to others in the same business area who are not socially disadvantaged. Black Americans, Hispanic Americans, American Indians, Eskimos, Aleuts, and native Hawaiians are to be considered socially and economically disadvantaged. Quoted in Lester Fettig, Administrator, "Subcontract- ing," Federal Register 40 (April 20, 1979), 23610. 22 . U.S., Congress, House, An Act to Amend the Small Bu51ness Act and Small Business Investment Act of 1958, pp. 1768-1769. 21 The Office of Minority Business Enterprise (OMBE), an agency of the U.S. Department of Commerce, is one of the most extensive of the public organizations which provides assistance to minority busi- ness. OMBE is headquartered in Washington, D.C. with regional offices in New York City, Chicago, Atlanta, Dallas, San Francisco, and Washington, D.C. Field offices are located in various cities where there is a concentration of minority populations. Direct assistance is offered to minority businesses through a network of nearly three hundred private OMBE-funded Business Development Organizations (BDO's) located throughout the nation. These BDO‘s constitute the primary function of OMBE--they provide management and technical assistance to minority businesses. The BDO'S: Identify, attract, and advise qualified or qualifiable candidates for OMBE management and technical assistance. Provide information to minority business communities about existing or forthcoming business opportunities at the local level. Help minority businesses "package" their business plans, including interviews with aspiring entrepreneurs; determine market feasibility; assist with loan packages; and help provide access to private capital to start a business or strengthen an existing business. Provide follow-up management and technical assistance, as needed.23 The Interagency Council for Minority Business Enterprise was organized in conjunction with OMBE. Executive Order 11625 strengthened the program by increasing the authority of the Secretary of Commerce in minority business development. The Interagency Council for 23 . . . U.S. Department of Commerce, Minority Enterprise Corporate Involvement, p. 2. 22 Minority Business Enterprise is comprised of Under Secretary-level government executives and is chaired by the Under Secretary of Commerce. The Council's major functions are: To coordinate Federal activities in support of minority business development and serve as a focal point to emphasize administrative policy in support thereof. To promote increased Federal participation in the development of minority businesses. To develop and implement Federal policy in support of the minority business development effort. To ensure key individual points of contact within each agency for program support. To establish and oversee the operation of substantive action elements which address specific program areas.24 State offices of OMBE were also established to provide a direct link between minority businesses and state authorities. State OMBE's identify opportunities within state agencies for minorities to supply their goods and services. Minority Business Opportunity Committees (MBOC's) are found in thirty-five major U.S. cities. These committees identify, pro- mote, and coordinate Federal resources at local and regional levels in support of minority businesses. The following is a description of how MBOC's assist minority businesses: They promote the needs of minority business within the local government structure, identify sources of deposits for minority financial institutions, arrange minority business seminars and training courses, secure minority business con- cessions at local Federal buildings, and develop localized lists of minority suppliers for use by Federal and corporate or local government purchasing agents.25 24 . U.S. Department of Commerce, Interagency Counc1l, pp. 1-3. 2 . . . . 50.8. Department of Commerce, Office of Minority Bu51ness Enterprise, Minority Enterprise Corporate Involvement, p. 3. 23 The Small Business Administration (SBA) assists minority business through several ways previously mentioned, such as the 8(a) program. In addition, the SBA has developed a Procurement Automated Source System (PASS). "PASS contains information on 15,000 small . . . . . 26 bu51nesses of which approx1mate1y 12 percent are minority-owned." Private Organizations In 1972 the National Minority Purchasing Council (NMPC) was formed. It is composed of corporate chief executives, purchasers, and minority businesspersons and organizations. By 1978, there were nearly one thousand corporations participating in the NMPC program. OMBE provided $1.8 million to the National and Regional Minority Pur- chasing Councils in 1978. This represented over 50 percent of the organization's budget. The balance of the budget was provided by . . 27 . . . . corporation membership fees. The National Minority Purcha51ng Council: Promotes the adoption and implementation of corporate minority purchasing policies and helps member corporations locate qualified minority suppliers. Maintains current information on capabilities of minority- owned firms and develops programs designed to help minority- owned businesses qualify as corporate suppliers. Reports on the use of minority suppliers by U.S. industries and businesses.28 6 . . . . . . Paul Hyman, "Minority Firms Computerized But Unverified," Electronic Buyers News, August 27, 1979, p. 4. 27A. Marusi, remarks made during conference "Developing and Maintaining a Successful Minority Purchasing Program," Atlanta, Georgia, March 1979. 28U.S. Department of Commerce, Office of Minority Business Enterprise, Minority Enterprise Corporate Involvement, pp. 4-5. 24 There is also a NMPC Vendor Information Service which provides cor- porations with information about minority businesses capable of supplying the goods and services they need. The NMPC has forty- three regional purchasing councils throughout the United States. Other organizations which support and promote minority business development include (with founding dates): 1. National Business League (1900) 2. Interracial Council for Business Opportunity (1963) 3. National Minority Business Campaign (1968) 4. Black Affairs Center (1970) 5. National Economic Development Association (1970) 6. National Association of Black Manufacturers (1971) The National Business League (NBL) was founded in 1900 and "was the oldest national organization advocating minority enterprise and its full development."29 The National Business League helped introduce the concept of regional purchasing by minority businesses which resulted in the formation of the National-Regional Minority Purchas- ing Council program. The National Business League also: Identifies and attracts the minority markets. Identifies and helps qualify minority suppliers. Identifies and helps organize personnel within individual companies to respond effectively to minority affairs, con- sumers, and matters relating to corporate and social responsi- bility. Identifies and helps arrange the disposal of inner-city corporate properties for community services. Identifies and helps survey communities in which corpor- ations should build or expand manufacturing, distribution, and sales facilities. 9National Business League, Corporate Guide for Minority Vendors (Washington, D.C.: National Business League, 1977), p. 2. 25 Identifies and helps organize personnel resources. Identifies and develops new advertising and market programs. Identifies and maintains avenues of communication with government regarding minority affairs, obligations, and opportunities. Identifies problems affecting minority business enter- prise and development and promotes legislative proposals at the national level. . . .30 The Interracial Council for Business Opportunity provides management counseling and loan assistance. Management training courses are offered by the Council in conjunction with local col- leges. The National Minority Business Campaign (NMBC) has the express purpose of acquainting majority-owned corporations with the products and services of minority businesses. Nonminority organizations are encouraged by the NMBC to purchase minority business products through the "Try Us" Directory which lists 3,600 minority businesses, their location, and their products and services. The Black Affairs Center is basically an educational and research organization. The focus of attention at the Center is on "the development and use of its resources in the promotion of posi- tive social change, educational and institutional development and . . . . 31 reorganization . . . and multi-cultural skills development." The National Economic Development Organization was designed to provide management assistance to minority business owners with particular emphasis on Spanish-speaking owners. 30Ibid., p. 53. 31"Section 7--Socia1 Welfare Organizations," Encyclopedia of Associations, 1976, p. 672. 26 The National Association of Black Manufacturers is comprised of black manufacturers dedicated to the promotion of the industrial interests of both its members and all minority-owned businesses, and to assisting large industrial corporations locate minority corpor- ations. The organization annually sponsors a four-month internship program for minority college business majors in an attempt to . . . . . 32 encourage minority young people to enter the industrial field. Summary Table 2.1 is a summary of recent legislation which has affected minority business. Executive Order 11458 made the Secretary of Commerce responsible for mobilizing efforts of state and local governments, businesses, and trade associations in promoting the growth of minority business enterprise. The Order also resulted in the establishment of the Office of Minority Business Enterprise (OMBE). Executive Order 11625 gave the Secretary of Commerce authority to implement Federal policy in support of the minority business programs, coordinate the Federal government's minority purchasing efforts, and provide assistance to minority businesses. The Public Works Employment Act authorized a $4 billion Round Local Public Works Program. This program contained the require- ment that 10 percent of each construction grant awarded must be awarded to minority business. A 15 percent minority business goal was established by Brock Adams for all Federal agencies and their contractors as part of the Railroad Revitalization Act. 32Ibid. RECENT LEGISLATION 27 TABLE 2.1 AFFECTING MINORITY BUSINESS Year Legislation/ Executive Orders Summary 1969 1971 1971 1977 1977 1977 1978 Executive Order 11458 Title 41 Federal Procurement Regulations Executive Order 11625 Public Works Employment Act Public Law 95-89 Railroad Revitalization and Regulatory Reform Act Public Law 95-507 Established the Office of Minority Business Enterprise with the purpose of mobilizing Federal resources to aid minorities. Required all Federal contracts exceeding $5,000 to contain a a clause encouraging contractors to utilize minority businesses on a best-effort basis. Secretary of Commerce was given the authority to implement: 1. Federal policy in support of minority business enterprise program. 2. Provide technical and manage- ment assistance to disadvantaged businesses. 3. Coordinate activities of all Federal departments to aid in increasing minority business development. Required that 10 percent of each Federal construction grant be awarded to minority businesses. Increased loan authorizations and surety bond guarantee authority to minority businesses. Required that recipients of financial grants and their subcontractors establish a goal of 15 percent of purchases be awarded to minority businesses. Mandated that perspective bidders for Federal contracts exceeding $500,000 ($1,000,000 for construc- tion contracts) submit, prior to contract award, a plan which includes percentage goals for utilization of minority businesses. 28 Public Law 95-507 revised the Small Business Act and the Small Business Investment Act of 1958. The law also required that bidders on Federal contracts exceeding $500,000 ($1,000,000 for con- struction contracts) submit to the relevant Federal agency a sub- contracting plan setting percentage goals for the utilization of minority businesses prior to a receipt of a contract. There are many organizations which assist minority businesses. The public organization efforts at the Federal and state levels are guided by the Office of Minority Enterprise and the Small Business Administration. The OMBE-funded groups include the Business Develop- ment Organization, State OMBEs, and city OMBEs. Private organizations include the National Minority Purchasing Council, the National Busi— ness League, and the National Association of Black Manufacturers. CHAPTER III LITERATURE REVIEW Review of the literature resulted in the collection of a body of information about minority business enterprises and minority vendor purchasing. The review provided information used to identify factors which were thought to be important in developing effective minority purchasing programs. The literature search on minority businesses was conducted in the following manner. First, Federal government indices for Congres- sional hearings, laws, and agency reports were reviewed. Secondly, two computer data base searches of the literature were conducted utilizing the AVI—INFORM Business Journal Data Base and the Social Science Search Data Base. Thirdly, the Dissertation Abstracts, Business Periodicals Index, New York Times Index, Wall Street Journal EEBEEI and Michigan State University's library card catalogues were searched. Finally, additional information was obtained through direct mail inquiries to Federal agencies, the National Minority Purchasing Council, and the National Association of Purchasing Management and through contact with the office of U.S. Representative Robert L. Carr of Michigan. 29 30 The literature specifically addressing minority purchasing programs represented a very small portion of the total literature reviewed. However, much literature reviewed concerned minority business considerations which do impact minority purchasing programs. For example, the lack of capital available to minority businesses may limit the number of minority vendors in a minority purchasing program. A major source of information about minority businesses is found within various government publications. Government publications, as well as the major categories of the literature which have an impact on minority purchasing, are presented in this chapter. The categories are: 1. Loans and Capital Requirements Assistance 2. Training and Development Assistance 3. Corporate Social Responsibility 4. Minority Purchasing Programs Government Publications The Office of Minority Business Enterprise (OMBE) and the Small Business Administration (SBA) have published numerous pamphlets, brochures, and booklets. Several OMBE and SBA publications describe procedures for obtaining financial assistance from the Federal govern- ment. Two of these are the "Guide to Federal Assistance Programs for Minority Business Enterprises" and "Section 301(d) SBIC's." The "Guide to Federal Assistance Programs for Minority Busi- ness Enterprises" describes OMBE programs which provide assistance to minority businesses. One hundred ten programs are summarized with 31 such information as the title of the program, federal agency sponsoring the program, type of assistance available, eligibility requirements to participate in the program, the manner in which application to the program can be made, and whom to contact for further information. "Section 301(d) SBIC's" (Small Business Investment Corpor- ations) is a publication of the Small Business Administration. In this pamphlet a question-answer approach is used to describe what the Section 301(d) license program is, how to establish and operate a Section 301(d) SBIC, availability of funding, and the rules used to govern Section 301(d) SBIC's. Another major publication of OMBE is the periodical Access. Access is published six times per year and includes articles on types of contracts which have been awarded to minority businesses; inter- views with executives of major corporations which describe their efforts in the area of minority business; minority businesses which have become successful; and legal developments which could affect minority businesses. The Minority Business Information Institute, which is staffed by OMBE employees, publishes a monthly newsletter. This publication details success stories of minority businesses, describes past and up-coming events designed to increase minority business involvement, and, in general, is an account of news within the minority business environment. 32 Loans and Capital Requirements Assistance The problems that minority businesses have in obtaining capital were cited quite frequently in the literature. These problems were typified by the following comment: Usually mired at the bottom of the economic scale, minority members don't inspire bankers to throw open the cashbox. Those bankers who have done so have usually regretted it. The odds against any fledgling business succeeding are astronomical. . . . Two avenues available to minority business to overcome these problems are Minority Enterprise Small Business Investment Companies (MESBICs), which were developed as part of the Small Business Investment Act, and minority-owned banks. Minority Enterprise Small Business Investment Companies The Small Business Investment Act of 1958 was designed to encourage the establishment of privately owned companies to lend financial support to small businesses which were unable to obtain financing through normal banking channels. Yet, minority business- persons still found themselves lacking the capital necessary to develop their own companies. Due to this continuing problem, the Small Business Investment Act of 1958 was amended in 1969 to stimu- late the establishment of investment companies to lend money to minority businesses exclusively. These Minority Enterprise Small Business Investment Companies (MESBICs) provided, in addition to lHarry Turton, "A Forgotten American Right," p. 4. 33 financial support, consulting services to the businesses in an attempt to reduce some of the risk of the initial investment. The amendment also provided leverage for further funding. To establish a MESBIC, a corporation must supply a capital base of $150,000 or more. The SBA will purchase $2.00 of long-term debentures of the investment company for every $1.00 of private capital invested. MESBIC's enjoy two major financial advantages. First, MESBIC's obtain special tax treatment of dividend income and deductability of loan losses and thus, is able to pass "through" to shareholders the tax benefits of operating losses. Secondly, it is able to obtain SEA 2 for l leverage on its invested capital.3 Many major corporations subsequently established MESBICs. In 1970 General Motors established one of the first of these MESBICs-— Motor Enterprises, Inc. (MEI). Under the MESBIC program, General Motors authorized MEI to use $1 million. With this $1 million, $4 million could be borrowed from the Small Business Administration. The $5 million total could then be leveraged by seeking $4 from banks and other sources for every dollar loaned. Thus, MEI had raised the total available funds (including reinvested interest) to nearly $25 . . 4 million. Motor Enterprises made 105 loans to minority businesses. Twenty-five of these businesses have failed, and twenty-five have proven profitable. Of the remaining businesses, twelve appeared 2Ibid. 3"MESBIC Offers More Than Cash Client Says," Access, March/ April 1977, p. 4. 4Harry Turton, "A Forgotten American Right," p. 4. 34 potentially profitable, fourteen seemed likely to fail, and the success of the remaining businesses was still questionable.5 Standard Oil of Indiana had invested corporate funds in several minority businesses prior to the MESBIC program. When the MESBIC program began, Standard Oil of Indiana formed a wholly-owned subsidiary, Amoco Venture Capital Company, to continue its lending practices. By the end of 1975, Amoco Venture Capital had invested nearly $1.35 million in twenty-three minority—owned businesses. This $1.35 million investment created eight hundred new jobs with the establishment of the new minority-owned businesses. One of the largest MESBIC's formed was MCA New Ventures, Inc. Capitalized at $3 million by its parent company, MCA-Universal, Inc., loans of nearly $60 million could be generated. As its parent company was an entertainment conglomerate, MCA New Ventures' invest- ment policy called for the lending to minority businesses which were also involved in the entertainment-related fields.7 Glenco Enterprises, Inc. was a Cleveland-based MESBIC. It was one of the two MESBIC's totally financed and managed by black investors. Glenco developed a state-supported minority business edu- cational program involving a series of four seminars for minority businesspersons throughout Ohio. 51bid. 6"Corporate Minority Interprise Involvement," Access, Septem- ber/October 1976, p. 12. 7"MESBIC Round-Up," Access, September/October 1976, p. 3. 8"Cleveland MESBIC Holds Annual Meeting," Access, May/June 1977, p. 12. 35 The first MESBIC organized by an aerospace corporation, Rockwell International, was Space Ventures, Inc. Its key objective was to assist in the development of minority-owned businesses which produced products and services in support of the space program. The development of Space Ventures occurred around the same time that the National Space and Aeronautics Administration (NASA) and OMBE began promoting increased minority efforts in the production of space- related items. Space Ventures had no apparent difficulties in attracting clients even though only a small percentage of client proposals for loans were accepted. Space Ventures' potential clients usually learned of the MESBIC by word of mouth. When Space Ventures invested in a company or made a loan, new inquiries were generated. OMBE, local business development organizations, and occasionally the Small Business Administration referred potential clients to Space Ventures. Approximately twenty inquiries per month were received by the MESBIC, with roughly two out of every hundred being legitimate proposals. Space Ventures had a total of nearly $2 million invested in its pro- . . . . 9 gram, and it was expected to increase this amount in the future. Minority-Owned Banks Another source of financing for minority businesses is the minority bank. Minority banks, however, constitute less than one-half of 1 percent (165 banks) of the 14,000 commercial banks in the United States. Reasons for the diminutive role include an inaccessibility to 9"Bringing Space Technology Down to Earth," Access, March/ April 1977, pp. 3-5. 36 adequate capital for developing and supporting a flexible bank structure necessary for growth; lack of trained and talented minority banking managers; and lack of centralized sources of information for planning and organizing a bank.10 Milton Puryear published a how-to manual entitled "Organizing A Bank" in hopes of establishing guidelines for minority persons desiring to start a bank. The handbook discusses the need for newly organized banks to have correspondent banks and the Federal require- ments that a newly organized bank must meet. Samples of typical agreements and forms used in establishing a bank were also given. "Organizing a Bank" helps minority businesspersons realistically assess their potential in the banking field.11 A minority person who desires to enter the banking field may receive training from several sources. Educational training is available through the National Bankers Association. Scholarships are available to attend the National Commercial Lending School at the University of Oklahoma and to the senior bank management seminars which are held at Columbia University. Another program available permits individuals who work at a minority bank to train at non- minority banks for periods of up to a year in any functional . . 12 . . . . . act1v1ty. These scholarships and training programs are spec1f1- cally designed to increase the capabilities of minority bankers. 10"Starting A Bank," Access, May/June 1974, p. 15. llIbid. 12"Minority Banks Face New Challenge," Access, January/ February 1976, p. 4. 37 Major corporations are increasingly doing more business with minority banks. General Motors, American Telephone and Tele- graph, Xerox, IBM, Mobil Oil, Prudential Insurance, and others have deposited millions of dollars in minority banks. The Conference Board, an independent business research agency, conducted a survey of six minority-owned banks during late 1973. Conclusions of the survey indicated that not one corporation had closed an account and that several corporations were expanding their use of minority banks. It cited Avon Products, which currently uses 17 minority banks, as an example of a firm that not only continues to do business with these banks, but has plans for expansion in the near future. By Spring, Avon expects to be using 25 minority banks and to have $2 million on deposit with them.14 To encourage and aid corporations to become more involved in minority banking, Chicago United, a coalition of business and profes- sional leaders in Chicago, published "A Practical Guide to Starting or Improving a Minority Banking Program." In this publication primary consideration is given to obtaining the support of the corporate chief executive and his particular role in launching and monitoring a minority banking program. The guide also discusses the commitment necessary to develop an effective banking program. It is important that any effort which is directed at both a business and a social need be grounded in firm, sound management practice. To undertake a minority banking 13"Minority Banking Billion Dollar Industry," Access, January/ February 1974, p. 3. 14Ibid. 38 program without making it part of the day-to-day business of the organization is to condemn it to almost certain failure.15 With the support of the Small Business Administration, corporate-run MESBICs, and minority banks, minority businesspersons had greater opportunity to find the needed capital necessary to develop and maintain businesses. Training and Development Assistance Competent and skilled personnel to organize and operate the minority businesses are a most vital requirement. Perhaps not more than one-half of the men placed in charge of the new black enterprises in the past two years or so have survived in their jobs as managers, or will survive in the next two or three years.16 Research conducted by Jeffrey A. Timmons with owner-managers of minority businesses supports the need for training assistance. The objectives of Timmons' training program are to stimulate the participants to set challenging yet realistic goals for business expansion or initial business development; to develop their achieve- ment motivation to reach their goals; and to help the participants identify needs for specific skills to meet their goals. 15Harry G. Beckner and Daryl F. Grisham, Co-chairmen, H_ Practical Guide to Starting or Improving a MinorityyBanking Program (Chicago: Chicago United, January 1978), p. 9. 16Michael Brower and Doyle Little, "White Help for Black Business," Harvard Business Review, May/June 1970, p. 5. 17Jeffrey A. Timmons, "Black Is Bountiful--Is It Beautiful?“ Harvard Business Review, November/December 1971, p. 84. 39 Timmons concluded from his research that a "catalyst for black capitalism is available now in some form of an entreprenuerial . . "18 training program. All along, the missing link had been the creation of the essential first step: the will and the commitment of local ghetto residents to acquire the knowledge and resources to launch new enterprises, thus obtaining self—determination, self-respect, and economic equality.19 Publications reported here illustrate how this support is provided. Training and development assistance is made available through MESBICs, various OMBE-funded projects such as the Business Development Organizations, and through corporations seeking to develop additional minority businesses. The type of assistance pro- vided includes managerial, technical, accounting, and marketing. Minority Enterprise Small Business Investment Companies (MESBICs) offer considerable technical and managerial assistance as well as other training programs. Congress wanted the MESBICs to be supported by strong parent companies that would not only provide start—up or operating capital, but would provide "a commodity more . 20 valuable than money: technical and management know-how." Space Ventures, the MESBIC sponsored by Rockwell International, provides management assistance in terms of reviewing financial statements and trying to provide the minority business owner with insight as to the l81bid., p. 92. 19Ibid. 2 . . OHarry Turton, "A Forgotten American Right," p. 5. 40 value of such financial analyses. Space Ventures also provides technical assistance in specific areas of engineering and operation.2 Another example of MESBIC involvement in training is that of Glenco Enterprises.22 Glenco was given a $30,000 contract by the Ohio Department of Economic and Community Development for the spe- cific purpose of developing a statewide training program for minority businessmen. Counseling and management assistance is also provided by the Office of Minority Business' (OMBE's) Business Development Organiza- tions (BDO's). Nearly 250 BDO's reported that during the fiscal year 1977 counseling assistance, management assistance, and other assistance was provided to 43,516 clients.24 Figure 3.1 indicates the percentage of time spent in each area of assistance and service. The Business Development Center (BDC) of Indianapolis, Indiana, is a prime example of BDO involvement. Each year the Center sponsors a Management Skills Course designed specifically for small business managers. l"Bringing Space Technology Down to Earth," p. 5. 22 . . See "Finance" section, p. 34. 23"Cleveland MESBIC Holds Annual Meeting," p. 12. 24"Over 43,000 Clients Visit OMBE Centers," Access, November/ December 1977, p. 8. 41 .m .d .hpma uoaemoma\umnsm>oz .mmooo4 :.mu0ucmu mmzo uwmu> mucofiao ooo.mv uo>osu Aa~.ve amuwucou mmzo um weds mumum no :o«uuoo-¢u:.a.n .wnm oocdumwmmt unapofim “an.mv .av.Hm. acumnxoom mmocqnam unoaomdcuz Hafiucncam ivm.m. mm0n>umm pwuuamm :ofluusuumcou .¢~.m. moow>uom can Aam.wdv mmow>uwm nonuo mawumum ucaucsoooc .am.o~. .oaa. mfimxumcd acmevmncoz All/IIIIIIII|\\\\\\ mcwuoxunz 42 Pricing, sales promotion, advertising, decision-making, and financial statements were among the topics covered in the training. Volunteer lecturers include university professors, bankers, CPA's, industry advertising executives, and a repre- sentative from the SBA.25 In addition, the BDC and Indiana University have an arrangement whereby faculty and graduate students in marketing are on call to assist minority businesses with special sales problems. The director of the Indianapolis BDC estimated that in 1974, volunteers from major corporations, local organizations, and Indiana University provided nearly 1,559 hours of counseling time. OMBE's further interest in offering technical and training assistance is exemplified by the contract OMBE established with an Atlanta, Georgia-based consultant, Southern Rural Action (SRA). The contract specified that SRA was to assist fifty minority manufacturers in eight southern states. Included were counseling on the acquisition of capital, help in improving management skills, assistance in market- ing practices, and the development of new sources of business from both the Government and private sectors. Southern Rural Action also helped establish training programs and assisted in developing and con- ducting trade shows for minority manufacturers. Amoco Oil Corporation, a subsidiary of Standard Oil of Indiana, has developed a program specifically designed to assist 25"BDO Clients, Staff Members Go Back to the Classroom," Access, March/April 1975, p. 7. 26Ibid. 7 . . . 2 "Manufacturers in Eight States to Get Expert Adv1ce," Access, November/December 1975, p. 5. 43 minority contractors in bidding on major construction jobs. The program assists minority contractors in soliciting and preparing bids; provides a liaison between the contractors and project managers; and helps contractors with procedural and management problems.2 In its October 1978 quarterly report, Standard Oil Company of Indiana announced that the Amoco Foundation provided over $95,000 to students from minority groups for minority manpower development at thirty-two colleges and universities around the country. A majority of the funds were to help guide prospective engineering students. Brunswick Corporation was also involved in the development of a training program for a minority business--the Devil's Lake Sioux Manufacturing Corporation. Brunswick absorbed the start-up costs and provided working capital and training for the Indians. From their involvement with the Devil's Lake Sioux Manufacturing Corpor- ation, a series of training and development guidelines were developed. They included: Selection of a nucleus of managers who are sensitive to the attitudes and cultural differences of the minority group. Keeping in mind the goal of minority control, care should be taken in upgrading the skills of the minority person-- development of managerial expertise should be gradual. 28"Amoco Oil Helps Minority Firms Win Construction Jobs," Access, July/August 1975, p. 4. zggpgg, John E. Swearingen, Chairman (Chicago: Standard Oil of Indiana, 1978), p. 20. 44 Stress placed on an extensive, carefully planned training program-~workers must not only gain job skills, but must also accept the "industrial work ethic." Preparation for slow progress made in changing the employees' attitude toward industrial work.30 Corporate Social Resppnsibility The concept of social responsibility which a corporation possesses involves several aspects: The adaptation of the corporation to the changing requirements of society. The maintenance of corporate activities in tune with what is generally perceived as the public interest. The positive response to emerging societal priorities. The demonstration of a willingness to take needed action ahead of confrontation.31 Publications in this section discuss the efforts being made by corpor- ations in being more socially responsible. Michael Brower and Doyle Little conducted a survey among executives from 281 of the nation's 750 largest corporations and among leaders from minority businesses and communities to determine their attitudes and activities toward minority businesses. Several conclusions included: Executives of large corporations overwhelmingly endorse black capitalism. A growing number of large companies have established positive programs to support minority businesses--nearly one out of every four corporations responding to the survey reported having one or more men assigned at least part-time to promoting black capitalism. 30JohnG. Watson and Clair D. Rowe, "A Company Seeks Profits With a Sioux Indian Tribe," Harvard Business Review, July/August 1976, p. 10. 31A. A. Thompson and A. J. Strickland, Strategy and Policy: Concepts and Cases (Dallas: Business Publications, 1978), p. 55. 45 The total support for black capitalism offered by the largest corporations is still a tiny trickle-~the vast majority are still waiting on the sidelines, expressing support but doing nothing as yet.32 There is a need for government pressure, assistance, and incentives--in the long run, sizable commitments of resources from a wide variety of corporations will apparently come only because of renewed or continued threats to corporate existence and to profits by militant groups or because of strong government pressures backed by economic incentives.33 The Standard Oil Company of Indiana was one of the first corporations to establish a minority purchasing program. Mr. Phillip T. Drotning, Standard Oil's Director of Corporate Social Policy, stated his corporation's initial minority purchasing policy evolved from both a moral obligation and an economic motive. In 1961 Standard Oil recognized the increasing number of minorities located in major urban population centers. This trend indicated that the less affluent minorities in urban areas would be unable to own cars and, thus, buy Standard Oil's products. Although we realized one corporation's impact was relatively nominal, we saw positive advantages to society in doing what we could in our own limited way to try to improve the economic lot of minorities, and, in the process, benefit society and increase our own market opportunities.34 Brunswick Corporation's Association with the Sioux Indian tribe also reflected its sense of corporate responsibility to minorities. When Brunswick elected to assist the Devil's Lake 32Brower and Little, "White Help," p. 5. 33Ibid., p. 16. 34"Corporate Minority Enterprise Involvement," p. 8. 46 Sioux Manufacturing Corporation, it was determined to make a profit. Brunswick management emphasized the profit point to everyone involved with the Sioux corporation, and enthusiasm was generated among the tribe and work force. In addition to the profit, Brunswick also hoped to produce social benefits. As a result of Brunswick's efforts, there was a decline by nearly two-thirds of the Sioux Indian families from Devil's Lake on welfare. Miller Brewing Company is another corporation which demon- strated its corporate social responsibility to minority business enterprise. This feeling of responsibility was exemplified by the willingness to (l) utilize minority contractors; (2) make deposits in minority-owned banks; and (3) procure goods and services from minorities. The Office of Minority Business Enterprise gave Miller Brewing a national award for its participation in minority business activity.36 RCA Corporation's minority purchasing program utilized the goods and services of more than sixty minority businesses. RCA viewed their minority purchasing program as something more than a legal obligation. RCA's minority purchasing program became "a response to demands for equality of opportunity for minorities in 37 every sphere of national life." 35Watson and Rowe, "A Company Seeks Profits," p. 10. 36"Major Brewer Helps Contractors Get a Start," Access, September/October 1977, p. 12. 37"We Could Be Your Best Customer," Access, January/February 1975, p. 10. 47 To assist RCA in finding suppliers and to demonstrate the commitment of RCA to minorities, an advertising promotion outlining RCA's commitment to purchasing from minority vendors was developed. The promotion enabled RCA to emphasize its commitment to equal oppor- tunity. We were at the point where it just wasn't enough to say you are an equal opportunity employer--we wanted a campaign that demonstrated that we interpret the spirit of that pledge to go far beyond employment practices.38 The current chairman of the National Minority Purchasing Council and Chief Executive Officer of Borden, Inc., Augustine Marusi, recognizes the need for business to be socially responsible. His remarks reflect such a philosophy: Every business person in this room knows that enforcement procedures by the government are costly and inhibiting. But, if private industry really cherishes its relative freedom, it cannot be passive regarding social issues. Industry must demonstrate conclusively . . . by its performance--that it is functioning fairly and effectively in the public interest, as well as in its own interest--without government constraint. Industry need not be regulated by government to expand its purchases of goods and services from minority corporations. It is doing so voluntarily and effectively. Industry does not need to be regulated by the government to be accountable. It will collect the data and report to the public and government.39 Corporations such as Standard Oil of Indiana, RCA, Brunswick, and Miller Brewing appear to be making efforts to become more socially responsive. One of the areas which illustrates such efforts is that of minority purchasing. 8"Bridging the Confidence Gap," Access, January/February 1975, p. 10. 39Augustine R. Marusi, "The Test for Private Initiative," Public Relations Journal, February 1977, pp. 14-19. 48 Minority Purchasing Programs Minority purchasing programs as previously defined are aimed at increasing the volume of goods and services purchased by corpor- ations from minority-owned businesses through the development and use of such businesses. Most of the nation's major (corporations) have established minority purchasing programs, conducted at the corporate level by managers with genuine enthusiasm for what they're doing. Others appear to be going through the motions with love in their hearts but with dragging feet.40 The majority of the literature found in this category described activities and successes of those corporations which already have minority purchasing programs. The National Association of Purchasing Management (NAPM) adopted a formal policy on minority businesses in 1970. The policy stated that members of the NAPM "actively search out minority group small businesses and provide them with guidance and help in estab- .. . .. . .. 41 lishing themselves as Viable, competitive bu31ness organizations." NAPM also worked closely with the Office of Minority Business Enterprise (OMBE). The result of the cooperative efforts was the organization of the National Minority Purchasing Council (NMPC). The NAPM and NMPC developed several suggestions for the development of minority suppliers: 40A. Leopold and D. Graham, "Minority Vendors Make Modest Gains," Electronic News, July 26, 1976, p. 56. 41Frank J. Winters, "Business-~Put It In Black and White," National Purchasing Review, September 1976, p. 3. 49 . . . visiting supplier plants; offering to place the minority suppliers on the bidders' lists for used equipment; suggesting sources of supply for products and services; sug- gesting equipment that might improve the minority suppliers' products; arranging suppliers' visits to purchasers' plants; planning trade shows for minority suppliers to exhibit pro- ducts and services; developing educational courses to acquaint minority suppliers on best ways to approach purchasing managers; as well as emphasizing good purchasing practices and pro- cedures. . . .42 The NMPC tackled some of the problems encountered in the establishment of a minority purchasing program--name1y, locating minority suppliers and identifying their capabilities and encouraging top management of nonminority corporations to implement minority pur- chasing programs. In order to overcome the problem of locating minority sup- pliers, the NMPC designed a system to provide purchasing personnel with immediate access to qualified minority sources. This information service is the "Vendor Information Service" and was first available to users in December 1975. Once top management commitment was obtained, it was necessary to familiarize buyers about purchasing from minority vendors. The NMPC developed a buyer assistance program . . . . 43 and distributed it to over one hundred corporations by December 1975. Since 1970, annual minority vendor dollar expenditures and total number of minority vendors utilized by major corporations have increased rapidly. IBM had at one time a list of ten minority sup- pliers, and by the end of 1977 it had over three hundred. "Dow 42Ibid. 43Frank J. Winters, "Affirmative Action," National Purchasing_ Review, November 1976, p. 22. 50 Chemical went from nearly zero buying from minority firms in 1973 to . . . 44 _ a target of $9.25 million (in 1977)." Raytheon developed what it called a "very active program" in which it tripled the amount pur- chased from minority vendors and quadrupled the number of minority suppliers over a three-year period. Lockheed purchased nearly $5.4 million worth of goods and services from 232 minority businesses 45 in 1975. The growth in purchases by NMPC member corporations . . . . . . 4 increased from $86 million in 1972 to $1.8 billion in 1978. 6 Proponents of minority purchasing also argue that there are several benefits for society as a result of minority purchasing pro- grams: It provides a greater degree of competition in the economy. It redistributes resources and contributes to minority business development while strengthening the free enterprise system. It provides an effective mechanism for making the tran- sition between exclusion, limited participation and competi- tive equality of minority vendors.47 Despite these positive aspects and increased emphasis by the NAPM, NMPC, and major corporations, very little was found in the 44John R. Halbrooks, "Corporate Programs Begin to Pay Off," Purchasing, September 27, 1977, p. 24. 45Leopold and Graham, "Minority Vendors Make Modest Gains," p. 56. 46A. Marusi, remarks made during conference "Developing and Maintaining a Successful Minority Purchasing Program," Atlanta, Georgia, March 1979. 47Thaddeus H. Spratlen, "The Impact of Affirmative Action Purchasing," Journal of Purchasing and Materials Management, Spring 1978, p. 8. 51 literature review which described ways to implement a minority vendor program or which identified key elements necessary to guarantee suc- cess of a program once implemented. Two organizations, the National Minority Purchasing Council and Chicago United, do, though, have publications which serve as key guides to establishing minority pur- chasing programs. They are PurchasingyPower: How Corporations Can Locate and Utilize Qualified Minority-Owned Professional Services and Vendors and A Practical Guide to Starting or Improving a Minority Purchasing Program. Both publications identify elements which their publishers feel are necessary to develop effective minority purchasing programs. These elements are: I. Commitment A. Minority vendor policy statement containing the nature of the program goals. B. Chief executive officer is clearly identified as a supporter of the minority vendor policy and minority vendor program. C. Line management commitment is obtained by the CEO and certain dollar goals are established for the program. D. The organization demonstrates its involvement in such a program through affiliation with associations whose purpose is to further minority business. II. Operationalizing A. Appointment of a Minority Purchasing Coordinator who guides, directs, and monitors the program. B. Determining potential of minority purchases--what can be purchased from minority suppliers. C. Training programs--orientation and awareness programs for buyers. D. Development of a data base of minority suppliers. 52 E. Motivation of the buyer. 1. 2. Formally established quantifiable goals. Overall performance appraisal partly based on minority vendor goal achievement. Team approach--other line departments have minority goals. F. Promotion of innovative purchasing techniques. 1. 2. Screen-in minority suppliers rather than screen-out. Outreach--whereby purchasing takes initiative by contacting the supplier. Working with sources which are qualifiable--with certain technical assistance they can become qualified sources. G. Goal-oriented emphasis. 1. Minority purchasing goals included in the goals at the buyer level. Minority purchasing goals reviewed by minority purchasing coordinator. Minority purchasing goals reviewed by top line management. Minority purchasing goals reviewed by senior management. Minority purchasing goals disseminated to each division and are visible corporate wide. III. Monitoring A. Regular time interval reporting. B. Report analysis. 1. Auditing quotations for evidence of effort to include minority vendors. Cost reductions realized versus price differential paid above the lowest quoted price on all commodities that are purchased from minority vendors. 53 3. Assisting purchasing personnel and other depart- ments which have not been able to meet minority purchasing goals. C. Continuing involvement by CEO. 1. Review program progress quarterly. 2. Insure the program is an integral part of manage- ment responsibility by assigning adequate weight in performance appraisals. D. Accountability and recognition. 1. Goal chart of minority purchases prominently displayed. 2. Recognition of outstanding achievement.48 Summary The review of the literature resulted in isolating a set of factors which were thought to guide minority purchasing efforts within corporations. These factors were: 1. A corporate policy statement about minority purchasing Chief executive support for minority purchasing programs Corporate minority purchasing goals Buyer minority purchasing goals An individual responsible for coordinating the minority purchasing program 48Outline summarizes A Practical Guide to Starting or Improv- ing a Minority Purchasing Program (Chicago: Chicago United, 1975) and Purchasing Power: How Corporations Can Locate and Utilize Qualified Minority-Owned Professional Services and Vendors (New York: National Minority Purchasing Council, 1978). 54 6. Payment of a price differential to develop minority vendors 7. Inclusion of minority vendor goal achievement in buyer performance appraisal 8. Identification of minority vendors 9. Development of minority vendors by providing managerial and technical assistance 10. Frequency of reports of minority purchasing program results This was accomplished primarily by a systematic review of the liter- ature concerning minority businesses. A major source of information about minority businesses was found within various government publi- cations. Important areas of literature which affected minority pur- chasing programs were reviewed. These areas included: Loans and Capital Requirements Assistance: The major sources of capital available to minority businesses outside the normal banking system are MESBIC's and minority-owned banks. Several major corpor- ations established MESBIC's and provided funds to black banks through direct deposits. Training and Development Assistance: Many training assistance programs are available to minority businesses. These programs pro- vided managerial, marketing, accounting, and technical training. Programs are run by various OMBE-funded organizations such as the Business Development Organizations, by MESBIC's, and by private cor- porations' efforts. 55 Corporate Social Responsibility: A research survey conducted by Brower and Little, as well as various articles, indicated that corporate executives recognize the need for being more socially responsible. Efforts to meet this responsibility include minority purchasing programs. Mr. Augustine Marusi, Chief Executive Officer of Borden, Inc. and President of the National Minority Purchasing Council, felt such efforts must be made if private industry was to maintain its relative freedom from government intervention. Minority Purchasing Programs: Very little was written spe- cifically addressing this area. Many articles concerned the success- ful efforts of large corporations to purchase from minority vendors and the growth of such programs in terms of dollars spent with minority vendors. Two publications, A Practical Guide to Starting or Improving a Minority Purchasing Program and PurchasingyPower: How Corporations Can Locate and Utilize Qualified Minority-Owned Profes- sional Services and Vendors, were found which identified elements the publishers felt necessary for effective minority purchasing pro- grams. These two publications provided considerable information used in questionnaire development. CHAPTER IV METHODOLOGY This chapter presents the research methodology. Included is a discussion of development of the mail questionnaire, pilot testing the questionnaire, research sample, and data analysis. Development of the Mail Questionnaire A mail questionnaire was used to collect information about the research sample.l Mail questionnaire survey methodology was chosen since the sample population was widely dispersed geographically and a broad response was desired. This methodology also enabled the researcher to stay within the available financial budget. Various information sources were used to develop the question- naire, including: 1. Review of the literature concerning minority purchasing programs including literature from the National Minority Purchasing Council, Regional Minority Purchasing Councils, the National Association of Purchasing Management, and 1A copy of this questionnaire is shown in Appendix A. 56 57 Chicago United.2 The two most frequently used publications in the development of the questionnaire were Purchasing Power: How Corporations Can Locate and Utilize Qualified Minority- Owned Professional Services and Vendors and A Practical Guide to Starting or Improving a Minority Purchasing Program. 2. Feedback obtained from an initial questionnaire which was administered to participants of the 1978 Michigan State Uni- versity Purchasing and Materials Management Seminar. 3. Input provided by the dissertation committee members. 4. Personal conversations held with leading corporate purchasing executives, the Executive Director of the National Minority Purchasing Council, and the Executive Directors of several Regional Minority Purchasing Councils. Based on these information sources, a questionnaire was developed to (1) determine policies and procedures used by corporations in estab- lishing and operating minority purchasing programs; (2) provide information for comparisons of purchasing problems between minority and nonminority vendors; (3) identify geographic and demographic factors which characterized minority purchasing programs; and (4) provide data to determine those variables which best explain minority purchasing activity. The first series of questions asked about policies and practices used in minority purchasing programs to obtain information 2See Chapter III for further details. 58 about (1) corporate goals for minority purchases; (2) buyer goals for minority purchases; (3) existence of policy statements about minority purchasing; (4) techniques used to locate minority vendors; (5) techniques used to develop minority vendors; (6) job responsi- bilities of the minority purchasing coordinator; and (7) management personnel who review minority purchasing activity. Selected questions in this series are: "Does your corporation have a policy statement with regard to minority purchasing programs?" (Question 3, Appendix A) "Does your corporation set minority purchasing goals?" (Question 4, Appendix A) "How successful are the following techniques in locating minority vendors?" (Question 11, Appendix A) The second series of questions asked respondents to indicate the extent of various purchasing problems encountered when conducting business with minority and nonminority vendors. An example question in this series is: "Supplier problems are often encountered in purchasing. Indi- cate the extent of these problems for your minority and non- minority suppliers." (Question 14, Appendix A) The third series of questions addressed the demographic and geographic factors which characterized minority purchasing programs. Examples of the questions in this third series are: "What is the approximate percentage of minority purchases by minority group?" (Question 22, Appendix A) "In what states do you have purchasing locations operating minority vendor programs?" (Question 24, Appendix A) 59 Pilot Testing the Questionnaire Much time was spent on refining the questionnaire to obtain clarity, conciseness, and proper question sequencing in order to solicit the data required. A draft questionnaire was first admin- istered to eight purchasing executives who were directly responsible for operating their corporations' minority purchasing programs. These corporations were selected on the basis of their high degree of activity in minority purchasing, geographic dispersion, diversity in terms of major product lines, and agreement to cooperate in the research effort. Corporations who participated were in the auto- motive, electronics, aerospace, forest products, oil, and consumer goods industries. All of the corporations that participated in the pilot test were in the top Fortune 500 industrial listing. Each respondent was contacted prior to the pilot test mailing and was briefed on the research objectives. Respondents were then mailed the questionnaire with a cover letter explaining the purpose . 3 of the pilot test. All replies were returned within two weeks of the mailing, and each respondent was telephoned for his or her opinion of the clarity and conciseness of each question, as well as suggested additions or deletions. Analysis of the pilot test questionnaire revealed a need to modify two questions for clarity. 3A copy of the cover letter is shown in Appendix B. 60 Research Sample The research sample consisted of minority purchasing coordi- nators in manufacturing corporations having minority purchasing pro- grams. The sample was limited to manufacturing corporations for several reasons: (1) their involvement in the area of minority purchasing; (2) their familiarity and knowledge of Michigan State University through purchasing seminars and previous research efforts; and (3) the number of personal contacts available. The latter two reasons were thought to have a favorable impact upon questionnaire response rate. A manufacturing corporation was defined using the definition of a Fortune industrial: "a company which derives more than fifty percent of its revenue from manufacturing or mining."4 Identification of corporations to be part of the research sample was made with the assistance of executive representatives from the National and Regional Minority Purchasing Councils, from the National Association of Purchasing Management and from mention of organization in the literature with highly active minority purchasing programs. A letter was sent to each of the thirty-five Regional Minority Purchasing Councils requesting a membership roster stating corporation name, address, and key contact. Thirty-one of the thirty- five Regional Minority Purchasing Councils provided membership rosters. Additional names were obtained through the Corporate Guide for 4"Notes to the Fortune Directory," Fortune, May 8, 1978, p. 260. 61 . . 5 . . . . . . Minority Vendors which lists nonminority corporat1ons which are involved in minority purchasing efforts. An analysis of these selected corporations was undertaken to: (l) verify the status of the corporation as a manufacturing corpor- ation; (2) eliminate subsidiaries or divisions of the same corpor- ation; and (3) obtain correct addresses for corporate headquarters. The analysis was performed by checking individual corporation names in either Fortune 500 and Fortune Second 500 largest industrials, Standard and Poor's Corporate Directopy, Dun and Bradstreet's Million Dollar Directory, or Dun and Bradstreet's Middle Market Directopy. Many corporations in nonmanufacturing areas were eliminated--such as airlines, large retailers, and utilities. A total of 504 corporations were mailed questionnaires. Questionnaires were sent directly to the minority purchasing program coordinator at corporate headquarters. Each corporation received only one questionnaire in order to obtain information about minority purchasing from a corporate standpoint. The mail questionnaire packet contained a personalized cover letter stating the importance of the research and the National Association of Purchasing Management and National Minority Purchasing Council's support for the research; the questionnaire; a return-addressed stamped envelope; and a card for requesting research results. 5National Business League, Corporate Guide for Minority Vendors (Washington, D.C.: National Business League, 1977). 6Copies of the cover letter and Minority Purchasing Research Result Request form are shown in Appendix A. 62 The return envelopes were coded into six regions through the use of six different postage stamps. These six regions, areas within each region, and the number of questionnaires sent to each region are shown in Table 4.1. Individual corporation identities were unknown unless provided by the respondent. Eighty-nine corporations did identify themselves. A 36 percent (182 out of 504 questionnaires) response rate was obtained from the initial mailing. Regional analysis of the returns revealed lower response rates in the Southeast, Southwest, and Far West. A second mailing was made to these regions. Corpor- ations which had responded and had identified themselves in the first mailing were not sent a follow-up questionnaire. The second mailing contained a follow-up cover letter,7 a copy of the original cover letter, the mail questionnaire, and return envelope. A total of 122 questionnaires were sent in the second mailing, to the same indi- viduals to whom the initial mailings were directed. Eleven addi- tional questionnaires were received from the second mailing. This brought the total response rate to 38 percent. The total response rate by region is found in Table 4.2. Data Analysis Data analyses were conducted based on 190 usable responses from the corporations queried. Three of those returned questionnaires were unanswered. 7A copy of the follow-up cover letter is shown in Appendix C. 63 TABLE 4.1 REGIONS RECEIVING MAIL QUESTIONNAIRES, AREA, AND NUMBER OF QUESTIONNAIRES SENT Number of Region Areas Questionnaires Sent . a . New York City Greater New York City 85 Suburban New Jersey Suburban Connecticut East New York (excluding New York City) 122 Connecticut, Pennsylvania, Maine, New Hampshire, Delaware, Maryland . a . Chicago Chicago and Suburbs 38 Midwest Ohio, Michigan, Kentucky, Iowa, 127 Missouri, Nebraska, Indiana, Wisconsin, Illinois (excluding Chicago & suburbs) Southeast Georgia, North Carolina, Florida, 41 Tennessee, Louisiana Southwest Oklahoma, Texas, Arizona, 35 New Mexico Far West California, Colorado, Idaho, 56 Washington, Oregon Total 504 aNew York City and Chicago were chosen as separate regions due to the large number of corporate headquarters in those cities and due to the large size of their Regional Minority Purchasing Councils. 64 TABLE 4.2 TOTAL RESPONSE RATE BY REGION Total Number . of Total Number of Percentage of Region . . Questionnaires Response Questionnaires Returned Rate Sent New York City 85 30 35% East 122 45 37% Southeast 41 11 27% Southwest 35 14 40% Chicago 38 20 53% Midwest 127 49 39% Far West 56 21 38% Returned Unanswered 3 Total 504 193 38% The data from each questionnaire was keypunched onto computer cards. The Statistical Package for Social Sciences (SPSS-6000 Version 7.0) was used for all of the statistical analyses. Data were analyzed in the following sequence: 1. Developing a profile of the research sample using various descriptive statistics. 2. Analyzing the dependent variables to determine which variables best represented minority purchasing activity. 3. Testing research hypotheses to determine which independent variables best explained minority purchasing activity. Research Sample Profile The dependent and independent variables were first analyzed in terms of descriptive statistics. The descriptive statistics used were mean, median, range, frequency count, and percentage. 65 Dependent Variables-—Minority Purchasng ActivityyMeasures Four questions in the minority purchasing questionnaire were included for purposes of measuring the extent of minority purchasing activity by the respondents' corporations. These questions were: "How successful does your corporation feel the minority vendor program is?" (Question 17, Appendix A) Hereinafter termed "self-perceived success." "What approximate percentage of total purchases for 1978, 1977, and 1976 were from minority vendors?" (Question 18, Appendix A) Hereinafter termed "percentage of annual dollar purchases from minority vendors." "What were your approximate total dollar purchases for 1978, 1977, and 1976 from minority vendors?" (Question 19, Appendix A) Hereinafter termed "annual minority vendor dollar expenditures." "From how many minority vendors were purchases made in 1978, 1977, and 1976?" (Question 20, Appendix A) Hereinafter termed "total number of minority vendors." The four questions listed above represented the major dependent variables chosen for the research. Two options were considered by the researcher with regard to choosing the activity measures. One option was to develop year-to-year change indices on the percentage of annual dollar purchases from minority vendors, annual minority vendor dollar expenditures, and total number of minority vendors. The second option was to use raw data as reported by the respondents. Year-to-Year Change Indices. The change measures were evalu- ated in terms of the relative percentage change between the years 1978, 1977, and 1976. This resulted in three different change indices for each dependent variable: 1978 divided by 1977; 1978 divided by 1976; and 1977 divided by 1976. Percentage change was measured in terms of percentage of annual dollar purchases from 66 minority vendors, annual minority vendor dollar expenditures, and total number of minority vendors. Sixty-one of the 193 respondents provided data for all three minority purchasing activity measures for the three years. Ninety- two respondents provided data for the years 1978 and 1977 for the three minority purchasing activity measures. Data for each of the three minority purchasing activity change indices (1978/1977) were then ranked from high to low and split into quintiles.9 For example, on total number of minority vendors, a respondent who purchased from six minority vendors in 1977 and from twenty-four minority vendors in 1978 would have a change of 4.00 (24/6 for 1978/1977). The 4.00 was one of the higher change scores, placing it in the top 20 percent of the rankings and giving it an assigned score of "5" (the lowest quintile would have a score of "1"). Continuing this example, if annual dollar purchases from minority vendors was scored a "4," these scores would be added together for a total score of "12." The range of the individual minority purchasing activity change indices ranged from "1" to "5," and the total of all three minority purchasing activity change indices ranged from "3" to "15." T-tests were conducted using the combined scores (range of "3" to "15") and the three individual quintile scores (range of "l" 8An example of a change index calculation is shown in Appendix D. 9Statistical significance levels of T-tests are shown in Appendix D. 67 to "5") for each minority purchasing activity measure. On the com- bined scores, those respondents with lower scores ("3" to "8") were compared with those respondents with higher scores ("10" to "15") for their responses on the independent variables. As an example, the existence of a corporate goal for minority purchasing ("1" = yes, "0" = no) averaged .7609 for respondents with higher scores ("10" to "15") and .7826 for respondents with lower scores ("3" to "8"). In this example, the t-test indicated the means were not sig- nificantly different. In addition, the individual minority purchas- ing activity measures were tested. Respondents in the lower two quintiles ("1" and "2") were compared with respondents in the higher quintiles ("4" and "5") for their responses on the independent variables. T—test analyses revealed that year of program initiation was a confounding factor in the data. Those respondents having lower percentage changes in minority purchasing activity measures started programs prior to 1974, and respondents having higher percentage changes started programs in the 1975 to 1979 period. These analyses were further substantiated by correlation analyses which found all change indices significantly related to the year of program initiation. For example, higher percentage changes in number of minority vendors from 1977 to 1978 was related to newly established programs (r = .29, p 5 .001). In order to control for the effect of year of program initi- ation, the sample was split into "older programs" (those established prior to 1975) and "newer programs" (those established between 1975 to 1979). T-tests were run with independent variables and this 68 partially controlled for the effect of year of program initiation.10 This approach, however, resulted in a reduction of sample size by splitting the sample of ninety-two into groups of sixty-one and thirty-one. The disadvantages in using change indices in the research were: 1. Major focus of the research was to determine those variables which best explained minority purchasing activity, not pro- gram growth over time. 2. Restriction of the sample size which could be used in the analysis (n = 92 or n = 61). 3. If difference scores were used in lieu of percentage changes, those corporations having programs established in earlier years would have shown greater gains. 4. Considerable research shows problems with difference scores as opposed to using true scores. "Where true scores for individuals are desired, multiple regression procedures . . ll . . . make use of more information. . . ." The major use of change indices was to compare percentage gains in minority purchasing activity between newer and older minority pur- chasing programs. 10Statistical significance levels of T-tests are shown in Appendix D. 11Lee J. Cronbach and Lita Furby, "How Should We Measure 'Change'--Or Should We?" Psycholggical Bulletin 74 (July 1970): 80. 69 Reported Raw Data. Correlation analyses were first used to determine the interrelationships among the minority purchasing activity measures (see Table 4.3). A number of relationships were found: 1. Percentage of annual dollar purchases in 1978 was highly cor- related with percentage of annual dollar purchases in 1977 and 1976. This was also true for annual minority vendor dollar expenditures and total number of minority vendors. 2. Total minority vendor dollar expenditures and total number of minority vendors were highly correlated. 3. Self-perceived success had a higher correlation with total minority vendor dollar expenditures and with total number of minority vendors than it did with percentage of purchases from minority vendors. The use of raw data better matched the research objectives of determining those variables which best explained minority pur- chasing activity. Several other advantages of using the raw data included: (1) increased sample size for analysis; (2) corporation size and program initiation year could be treated as independent variables; (3) data did not have to be arbitrarily segmented or split for analysis; and (4) high year-to-year correlations within each of the three objective performance activity measures enabled the use of 1978 figures for the three variables. Table 4.4 lists the strengths and weaknesses of each minority purchasing activity measure. Percentage of annual dollar purchases from minority vendors exhibited a lack of variance in 70 .mo. I m an ucmoflmflcmfim V k. Aoav hm. 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This lack of variance was due to the ques- tionnaire response categories which did not allow for finer dis- crimination in reporting data. Percentage of annual dollar purchases from minority vendors was reported in the analysis subject to the aforementioned limitation. Statistical Techniques The data on the questionnaire was a combination of bivariate scales and Likert-type rating scales. Previous research has shown that these scales closely approximate equal interval scales and allow the use of interval scale analysis. Suffice it to say that the types of statistics that are strictly appropriate to interval and ratio data scales are often employed with ordinal data--and the results appear to be useful.‘ This pragmatic sanction presumably rests on the fact that many of the scales built on such operations as psychological tests may approximate equal-interval scales, even though no very satisfactory operation may exist for assuring equality of the intervals.12 The major statistical analysis used was correlation analysis and multiple regression. T-tests and analysis of variance were also used. Multiple regression analysis was chosen due to the large number of independent variables and is a "method of analyzing the contributions of two or more independent variables to one dependent l3 . . . . variable." Of the multivariate methods, with the p0531ble exception of factor analysis, it was perhaps the most useful and flexible. 128. S. Stevens, "Ratio Scales of Opinion," Handbook of Measurement and Assessment in Behavioral Sciences (Chicago: Addison Wesley Publishing Company, 1968), p. 173. 13Fred N. Kerlinger, Foundations of Behavioral Research (Chicago: Holt, Rinehart and Winston, Inc., 1973), p. 150. 75 "It can handle any number and kind of independent variables, con- tinuous and categorical, though practical considerations usually . . l4 restrict the number of variables." "Since sampling is being used, the decision to accept or reject the null hypotheses cannot be made with absolute certainty-- . . . . . 15 the dec151on must be based on probabilities." Therefore, the statistical significance level for testing the hypotheses was estab- lished at .05 or less. This was because "it has become convention in social science to accept statistically significant relationships which have a probability of occurring by chance 5% of the time or 16 less." l4Ibid. 5Norman H. Nie, et a1., Statistical Package for the Social Sciences (2d ed.; New York: McGraw-Hill, 1970), p. 268. l6Ibid. CHAPTER V RESEARCH SAMPLE PROFILE AND DISCUSSION This chapter describes the research sample and discusses the descriptive analyses. Descriptive Data Questionnaires were sent to minority purchasing coordinators at corporate headquarters of 504 manufacturing corporations. Three hundred ninety-one of the 504 were categorized as Fortune 1000 cor- porations. One hundred and ninety usable or partly usable responses were returned. Eighty-three of the eighty-nine respondents who identified themselves on the returned questionnaires were Fortune 1999_corporations. All information which was collected from the questionnaires was used in the analyses. Sample size, therefore, varied depending on the analysis performed. In reporting the data, each of the analy— sis indicates the appropriate sample size using the format (N = ___). The research population was identified as those corporations which had minority purchasing programs. Minority purchasing programs in these corporations (N = 170) were formally established between 1960 and 1979 as indicated in Figure 5.1. The average age of the minority purchasing program in the sample was between four and five years as of 1979. 76 77 .ouuaumoummucu ma muno> nonuo ou macaquodeoouumhma mo uouuunv umuwu on» mcwuso vouooaaoo dunno acoecmwanuumm suumoum no uuoauu.n.m .mwm A may wavy Euumoum 065. OF. FF. Oh. m5. Qh. Mb. NF. HF. Ch. 00. 00. F@. GOIHQ. en: #32 I , _~Huz . can: ea ma aucosvoum ONIZ cN mmflz mN nmnz_ “Nana 78 Data from the questionnaire is further discussed in each of the seven following categories: Internal PurchasingyPractices.--Inc1udes policies and pro- cedures found in minority purchasing programs. Examples of these internal purchasing practices were a minority vendor policy statement and corporate and buyer goals for minority purchases. Also included in this category was the amount of support the Chief Executive Officer gave the minority purchasing program and the extent of purchasing centralization and/or decentralization. Demographic and Geographic Data.--Includes information about different minority groups from which purchases were made, product categories of purchases, and states in which purchasing locations operated minority purchasing programs. Program Coordinator Responsibilities.--Inc1udes discussion of the job responsibilities performed by the coordinator of the minority purchasing program and the frequency of performance of those responsibilities. Examples of job responsibilities were moni- toring purchases made from minority vendors and providing assistance to minority vendors. Minority Vendor Sourcing.-—Includes techniques corporations used to locate minority vendors. Examples of locating techniques were buyer-initiated contacts with minority vendors and attending minority trade fairs. Development of Minority Vendors.--Includes techniques corpor— ations used to increase the number of dollars spent with minority 79 vendors. Examples of development techniques were providing technical assistance to minority vendors and breaking large purchases into smaller quantities. Differences in Problems Between Minority and Nonminority Suppliers.-—Includes discussion of problem differences between minority and nonminority suppliers. Examples of problems compared were consistently high prices and lack of qualified engineering, sales, and management personnel. Minority Purchasing Activity Measures.--Includes discussion of the minority purchasing activity measures. These measures were: (1) annual minority vendor dollar expenditures; (2) percentage of annual dollar purchases from minority vendors; (3) total number of minority vendors; and (4) respondent's self-perception of minority purchasing program success. Internal Purchasing Practices Figure 5.2 and Table 5.1 report questionnaire responses about various internal purchasing practices. Eighty-seven percent (N = 188) of the respondents had an individual responsible for coordinating a minority purchasing program; 80 percent (N 190) had a minority vendor policy statement; and 66 percent (N 190) set corporate goals for minority vendor purchases. Individuals with responsibility for coordinating the minority purchasing program most often held the title of Minority Vendor Coordinator, Minority Business Officer, Director of Purchasing, or Purchasing Manager. Forty-eight percent (N = 188) of the respondents included minority purchasing activity 80 Purchasing Practice Has one individual been assigned ’ the responsibility for Yes 87% u-166 l coordinating your minority ’ ”°“d°‘ Pr°gram7 No 13: u-22 L. policy statement regarding Yes 80% Ni151 Does your corporation have a ] minority vendor purchases? No 20% Nb39 l. Does your corporation set 1 ~] minority vendor purchasing Yes 66‘ “'125 _ goals? No 34% N86 Is minority vendor goal achievement considered in a Yes 48% Nh9l buyer's performance appraisal? No 52% Ni97 Do individual buyers have minority vendor purchasing goals? Yes 45% Nh85 INC 55% N-104 Does your corporation pay a 1 price differential to develop Yes 35‘ "-63 competitive minority vendors? F8 65% u-iis o 25 50 75 100 Percent Fig. 5.2.--Internal Purchasing Practices --Ranking by Percent Used 81 TABLE 5.1 INTERNAL PURCHASING PRACTICES Purchasing Structure Total nghly Decentral- Centralized/ . Highly Decentral- . Decentral- Centralized . N . ized . Centralized ized ized 188 36 44 45 55 8 19 24 24 29 4 Percentage of Purchasing Personnel ReceivingyIn-House Training about Minority Vendors Togal 0% 1-25% 26-50% 51-75% 76-99% 100% 189 42 51 16 25 22 33 22 27 8 13 12 18 Percentage of Other Functional Personnel Receiving In-House Training about Minority Vendors Togal 0% 1-25: 26-50% 51—75% 76-99% 100% 165 82 68 10 5 O O 50 41 6 3 0 0 Support from Chief Executive Officer Tosal None Little Some Considerable Complete 186 14 29 49 54 4O 7 16 26 29 22 Price Differential Paid to Develop Minority Vendors Tot 1 Amo t Fixed Percentage Na v 9“ 0-5: 5-10% 10-20: aries 5% 10% N 52 9 4 8 4 11 16 17 8 15 8 21 31 82 in their buyer performance appraisals. Forty-five percent (N = 189) had minority purchasing goals at the buyer level. Thirty-five percent (N = 178) were willing to pay a price differential to develop minority vendors. The percentage amount of this price differential above the lowest bid ranged from 2 percent to 20 percent over a time period of two months to two years. A 5 to 10 percent differential was the amount most frequently paid above the lowest bid price. By adding respondents who indicated willingness to pay 5 percent and those willing to pay 10 percent and those in the 5 to 10 percent range, 67 percent (N = 52) of the respondents were in the 5 to 10 percent range. In some cases, respondents did not indicate a time period but stated "the time period varies," "indefinite time periods," "varies with the purchase," or "the buyer determined the appropriate time period." Most frequently mentioned price differentials were in the 5 to 10 percent range for a time period of three to six months. The majority of the corporations in the sample had trained 50 percent of their buyers about purchasing from minority vendors. The percentage which received training was much lower for non- purchasing personnel. However, 50 percent of the sample (N = 165) had exposed some nonpurchasing personnel to training sessions on purchasing from minority vendors. When asked how much support their Chief Executive Officer gave to the minority purchasing program, 51 percent (N = 186) of the respondents felt that the program received considerable or complete support. 83 The internal minority purchasing practices at most corporations were those which were visible both within and outside the corporation. They included: having a policy statement on minority vendors; having a person assigned the responsibility for coordinating a minority pur- chasing program; and having corporate goals for minority purchasing. Less than 50 percent of the respondents had goals at the buyer level for minority purchases, included minority purchasing activity in their buyer performance appraisals, and were willing to pay price differ- entials to develop minority vendors. Demographic and Geographic Data Minority vendor coordinators in the sample were asked, "In which states do you have purchasing locations operating minority pur- chasing programs?" and "Of these states, indicate the predominant minority group from which purchases are made." As shown in Table 5.2, minority purchasing programs were conducted in all states except Nevada. The states mentioned most frequently were California, Illinois, New York, Ohio, Pennsylvania, and Texas. In terms of minority group members, business was most likely to be conducted with black minority vendors. Across all states, respondents indicated they did business with Blacks most frequently, followed by Hispanic and Indian businesses. Regional differences by minority group were as follows: (1) Hispanic businesses were heavily concentrated in California and Texas; Indian businesses were dominant in Oklahoma, North and South Dakota, Montana, and Wyoming; Asian businesses were dominant in Hawaii and strong in California; and Eskimo businesses were centered in Alaska. FREQUENCY OF MINORITY PURCHASING PROGRAMS BY STATE 84 TABLE 5.2 State Frequency State Frequency California 123 Virginia 17 Illinois 75 Kansas 16 Texas 72 Washington 16 New York 65 Arkansas 15 Pennsylvania 60 Iowa 15 Ohio 56 Arizona 10 New Jersey 51 Mississippi 10 Massachusetts 44 Delaware 9 Georgia 37 Idaho 8 Indiana 37 New Hampshire 8 North Carolina 33 North Dakota 8 Alabama 32 West Virginia 8 Florida 31 Oregon 7 Louisiana 31 Rhode Island 7 Connecticut 26 Alaska 6 Michigan 25 New Mexico 6 Oklahoma 25 Nebraska 5 Missouri 24 Hawaii 4 Minnesota 23 Utah 4 South Carolina 23 Vermont 4 Tennessee 22 Montana 3 Maryland 21 Wyoming 3 Colorado 20 Maine 2 Kentucky 18 South Dakota 2 Wisconsin 18 Nevada 0 85 Sixty-six percent of each minority purchase dollar was spent with Black minority businesses as shown in Figure 5.3. Other minority groups received the following share of the minority pur- chase dollar: Hispanic businesses, 18 percent; Indian businesses, 7 percent; Asian businesses, 6 percent; Eskimo businesses, 1 percent; and "Other" businesses, 2 percent. The "Other" category was mainly comprised of physically or mentally handicapped. Indian businesses were mentioned twice as often as Asian businesses, yet both groups received approximately the same percentage of minority dollar expen- ditures. This indicated larger dollar expenditures per vendor with Asian businesses. Product categories in which purchases were made showed the commodity areas in which corporations spend their dollars and the types of businesses where minority vendors are found. Figure 5.4 shows that minority business was primarily service oriented. Main— tenance, Repair, and Operating Supplies, Janitorial Services, and Office Supplies constituted 40 percent of the minority purchase dollar by product category. Direct product purchases composed 29 percent of the total purchase dollar. Other categories received the following percentages of the purchase dollar: Construction, 6 percent; Traffic/Warehousing, 5 percent; Advertising/Artwork, 4 percent; Capital Equipment, 4 percent; and "Other," 12 percent. The "Other" category included scrap dealers and travel agencies. Analysis of the demographic data indicated (1) a higher frequency of Black minority vendors; (2) that most minority busi- nesses supplied service-oriented products; and (3) minority vendor 86 Black 66% Hispanic 18% Indian 7% Other 2% Eskimo 1% Fig. 5.3.--Percent of Minority Purchase Dollar by Minority Group for 1978 Supplies Construction 6‘ Capital Equipment 40% 4% 87 Direct Products 29% Other 12% Advertising 4% Traffic/Warehousing 5% Fig. 5.4.--Percent of Minority Purchase Dollar by Product Category for 1978 88 programs were conducted most frequently in the states of California, Illinois, New York, Ohio, Pennsylvania, and Texas. Program Coordinator Responsibilities Respondents were asked, "How many times per year does this individual or the staff perform the following functions?" A list of job responsibilities was provided with a yearly frequency of per- formance scale which ranged from "not performed" to "over fifty times per year." The first part of this analysis involved deter- mining which of the job responsibilities were performed by the coordinator. The second part of the analysis concerned the number of times per year the coordinator performed the various job respon- sibilities. The four job responsibilities which received most frequent mention were: (1) acting as a central data source in providing information about minority,vendors; (2) monitoring purchases made from minority vendors; (3) identifying new minority vendors; and (4) identifying purchased items which had potential for minority vendor sourcing. The two responsibilities mentioned least frequently were: (1) conducting in-house training and education sessions about minority vendors and (2) providing managerial and financial assistance to minority vendors. Figure 5.5 shows the responsibilities of the program coordinators. Figure 5.6 shows the yearly frequency with which these responsibilities were performed by the respondents. The average number of times per year these responsibilities were performed varied from over twenty-five times per year when identifying minority vendors 89 coauOMuom ucoouom >n mcaxcgmll nouucaouooo auuoouo auauocaz no noauaaaoamcoooom--.m.m .oam acoouom co” cm on as oo om cc on on o” o . . 1 I + . . ., ommm‘1lcmd- oz flea-z own no» owns mood o2 nod-z -avm no» am _ oz mane ~11 and-z saw no» man: an oz. H - mad-z aNm no» can: ao _oz Nommz «em no» .neonnoum uooco: uuauocwa mcd>aon ca Hocconuom mcwucnousm ou coedunanne noow>oum .mcwouson Moccob >uduocda mom Hoaucouom o>n£ noes: diode unaccousm noduduacopn .nucoefiudmop mcangsonam mom unocco> >uuuocdi so: uowuducopu .nu06c0> muduocwa Bonn opus nonunousm nuouqcot .nuopco> muauocwa usonu cowugauouca mom oousOn coop Houucoo e an want 3. .c. .m. any .av .Nwaaaoaucomuoz 90 OOH no .poEMOMuom uo: ma >umadnwucomnou moueowpcmlnzoz: «coauouuom ma auwawnwmcomnou moucowpcAIusmowza cm on 00 ucoouom Om poscwucOUuu.m.m .mwm as on om 0H 0 mdlfilldQflllllAflfl .r a mmlz aom mow _ a; a. __ mOHIZ vvm no» _WMI2 rpm mm mm n2 o h M mml2_ rum an HMHIZ was no» ‘. an.) % nuooco> unauocws o» oocounwmmn nocw>oum Am. .nquco> muauocda upond uncannon mcwcdsuu use noduoOppo onsonlcw nuosvcoo Am. .nacom ucwnmsousm uocco> Suauocfia mcduuon wow apnea nopd>oum no ca nouemaoauuum Ah. .uocsu oueuomuoo aweaoo nowgz nucofiuuemoo uonuo mom unocco> auduocfifi nowuwucopn Am. Nowawowmcoooom 91 oocmeuomuod noauwawnwmcommom non you woo» woo hocosvouh no mcwxcgm coo:nn.o.m .mam 4. .m N. HvHuz on.Hnm. ov.~um mmauz (Mam.aum. vo.~um mvauz .Nv.dum. Rm.~um moanz .om.Hum. oo.mam nmaaz «.mm.aum.:,ao.mnm .nanooum mocco> aufiuocae mca>aom cw HoncOnuom mcqnmnowsm ou uncounwnne nooa>oum .nuooco> >uwuocws Eouu opus monosousm nmouwcoz .mcauunom Hooco> muauocfia mom unannouom o>mn noun: mama“ pommnuusm nowuwucopu .muooco> mufiuocfifi upono coflueauoucu mow compo» dump Huuucoo e no mood .nucoeuucmop mcwnnnoupm wow nuooco> auauocfia so: nowuwucoon “my Ace Am. ANS AH. {Noaaaoaocomoom (m .moawo om uooou.m. “”06““ OMUON'8V: «mwefiu mNIHHfl3M= umwfiflu OdlmuzN: umwsfifl wiHUSH:IIHfl0% H0“ %UC0§U0HNQ .coauea>op unaccoun moumowpcm gm: ”ouoom zoos moueoaocw sxsn poacaucOUIn.o.m .oam Amocoavoum m N x. H ig- 92 moauz Amm.um. ~v.~um .muocco> suquocda upono acownnom mcwcwmuu can coduuospo onaonucw nuospcou hm. omanz Avv.aumv ma.~nx .mHoom mcwmunonsm mocco> zufiuocaa ocduuon I How poms“ nopw>oum no cu movemuoauuom Amy mmnz Ahm.anmv A~.~Im .muooco> muwuocafi on ooceunannu nocu>oum an. . . . .nocsu and»: Amm Hume om mum couscouoo oassoo gown: mucosuuoooo woauo How unocco> >uauocqs mowuwucopu Am. soaaaoaacomnom 93 to approximately five to seven times per year for conducting in-house training sessions about minority vendors. A further analysis was done comparing mean, median, and mode analyses. This analysis produced similar results. Minority Vendor Sourcing In order to determine the techniques used to locate minority vendors, the question was asked, "How successful are the following techniques in locating minority vendors?" A list of techniques was provided and a five-point scale which ranged from "no success" ('1') to "a great deal of success ('5') was used. The analyses involved determining whether or not techniques were used and determining which of the techniques used were considered most successful. The methods most frequently used to locate potential minority vendors included: 1. Buyer-initiated contacts (96 percent, N = 187). 2. External directories which list minority vendors (93 percent, N = 186). Examples of such directories included "Try Us" and the Vendor Information Service Directory of the National Minority Purchasing Council. 3. Attending minority trade fairs (92 percent, N = 190). 4. Membership in either the National Minority Purchasing Council or one of the Regional Minority Purchasing Councils (89 percent, N = 188). The least frequently mentioned method used to locate potential minority vendors was advertising in minority publications such as 94 Black Enterprise or Black Times. Thirty-five percent (N = 187) of the respondents used this technique. Techniques used to locate minority vendors and the percentage of use are found in Figure 5.7. Of the sourcing techniques used by the respondents, those which respondents perceived to be most successful were (1) external directories; (2) membership in the National or Regional Minority Purchasing Councils; (3) internally developed corporate directories; and (4) buyer—initiated contracts with minority vendors. Figure 5.8 shows the mean perceived success score of the techniques used to locate minority vendors. Joint analysis of the techniques used and the perceived degree of success resulted in the following findings: 1. Internally developed directories ranked seventh in terms of use, yet such directories ranked third in terms of success. It appeared that internally developed directories could be of great assistance to a corporation's purchasing department. 2. Membership in the National Association of Purchasing Manage- ment (NAPM) ranked fifth in terms of use, but ranked eighth in terms of the degree of Success in assisting members to locate minority vendors. 3. Buyer-initiated contacts with minority vendors were used most often, but the technique ranked fourth in terms of perceived SUCCESS . 4. Advertising for sources in minority publications was the least used technique and was also perceived by respondents to be the least successful technique. can: accouom an unexcgmnu unocco> >uauocaz mcwuuooq you moavwczooauu.h.m .mam ucoouom om ow om CW 0% ON CA mN O ucosouncd: anamocousm no cauuoaoonnd ‘3 mmHIz vvm nu» deceauoz ca mdzauoolo: Am. ' H H E Hmuz nawocnou meaneaouam auwuocat bmnlz cam now encammoz uo descaudz ca mannuonflo: Av. 9S 3:2 :1— oz _ media anm mow nuwnu comma muwuocwa acupcouud .m. manz as _ oz nuanz amm no» mowuouooufip Hecuouxu ANS oz 3 oz . nuo co> > no: and c ya «a o sud: nuoeucoo poucduacd woman .Av agony 96 wad on on .COOS HOG ud’ u05UMCSOOU OOUQOflQCM :02: «UNMfl m0: ”QUACEUOH QQUUOwQCH tflflfisfl oooaaonoou-.p.m .oam ucoouom on ow om ow om ow ca 6 , a2; .. an oonz can I1mun. Honz awn oz maanz 85o no» — hmnz as" oz , omauz amo no» Nmuz ama oz — mmanz an“ no» occaumoaanam acquocdfi ca mooupon mow mcwuwuho>p¢ Amy nuounmanm use nousnooun mcwupnquunwo Amy mowuoooouap oueuomuoo pomo~o>op hanecuoucn Ah. madam coon» zuauoeas on unauaoaaxu Aw. unawczooa .nnooosn no Hoop uuoum sigma announce ounduoowncoon=v: .nmooopn oEOnu=m= xnmooosn oauuudlsmz annooosn oclsnsnunnooosn uo oouuoa .co«ue«>op puncceun noncodpcu an: .ouoon cdofi mouooqpcw 3mg” unocco> >uwuoca: cocoon o» pun: nosvaczooa mam nnooosm oo>doouom uo mcaxcmm ceozll.m.m .mwm noooosm no ooumoa 97 n. n (e m. w wolz .om.nn. Aho.~lm «acquaodanam zuwuocdfi :4 noouson How ocanauuo>p¢ Am. Nmanz .ma.ulnv unv.~|m acoaomecuz mcanosousm no scaveAOOnnd floccuusz cw mannuonlo: Am. mmanz .mm.lnv mmo.~|m nuounmium pea nousnooan usausnwuundo as. mnauz .mo. Hum. who.~nm undue coon» soauocaa on ocaoaoaanu .0. Mbdlz Amm. Imv coo.nlm muddy open» auduocwa mcwpcouut .m. maauz — .mm. no. oca.num uneven» zoquocas now: ouonucoo oouoauaca uozom .v. omauz .mo. Ham. oh~.nnm nowuouoouuo oucuomuoo codo~o>op adnecuoucu any Rod-z ind.~nmc h-.mum uaaocooo ocaooaouoo soauocaz Accommom no floccuuoz ca mannuonlo: “NV mnauz mamm.lnv mam.mum noauouoouup Hucuouxm .Hv oflflacsooa 98 Development of Minority Vendors In order to assess the development techniques used in minority purchasing programs, the question was asked, "How success- ful have the following techniques been in increasing the number of and/or the dollar amount of purchases from minority vendors?" A list of techniques was provided. The analysis involved determining whether or not techniques were used and determining which of the techniques used were considered most successful. The techniques most frequently used in the development of minority vendors included: 1. Providing technical assistance to minority vendors, including quality control and engineering assistance (74 percent, N = 179). 2. Breaking larger purchases into smaller quantities (69 per- cent, N = 180). 3. Allowing longer lead times on purchased items (69 percent, N = 178). 4. Providing longer vendor quotation times (67 percent, N = 184). Those techniques used less frequently included: 1. Helping minority vendors obtain funds from Government loan agencies (34 percent, N = 180). 2. Providing direct financial aid (34 percent, N = 179). 3. Providing financial aid through company-run Minority Enter- prise Small Business Investment Companies (MESBICs) (28 per- cent, N = 179). 99 Techniques used to develop minority vendors and the percentage of use are found in Figure 5.9. Development techniques used by the respondents which were perceived to be most successful included: (1) providing technical assistance to minority vendors; (2) breaking up larger purchases into Ismaller units or quantities; and (3) helping minority vendors develop effective purchasing practices. Development techniques which were perceived to be less successful included: (1) providing financial aid through company-run MESBICs; (2) helping minority vendors obtain funds from Government loan agencies; and (3) providing direct finan- cial aid to minority vendors. Figure 5.10 shows the perceived mean success of the various techniques used to develop minority vendors. The highest degree of success was found in providing technical assistance, which averaged 2.7 (a "3" rating indicated "some degree of success"). Joint analysis of the techniques used and the perceived degree of success resulted in the following findings: 1. Providing technical assistance and breaking up larger pur- chases into smaller quantities were rated highest both in terms of use and perceived success. 2. Providing direct financial aid, helping minority vendors obtain funds from Government loan agencies, and providing financial aid through company-run MESBICs were lowest rated in terms of use and perceived success. pom: accouom >n o:«xcum:u mquco> huauocwz acamodo>oo mom nosvwcsoosll.m.m .mam acoouom 100 oocdunanns acoaouecua ucwou>oum Am. molz «on o HHHIz «we no nuocuucoo Shoo mead Oceanus: an. bola arm mud-z «no. neuou ucoaxem deacon» acqquoam .o. sol: ohm nagwuouea MHHuz amc 3cm ousoon nuooco> auquocdi mcumHo: Am. Holz «mm aofldu mad-.2 caduougv have? 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Sausage 102 .pons no: no: ocowczoou moucoaccw :02: «com: no: osvucnoou nouaowpcw acorns poscwucoout.m.m .owh acoouom OOH om om Oh ow Om ov Om ON OH o L c0wuouomuou acofiumo>cH unocwnsm QMMH” Fr ”Mmlrmmwl Adela unaumuovcm muwuocw: csuuacddeoo H 29.85 3.. 185:3 6533.8 a: 37.2 7 So 02.1 $2 #1 G... «a» 3a 1855... 888 9.82382 8: madaz Fir woo oz nowocome cued usaficuo>om flown Houz fit awn moz nocsu :«cuno uooco> auwuocds madmdom and. unawcnooa 103 unocco> >uwuocwz mo~o>oo 0» con: nosvacgooa mow nnooosm po>woouom uo ucwxcdm caozII.ou.m .mum nnnooosm no 09309 m ... m - N H. can: .mm.ln. mmv.mlx noouson uooco: auwuocdl I ahead»: nuowammsu usoa acquaavom Ah. coalz —.oo.nln. mov.ulm adducououuap oouum e mca>em .ov moan: .oo.HIn. www.mlm oocaunwune ucofiomacdfi mcapa>oum Am. - a my . IX . . 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Hmnz - .mm.ua. —mno.anm Houz .nm.no. ems.aum aonz .mam.:u. — ovo.~nm mpuz .vo.no. # Hom.~nm Fonz .om.na. — mnm.aum poscwucooII.ou.m .oah awesome—cu acofiungcn unocwnsm Hag-m onwumuoucm >uuuocq: can Iacsmioo bosons» can aaqocncwu ucqubonm “may noaocome coca u:ol:uo>oo loan mossy sienna mucosa» Saunas? 93.30: 3.3 can Hdwocdcwu uoouwu ucdeboum Aha. accuuuowuaoomu ausooum acacopsoum awn. nuoaammsn moose» auauocda on banana «0 mouooa ucwpu>oum Anny vanacnuoa 105 3. Helping minority vendors secure raw materials and helping minority vendors develop effective purchasing practices ranked fifth and ninth in terms of use, but fourth and third in terms of perceived success when utilized. One possible explanation of this was the expertise which pur- chasing personnel possessed in these areas. 4. Paying a price differential ranked tenth in terms of use (55 percent, N = 181), but fifth in terms of perceived success when utilized. This differed from an earlier question which asked, "Does your corporation pay a price differential to develop competitive minority vendors?" which received a 35 percent (N = 63) affirmative response. One possible explanation of this difference was that the corporation did not have an explicit policy to pay a price differential, but individual buyers may have done so to develop minority vendors. Differences in Problems Between Minority and Nonminority Suppliers Problems encountered when purchasing from minority vendors were contrasted with those problems encountered when purchasing from nonminority vendors. The respondents were provided with seventeen purchasing problems and were asked to rate each problem on a scale ranging from "l"--"not a problem" to "2"--"a moderate problem" to "3"--"a significant problem" for both their minority and nonminority vendors. The highest perceived problems experienced when purchasing from minority vendors included: 107 1. Lack of minority vendors supplying purchased items. 2. Lack of minority vendors at or near operating locations. 3. Insufficient technological expertise. 4. Lack of qualified engineering personnel. 5. Lack of qualified sales personnel. 6. Consistently high prices. The lowest perceived problems experienced when purchasing from minority vendors included: 1. Low quality and high rates of rejected material. 2. Inability to understand purchase specifications. 3. Lack of compliance with purchasing procedures. 4. Failure to submit samples. Ranking problems in terms of perceived differences when pur- chasing from minority and nonminority vendors showed that the areas of greatest difference were (1) lack of qualified engineering per- sonnel; (2) lack of qualified sales personnel; and (3) insufficient technological expertise. The smallest differences between minority and nonminority vendors were present in (1) lack of compliance with purchasing procedures; (2) the failure to deliver on time; and (3) the failure to submit samples. Tables 5.3 and 5.4 list the perceived ratings for problems experienced when purchasing from minority and nonminority vendors and their difference. The perceived problems experienced when purchasing from minority vendors were all greater (from "moderate" to "significant") that those experienced when purchasing from nonminority vendors 108 TABLE 5.3 RANKING OF PROBLEMS WHEN PURCHASING FROM MINORITY & NONMINORITY VENDORS Extent of Extent of Differ- Rank by Number Problem Minority Nonminority ence Difference of Problem Problem in Score Cases Lack of qualified engineering personnel 2.34 1.29 1.05 l 133 Lack of qualified management personnel 2.11 1.28 .83 5 141 Lack of qualified sales personnel 2.27 1.26 1.01 2 145 Insufficient technological expertise 2.33 1.36 .97 3 152 Consistently high prices 2.20 1.48 .72 6 147 Insufficient production . capacity 2.18 1.32 .86 4 ' 151 Failure to respond to phone calls 2.06 1.36 .70 7 154 Failure to meet bid deadlines 2.04 1.53 .51 8 152 Failure to deliver .33 13 151 on time 2.00 1.67 Long lead time required to correct quality problems 1.87 1.44 .43 10 137 Low quality/high rejection rate 1.80 1.36 .44 9 143 Inability to understand purchase specifications 1.80 1.37 .43 10 158 Lack of compliance with purchasing procedures 1.59 1.22 .37 12 143 Failure to submit samples 1.57 1.27 .30 14 137 Scale: "3" = significant problem for minority or nonminority vendors; "2" "1" moderate problem for minority or nonminority vendors; and no problem for minority or nonminority vendors. 109 TABLE 5.4 RANKING OF PROBLEMS UNIQUE TO MINORITY VENDORS Extent of Extent of Differ- Rank by Number Problem Minority Nonminority ence Difference of Problem Problem in Score Cases Lack of minority vendors supplying a purchased items 2.72 N/A N/A 135 Lack of minority vendors at or near operating locations 2.51 N/A N/A 133 Minority serving as a front 1.92 N/A N/A 114 aN/A indicates that problem does not pertain to nonminority vendors. Scale: "3" = significant problem for minority or nonminority vendors; "2" = moderate problem for minority or nonminority vendors; and "l" = no problem for minority or nonminority vendors. 110 (from "no problem" to "moderate"). Respondents were asked to indi- cate how they had overcome the various problems. Problems and solutions suggested by the respondents to overcoming them were: Problem: Solutions: Problem: Solutions: Problem: Solutions: Problem: Solutions: Problem: Solutions: Problem: Solutions: Lack of qualified personnel--engineering, managerial, or sales. Management training at Business Development Organi— zations. Supplying in-company expertise in engineering, manufacturing, and sales to help minority vendors. Conducting sales seminars for minority vendors. Insufficient technological expertise. Provide technical assistance by loaning an engineer or by personal on-site visits with technical staff. Restrict buying to nontechnical items. Utilize college and university technical personnel and courses. Consistently high prices. Try to find out what is causing the difference in price. Review the minority vendor's operation and lend managerial, accounting, and engineering assistance. Pay a price differential. Insufficient production capacity. Train minority vendors in planning and scheduling. Assist in locating capital equipment for expansion. Provide information about capital availability for expansion through MESBICs, SBA, or RMPCs. Orders awarded within minority vendor's capabilities. Failure to respond to phone calls. The buyer calls back as many times as is necessary to get an answer on the first order. On subsequent business, the vendor must call back within a reasonable time period. Don't consider a minority vendor seriously until a responsible return call pattern is established. Stress the importance of returning the phone calls. Perseverance in continuing to call until contact is made. Failure to meet bid deadlines. Educate minority vendors on the need for submitting on time quotes. Communicate and follow-up. Extend bid deadlines. 111 Problem: Minority serving as a front for nonminority businesses. Solutions: Validation through the National Minority Purchasing Council, Regional Minority Purchasing Council, and Small Business Administration. Publicize fronted businesses to other Council members. In each response category, problems experienced when purchasing from minority suppliers were rated higher than those problems experienced with nonminority suppliers. The greatest differences between minority and nonminority vendors were (1) lack of qualified engineer- ing personnel; (2) lack of qualified sales personnel; and (3) insuf- ficient technological expertise. Minority Purchasing Activity Measures Minority purchasing activity measures were: (1) annual minority vendor dollar expenditures; (2) percentage of annual dollar purchases from minority vendors; (3) total number of minority vendors; and (4) respondent's self-perception of minority purchasing program success. A summary of annual minority vendor dollar expenditures per corporation, percentage of annual dollar purchases from minority vendors per corporation, and total number of minority vendors per corporation are shown in Figures 5111, 5.12, and 5.13. A further breakdown of the minority purchasing activity measures is provided in Appendix F. During the years 1976, 1977, and 1978 corporations increased their percentage of annual dollar purchases from minority vendors, total number of minority vendors, and annual minority vendor dollar expenditures. Key findings were: 100- 75- Percent of Respondents 50- 25- 112 N-l41 Nh101 Nh129 (10,001 to (P 25.000) 21 25,000) 7% (10,001 to (5,001 to 10,000) 13% 25,000) 7% (> 25,000) 4% (5,001 to 10,000) 11% (10,001 to 25,000) 9% (2,001 to 5,000) 17% (1,001 to 2,000) 8% 10% (101 to 500) 21% (5 100) 24% 1976 (2,001 to 5.000) 13% (5,001 to 10,000) 10% (1,001 to 2,000) 10% (2,001 to 5,000) 14% (501 to 1.000) 14% (1,001 to 2,000) 17% (101 to 500) 22% (501 to 1,000) 8% ( 5 100) 21% (101 to 500) 20% 1977 (5 100) 18% 1978 Fig. 5.11.--Annual Minority vendor Dollar Expenditures per Corporation (Dollars in Thousands) _ u-as u-113 N-123 100- (2.1% to 5% .>5% 3% 5% ’ ‘ ’ (>50 7% (1.1% to 2%) (2.1% to 5%) (2.1% to 5%) 9% 15% 12% 75_{ (.5% to 1%) (1.04% to 2%) 33‘ 9% (1.1% to 2%) 14% ’ (.5% to 1%) Percent of 4 31‘ I Respondents ( ('5‘ to 1‘) ( 38% -4 5° ; ( 2.5%) 52% (4.5%) 42% ( 2.5%) 25-‘ 29% 1976 1977 1978 Fig. 5.12.--Percent of Annual Dollar Purchases from Minority vendors per Corporation 114 100- N.95 ua125 "'141 ( 27i51) ( 2 251) ( 3 251) 14‘ 15% (101 to 250) 18% (101 to 250) (101 to 250) 13% 15‘ 75 (51 to 100) 15‘ (51 to 100) 13g (51 to 100) Percent of 21‘ Respondents (26 to 50) (26 to 50) SOJ 13g 17% (26 to 50) (11 to 25) 12% 19‘ (11 to 25) 14% (11 to 25) 16% ( 5,10) 25? ( 6 10) 29% 28% ( 5: 10) 21% O- 1976 1977 1978 Fig. 5.13.--Total Number of Minority Vendors Per Corporation Problem: Solutions: Problem: Solutions: Problem: Solutions: Problem: Solutions: Problem: Solutions: Problem: Solutions: Problem: Solutions: 115 Failure to deliver on time. More timely follow-up to insure progress is on schedule. Emphasize importance of on-time delivery and give vendors a "second chance" to improve. Monitor delivery closely and attempt to assist in solving the problem. Vendor evaluation every three months. Long lead time required to correct quality problems. Not a problem if you don't overload the vendor. Anticipate such delays and order accordingly. Go to a second source of supply to cover for longer lead times. Low quality/high rate of rejected material. Quality assurance check of vendor's plant and expla- nation of quality level required. Provide technical assistance to help solve the problem. Reject material and have work redone. Drop supplier from bidders' list. Inability to understand purchase specifications. Review in depth prior to placing an order to insure specifications are understood. Review specifications to make sure they are clear and easy to read. Lack of compliance with purchasing procedures. Communication between buyer and vendor. Simplify procedures on first few orders. Follow-up on paperwork problems and educate vendors on importance. Failure to submit samples. Pay for samples. Inspect vendor's plant. Interview with other customers. Lack of minority vendors supplying purchasing items and lack of minority vendors at or near operating locations. Continued search and suggested development of minority vendors. Go further geographically in the search for minority vendors. Advise MESBIC's of new kinds of businesses that minority owners should establish. Help establish minority vendors. 116 1. In 1976, 48 percent of the respondents spent one-half of 1 percent or more of their total annual dollar purchases with minority vendors. By 1978, 71 percent of the respondents had spent one-half of 1 percent or more of their total annual purchases with minority vendors. In addition, 7 percent of the respondents had spent over 5 percent of their total annual purchases with minority vendors. 2. In 1976 no respondent exceeded $25 million in purchases from minority vendors. By 1978, 4 percent of the respondents had spent over $25 million in purchases from minority vendors. 3. The number of respondents which had more than 251 minority vendors increased from 7 percent in 1976 to 15 percent in 1978. 4. These trends were also reflected in the higher means and medians for each of the activity measures. The median cor- poration's annual minority vendor dollar expenditures increased 77 percent ($706,000 to $1,250,000) from 1976 to 1978. The median total number of minority vendors increased 73 percent (31 to 55) in the comparable time period. Summary The internal minority purchasing practices at most corpor- ations included: (1) having a policy statement on minority vendors; (2) having a person assigned the responsibility for coordinating a minority purchasing program; and (3) having corporate goals for minority purchasing. Less frequently used internal purchasing 117 practices were: (1) minority purchasing goals at the buyer level; (2) in-house training of purchasing personnel and other functional personnel in conducting business with minority vendors; and (3) pay- ing a price differential to minority vendors. Analysis of the demographic data indicated that there was a higher frequency of Black minority vendors and that most minority businesses supplied service-oriented products. The analysis also indicated that minority vendor programs were conducted most fre- quently in the states of California, Illinois, New York, Ohio, Pennsylvania, and Texas. The major responsibilities of the minority vendor coordinator were to (1) act as a central data source in providing information about minority vendors; (2) identify new minority vendors; and (3) monitor purchases made from minority vendors. Techniques used most successfully in locating minority vendors. included: (1) external directories; (2) membership in the National or Regional Minority Purchasing Councils; (3) buyer-initiated con- tacts with minority vendors; and (4) internally developed corporate directories. Providing technical assistance and breaking up larger pur- chases into smaller quantities were the most used and most successful techniques to develop minority vendors. A price differential to develop additional minority vendors was paid by 55 percent (N = 181) of the sample. The perceived problems experienced when purchasing from minority vendors were all greater than those experienced when 118 purchasing from nonminority vendors. Greatest problem differences between minority and nonminority vendors were lack of qualified engineering and sales personnel and lack of technological expertise. Minority purchasing activity measures in terms of annual minority vendor dollar expenditures, percentage of annual dollar purchases from minority vendors, and total number of minority vendors increased in every category from 1976 to 1978. CHAPTER VI RESULTS AND DISCUSSION This chapter presents and discusses the results of the hypotheses tests developed for the following major classifications: 1. Internal Purchasing Practices 2. Corporation Size and Year of Program Initiation 3. Geographic Data 4. Program Coordinator Responsibilities 5. Minority Vendor Sourcing 6. Development of Minority Vendors 7. Differences in Problems Between Minority and Non- minority Vendors Minority purchasing activity measures used to test the hypotheses were (1) self-perceived success; (2) annual minority vendor dollar expenditures for 1978; (3) total number of minority vendors in 1978; and (4) the percentage of annual dollar purchases from minority vendors in 1978.1 The hypotheses sought to determine which inde- pendent variables were most closely associated with each of the four minority purchasing activity measures. 1The reasons for selecting these minority purchasing activity measures were discussed in Chapter IV. 119 120 Each discussion of the research results is preceded by the statement of the null hypothesis tested and type of statistical analyses used. Correlational analyses, T-tests, and multiple regression analyses were the major statistical procedures employed in the hypotheses testing.2 Multiple regression analyses were performed on Hypotheses l, 2, 3, 6, 8, and 10. The first three hypotheses dealt with internal minority purchasing practices, year of program initiation, and size of the corporation. Hypotheses 6, 8, and 10 were concerned with annual frequency with which job responsibilities were performed by minority vendor coordinators and perceived success experienced with techniques used to locate and develop minority vendors. Multiple regression analyses were performed using pairwise deletion to maximize the total sample size. Pairwise deletion may influence validity upon reproducing results unless samples are quite similar. It does not, however, bias the multiple correlation coef- ficients. Results of the tests were also analyzed using listwise deletion, and results similar to those for pairwise deletion were obtained (see Table 6.4). Using pairwise deletion makes reporting of sample size impractical since every independent and dependent variable pair could contain a different sample size. Due to the impracticality and low meaningfulness of reporting individual n's, they are not shown in the multiple regression tables. 2 . . . . Reasons for selecting these statistical techniques were discussed in Chapter IV. 121 What is shown in each of the tables is the overall multiple cor- relation coefficient (rz) and significance level (p). Internal Purchasing Practices gypothesis l: There is no relationship between minority purchasing activity and the existence of the following purchasing policies, pro- cedures, and techniques: --a corporate policy statement about minority purchasing --chief executive support for minority purchasing programs —-corporate minority purchasing goals --buyer minority purchasing goals --an individual responsible for coordinating the minority purchasing program --payment of a price differential to develop minority vendors --inclusion of minority vendor goal achievement in buyer performance appraisal --identification of minority vendors --development of minority vendors --frequency of reports of minority purchasing program results. A multiple regression analysis was performed using the ten variables listed in the null hypothesis. The results of the multiple regression are shown in Table 6.1. This table also illustrates the multiple regression values for the ten internal purchasing practices, corporate size, and year of program initiation to facilitate com- parisons. Self-perceived success, r2 = .431 (p.: .001), and total number of minority vendors, r2 = .236 (p fi_.05), were significantly related to the minority purchasing activity measures. Annual minority vendor dollar expenditures and percentage of annual pur- chases from minority vendors were not significantly related to the minority purchasing activity measures. In order to determine which of the internal purchasing practices had stronger relationships with the activity measures, 122 TABLE 6.1 MULTIPLE REGRESSION ANALYSIS OF INTERNAL PURCHASING PRACTICES AND MINORITY PURCHASING ACTIVITY MEASURES Minority Purchasing Ten Internal en nternal . . T I PurchaSing Practices, Activity Measures PurchaSing Corporate Size, Practices Program Year Self-perceived success .431 .486 (.001) (.001) Percentage of annual .051 .102 dollar purchases from (.828) (.949) minority vendors Annual minority vendor .081 .369 dollar expenditures (.388) (.007) Total number of .236 .562 minority vendors (.050) (.001) ar2 = multiple regression coefficient. p = significance level. 123 a sub-hypothesis was tested for each practice. Statistical analyses were done using correlation analyses. The results of these analyses are shown in Table 6.2. Self-perceived success had the strongest relationship with the internal purchasing practices with a median correlation of r = .36 and significant correlations (p f_.05) with nine independent variables. Total number of minority vendors had significant cor- relations (p :_.05) with nine independent variables and a median correlation of r = .17. Annual minority vendor dollar expenditures and the percentage of annual dollar purchases from minority vendors had median correlations of .07 and .005 respectively. Each internal purchasing practice was then analyzed with the minority purchasing activity measures in terms of (1) those having the highest median correlations with all four minority purchasing activity measures and (2) those having a larger number of correlations with significance at the .05 level or better. In terms of the above analysis, those four variables most closely associated with the minority purchasing activity measures were: 1. Consideration of minority purchasing achievement in per- formance appraisal. 2. The degree of chief executive support for the minority purchasing program. 3. Policy statement regarding purchases from minority vendors. 4. Minority purchasing goals set at corporate level. 124 xua>fluom mcammcousm anemones m m m m m\m ou mflnmcoflumamu 0: WWW. WWW. mm“. ”mm. 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Hoo. pm 0: m>mn Hm>ma mumuomuoo vm. ma. mo.| mg. on mnu um pom mamow “om muoocm> mmusuflpcmmxm mmmmnousm mmmoosm >0flHOCHz mo HmHHOQ Honcm> HMHHOQ Hmsccfi pm>flmouwm mammnuomhmlnsm umnEsz Hmuoa xufiuocflz Hanged mo mmmucmoumm («How mmmzmfimz >BH>HBU< UZHmdemDm >BHmOzHZ QZ< mmmmmfiomwmlmDm m0 N.© mqmdfi mmm>4¢z< ZOHBdAmmmOU 125 >ua>fluom m m m m m\m mafimmnousm >ufluocfla flea ava. mma oma. z o» mflnmcoaumamu 0: mm: goo” voa. mmmn H00. 9 ucmeumum >UAH0Q cmuufluz mm HH «0 0m u m mo mocmumflxm one "om >DH>Huom mew m m m a m\m (monousm xuauocfle on mean MMM. WNW. WNW. ”mm. M (coflumamu 0c mm: muoncm> . . . . >ufluocfls medm>mp ou @Hmm 40 mo . ma . mm H mamflucmumemnc moflum no: >ua>fluom mcflmmnousm m m m m m\m >DHHOCHE ou manmcoaumamu mma oma moa moa z 0: mm: mucmsuummmp umnuo mac. mmm. mom. Hoo. o now mnoccm> xufluoces usonm ma. co. 00.: mm. M mcoflmmmm madcamuu mmsonnca mo coaumuumwcflsc< no: >uw>fluom mafimmnousm wuHMOCHE OD mflnmcoduma m m m m m\m (mu 0: mm: mucmauummmp ova. ova. mma. mma. M mcfimmnousm new unoccm> vmo. com. own. Hoo. muwuocfie usono mconmmm ma m0 m0 mm H mcficamuu mmDOSICH mo cowumuumecnsem no: muoccm> mmusuflccmmxm mommnousm mmmoosm xufiuocflz mo HMHHOQ uoccm> MMHHOQ Hmsc:¢ Um>flwouwm mflmmnuom>munsm Hmnfisz amuoe >ufluocflz Hmscc¢ mo mmmucmoumm Imamm OTDGHUCOUIIN . O mam/NH. 126 .vmuomnmu mammnuomms n m .omuuommsm mammnuomwn n m .mnam mamfidm u z .Hm>ma mocmoamacmflm u m .ucmfioflmmmoo cofluwamuuoo u u m\m mxm O\HH m\m m\m 5H. no. moo. mm. H mcoflumamuuoo cmwpmz >0fl>auom moammzousm m m m m m\m >DHMOCHE on mangOADMH mad. mad. voa. voa. M (on 0: mm: ucmscum>oo vma. oam. moo. oaa. u Hmumomm mnu on mmamm oo no ma oa mo mmmucmoumm one "om m m m m m\m >ua>nuom mcammnousm Hes Hes mma mma z sufluocws ou menmcoflumamu Hoo. ooo. omm. Hoo. m 0: mm: uuommsm m>flusomxm mm. Hm. mo. om. u mmfinu mo mmummo was no: >ufl>fluom magmmcousm m m m m m\m >DHHOGHE ou manmcoaumamn ova. ova. NNH. mma. m on was Hm5©fl>aocfl moo mmo. Nam. who. Hoo. H on xuflafibflmcommmu Emumoum ha no moo - gm mo ucmscmfimmm one no: mHOpcm> mmusufiocwmxm mommnousm mmmoosm xufluocflz mo umaaoo Hoocm> umHHoo Hmscsfi om>flmoumm mammnuom>mlnsm umnasz Hmuoa >ufiuocflz Hooded mo mmmucmoumm Imamm UGDCHUCOUIIN . w Mdmdh. 127 Discussion: The hypothesis was supported in terms of per- centage of annual dollar purchases from minority vendors and annual minority vendor dollar expenditures. It was rejected in terms of self-perceived success and total number of minority vendors. The ten variables listed in Hypothesis 1 consisted of those purchasing practices which were frequently discussed in the literature as neces- sary for active and successful minority purchasing programs. Self-perceived success had the strongest relationship with the internal purchasing practices. It appears this resulted from (1) those respondents who had more internal purchasing practices in operation viewed their programs as being more successful and (2) the possible influence of the published literature which suggests that program success is contingent on use of the aforementioned internal purchasing practices. However, the existence of policies and pro- cedures alone may not be sufficient to explain minority purchasing activity unless the program received support from top management and results were made part of the performance appraisal process. This was verified by analyses which showed top management commitment to a minority purchasing program and consideration of minority pur- chasing achievement in buyer performance appraisals having the highest positive relationship to minority purchasing activity measures . 3Chicago United, A Practical Guide to Starting or Improving a Minority Purchasing Program (Chicago: Chicago United, 1975), p. 2. 128 Hypothesis 2: There is no relationship between minority purchasing activity and the ten independent variables (listed in the previous hypothesis) and year of program initiation and corporate size. The major reason for testing this hypothesis was to determine the impact of corporate size and year of program initiation in con- junction with the ten independent variables. Corporate size was not directly addressed by the questionnaire. However, total 1978 sales of the eighty-nine corporations who identified themselves on the questionnaire was used as a surrogate measure for size. Multiple regressions were performed using the ten independent variables, year of program initiation, and corporate size and the minority purchasing activity measures of self-perceived success, annual minority vendor dollar expenditures for 1978, total number of minority vendors for 1978, and percentage of annual dollar purchases from minority vendors in 1978. The results of the multiple regression analyses are shown in Table 6.1 and were significant for all activity measures except percentage of annual dollar purchases from minority vendors. Discussion: The null hypothesis was rejected for self- perceived success, annual minority vendor dollar expenditures, and total number of minority vendors. It was supported in terms of per- centage of annual dollar purchases from minority vendors. The effect of year of program initiation and corporate size was greatest for annual minority vendor dollar expenditures and total number of minority vendors. The reported r2 increased from .081 129 (p §_.388) to .369 (p g .007) for annual minority vendor dollar expenditures and from .236 (p.: .05) to .562 (p.: .001) for the total number of minority vendors. As expected, these were the two minority purchasing activity measures most closely associated with corporation size. In addition, larger corporations started their minority purchasing programs earlier. The addition of corporation size and year of program initiation did not appreciably change the multiple regression coefficients for self-perceived success. Corporation Size and Year of Program Initiation Hypothesis 3: There is no relationship between minority purchasing activity and corporation size and year of program initiation. The analysis was done in two ways. First, correlation analyses for each variable and the activity measures were performed. Secondly, a multiple regression using year of program initiation and corporation size as independent variables was performed. The results of the correlation analyses are shown in Table 6.3. Correlations between the activity measures and corporation size and year of pro- gram initiation were all significant (p‘: .05) except for percentage of annual dollar purchases from minority vendors. The multiple regression analyses using pairwise and listwise deletions are shown in Table 6.4. Discussion: The null hypothesis was rejected in terms of self-perceived success, annual minority vendor dollar expenditures, and total number of minority vendors. It was supported in terms of 130 TABLE 6.3 CORRELATION ANALYSES BETWEEN CORPORATION SIZE AND YEAR OF PROGRAM INITIATION AND MINORITY PURCHASING ACTIVITY MEASURES Minority Purchasing Corporation Year of Program Activity Measures Size Initiation Self-perceived success ra .34 .38 pb .001 .001 NC 88 166 Percentage of annual r -.22 .01 dollar purchases 049 475 from minority vendors p ° ' N 57 113 Annual minority vendor r .53 .24 dollar expenditures p .001 .003 N 68 131 Total number of r .68 .39 minority vendors p .001 .001 N 64 130 correlation coefficient. a r: b . . . p = Significance level. C . N = sample Size. 131 TABLE 6.4 MULTIPLE REGRESSION ANALYSES OF CORPORATION SIZE AND YEAR OF PROGRAM INITIATION WITH MINORITY PURCHASING ACTIVITY MEASURES Corporation Size & Corporation Size & Minority Purchasing Year of Program Year of Program Activity Measures Initiation Initiation (Pairwise) (Listwise) 2a Self-perceived success r .21 .13 pb .001 .005 Percentage of annual r2 .05 .06 dollar purchases p .237 .211 from minority vendors Annual minority vendor r2 .29 .33 dollar expenditures p .001 .001 Total number of r2 .50 .49 minority vendors p .001 .001 multiple regression coefficient. H II significance level. '0 II 132 percentage of annual dollar purchases from minority vendors. Cor- porate size and year of program initiation were positively related to all minority purchasing activity measures except percentage of annual dollar purchases from minority vendors. The hypothesized results were supported using both pairwise and listwise multiple regression analyses. Major findings with regards to the issue of corporate size were that (1) larger corporations spent more dollars with minority vendors and had more minority vendors than did smaller corporations and (2) larger corporations spent a lower percentage of their total annual purchase dollars with minority vendors. Possible explanations of these findings were as follows: 1. Self-perceived success was highly related to corporation size. .Larger corporations had been involved with minority purchasing for a longer period of time and received more publicity for their efforts in the area of minority vendor purchasing. As a result, coordinators had a higher self- perception of success. 2. Total number of minority vendors and annual minority vendor dollar expenditures were highly related to corporation size. Typically, the larger the corporation (1) the more dollars spent for purchases and (2) those items which could be pur- chased from minority vendors amounted to larger dollar expenditures corporate wide. For example, purchasing gloves or other supply and service items could amount to a large purchase expenditure in larger corporations. 133 3. Percentage of annual dollar purchases from minority vendors is inversely related to corporation size. The larger cor- porations spent lower percentages of their purchase dollar with minority vendors. Possible explanations of this include: (1) in many cases larger corporations are con- strained by the minority vendor's limited capacity and (2) many large dollar purchases are made from other large industrial concerns due to large capital investments neces— sary to provide economies of operation-~such as steel and chemical industries. Year of program initiation had lower correlations with the activity measures than did corporation size; however, year of program initiation was significantly (p fi_.05) related to the minority pur- chasing activity measures in all cases except percentage of annual dollar purchases from minority vendors. This indicated that the earlier a program was established: (1) respondents perceived their programs as more successful; (2) annual minority vendor dollar expenditures were greater; and (3) total number of minority vendors were higher. It appears that many of the activities involved with minority purchasing require time to establish, implement, and monitor. Some examples of these time-related activities are: (1) training buyers about minority purchasing; (2) time involved in locating minority vendors; and (3) assisting minority vendors to become qualified suppliers. Patience appears necessary due to the time required to establish active minority purchasing program practices. 134 Corporation size and year of program initiation were also highly related with many of the other independent variables. For this reason, the relationship of these two variables were analyzed in conjunction with each of the following research hypotheses, and results are reported in the following discussion sections for each hypothesis. Geographic Data Hypothesis 4: There is no relationship between minority purchasing activity and the number of states in which a corporation operates minority purchasing programs. Each corporation was assigned a numerical score for the total number of states in which it had purchasing locations with minority purchasing programs. For example, a corporation with minority purchasing programs in three states would receive a score of "3"; a corporation with minority programs in fifty states would receive a score of "50." This score was then correlated with each minority purchasing activity measure. Tables 6.5 and 6.6 show the results of these correlation analyses. Correlations were significant (p :_.05) for all minority purchasing activity measures except annual minority vendor dollar expenditures. Discussion: The null hypothesis was supported in terms of annual minority vendor dollar expenditures and was rejected for per- centage of annual dollar purchases from minority vendors, total number of minority vendors, and self-perceived success. Those corporations operating minority purchasing programs in more states 135 TABLE 6.5 CORRELATION ANALYSES BETWEEN NUMBER OF STATES IN WHICH CORPORATIONS HAVE MINORITY PURCHASING PROGRAMS AND MINORITY PURCHASING ACTIVITY MEASURES Correlation Results of Total Minority Purchasing Number of States in which Activity Measures Corporations Have Minority Purchasing Programs Self-perceived success ra .20 Pb .003 NC 186 Percentage of annual r -.17 dollar purchases p .029 from minority vendors N 123 Annual minority vendor r .04 dollar expenditures p .308 N 141 Total number of r .31 minority vendors p .001 N 141 ar = correlation coefficient. b . . . p = Significance level. c . N = sample Size. 136 TABLE 6.6 CORRELATION ANALYSES BETWEEN NUMBER OF STATES IN WHICH CORPORATIONS HAVE MINORITY PURCHASING PROGRAMS AND CORPORATE SIZE AND YEAR OF PROGRAM INITIATION Correlation Results of Total Number of States in which Corporations Have Minority Purchasing Programs Independent Variables Size of corporation r .39 pb .001 NC 89 Year of program initiation r .13 P .044 N 169 a correlation coefficient. *1 II significance level. "0 II N = sample size. 137 perceived themselves as more successful, spent a smaller percentage of their total purchase dollars with minority vendors, and had more minority vendors. As previously mentioned, no difference was found between annual minority vendor dollar expenditures and the number of states which had purchasing locations operating minority purchasing programs. One possible explanation was: (1) the questionnaire did not collect data on the number of minority purchasing programs each corporation had within a particular state and (2) a corporation which had many purchasing locations operating minority purchasing programs in a few states could show large minority vendor dollar expenditures. For example, a large industrial manufacturer headquartered in Detroit with all of its divisions in Michigan, Ohio, and Indiana would only receive a score of "3." Corporation size and year of program initiation were related to the number of states in which purchasing departments conducted minority purchasing programs. Those corporations which operated minority purchasing programs in more states were larger and had established their minority purchasing programs earlier. Program Coordinator Responsibilities Hypothesis 5: There is no relationship between minority purchasing activity and the number of different responsibilities performed by the minority purchasing coordinator. These responsibilities include: --conducting in-house training sessions about minority vendors --acting as a central data source in providing information about minority vendors --identifying minority vendors for purchasing departments --identifying minority vendors for other departments 138 --identifying purchased items which have potential for minority vendor sourcing --providing assistance to purchasing personnel in solving minority vendor problems --providing assistance to minority vendors --participating in setting minority purchasing goals --monitoring purchases made from minority vendors. In order to measure the job responsibilities performed, each corporation was assigned a numerical score for the total number of functions performed by the coordinator. For example, a minority purchasing coordinator who had indicated the performance of four job responsibilities would have received a score of "4." The score was then correlated with each activity measure. The analyses resulted in correlations of .29 (p :_.001, N = 160) for self-perceived success and .17 (p j_.025, N = 127) for total number of minority vendors. Lower relationships were found between the annual minority vendor dollar expenditures, r = -.06 (p j_.24, N = 129), and the percentage of annual dollar purchases from minority vendors, r = -.09 (p f_.l7, N = 108). Discussion: The null hypothesis was rejected in terms of self—perceived success and the total number of minority vendors. It was supported for annual minority vendor dollar expenditures and per- centage of annual purchases from minority vendors. It appeared that minority purchasing program coordinators performing many functions perceived themselves as putting effort into a successful program. However, this may not result in Spending more dollars with minority vendors. In addition, the earlier the year of program initiation, the larger the number of job responsibilities performed by the minority 139 purchasing program coordinator, r = .24 (p §_.001, N = 150). Cor- poration size was found to be unrelated to the number of job responsibilities performed by the minority purchasing program coordinator. Hypothesis 6: There is no relationship between minority purchasing activity and the annual frequency with which responsibilities (as listed in the previous hypothesis) were performed by the minority purchasing coordinator. The analyses were performed by (l) correlating the annual frequency with which responsibilities were performed and the minority purchasing activity measures and (2) multiple regressions using the annual frequency with which responsibilities were performed. Correlations were analyzed to determine which variables had the strongest relationships with the minority purchasing activity measures. Table 6.7 shows the results of these analyses. A multiple regression was also performed with the annual frequency of performance for all nine job responsibilities and is shown in Table 6.8. Annual minority vendor dollar expenditures had a r2 value of .459 (p E .013) while the other activity measures had r2 values of less than .25. A multiple regression analysis was then performed using the three independent variables which accounted for most of the variation in the minority purchasing activity measures. The three job responsibilities were (1) conducting in-house training sessions about minority vendors; (2) providing assistance to minority Vendors; and (3) providing assistance to purchasing personnel 140 TABLE 6.7 CORRELATION ANALYSES OF FREQUENCY IN PERFORMING JOB RESPONSIBILITIES AND MINORITY PURCHASING ACTIVITY MEASURES Percentage of Annual Annual Total Self- Purchases Minority Number Responsibilities Perceived Dollar of from . . . Success . . Expendi- Minority Minority tures Vendors Vendors ' - 'k * * * Conducts in house .21 .28 .37 .40 training seSSions Provides information * * . . . 2 . .02 . 5 about minority vendors 3 O4 3 Identifies purchases * * * items for minority .30 .08 .14 .18 vendors Identifies new minority * * vendors for purchasing .40 —.Ol -.03 .25 departments Identifies new minority * * vendors for other .25 .04 .02 .18 departments Provides assistance in * * * * solving minority vendor .36 .14 .28 .31 problems . . * * * * PrOVides aSSistance to .36 .27 .38 .32 minority vendors Participates in setting * * minority vendor purchase .26 -.01 .Ol .20 goals ‘ 'k k 'k Monitors purchases made .25 .21 .00 .21 from minority vendors * * Median .30 .08 .02 .25 a * significant, p :_.05. r = correlation coefficient. 141 TABLE 6.8 MULTIPLE REGRESSION ANALYSES OF FREQUENCY IN PERFORMANCE OF JOB RESPONSIBILITIES Minority Purchasing Nine Job Three Job c Activity Measures Responsibilities Responsibilities 2a Self-perceived success r .22 .170 pb .082 .007 2 Percentage of annual r .22 .14 dollar purchases p .139 .080 from minority vendors Annual minority vendor r2 .459 .191 dollar expenditures p .013 .003 Total number of r2 .23 .198 minority vendors p .061 .003 2 . . . . r = multiple regreSSion coeffiCient. bp = significance level. CThree job responsibilities were: conducting in-house train- ing session about minority vendors; providing assistance to minority vendors; and providing assistance to purchasing personnel in solving minority vendor problems. 142 in solving minority vendor problems. The multiple regression results using only these three independent variables is also shown in Table 6.8. The reported multiple regression coefficients between these three job responsibilities and the minority purchasing activity measures were: (1) self-perceived success, r2 = .170 (p f .007); (2) annual minority vendor dollar expenditures, r = .191 (p f_.003); and (3) total number of minority vendors, r2 = .198 (p f_.OO3). Discussion: The null hypothesis was supported except in the case of annual minority vendor dollar expenditures. The three inde- pendent variables which accounted for most of the variance in the nine job responsibilities were: 1. Conducting in-house education and training sessions about minority vendors. 2. Providing assistance to minority vendors (managerial, financial, technical, etc.). 3. Providing assistance to purchasing personnel in solving minority vendor problems. The three responsibilities which were most highly related to the minority purchasing activity measures were lower rated (ninth, fifth, and seventh respectively) in terms of frequency of performance across the entire sample. It appears that these responsibilities are much more problem-solving (assistance) type responsibilities than the primarily administrative responsibilities which were ranked higher in the overall sample. A possible explanation is that minority program coordinators at corporations having active 143 programs assume a more aggressive role in solving problems associated with minority vendors. Minority Vendor Sourcing Hypothesis 7: There is no relationship between minority purchasing activity and the number of sourcing techniques used to locate minority vendors. These sourcing techniques are: --buyer-initiated contacts with minority vendors --advertising for sources in minority publications --distributing brochures describing products purchases --attending minority trade fairs --exhibiting at minority trade fairs --external directories --membership in NMPC or RMPC --membership in NAPM --internally developed corporate directories. In order to measure sourcing techniques used, each corpor- ation was assigned a total numerical score for the number of tech- niques which it used. For example, a minority purchasing coordinator who used buyer-initiated contacts and external directories to locate minority vendors would receive a score of "2." This score was then correlated with each dependent variable resulting in correlations of r = .42 (p :_.001, N = 174) for self-perceived success; r = .22 (p :_.006, N = 133) for total number of minority vendors; r = .06 (p :_.24, N = 134) for annual minority vendor dollar expenditures; and r = -.05 (p.: .29, N = 117) for percentage of annual dollar purchases from minority vendors. Discussion: The null hypothesis was rejected in terms of total number of minority vendors and self-perceived success. It was supported in terms of annual minority vendor dollar expenditures 144 and percentage of annual dollar purchases from minority vendors. One explanation for this was that the use of multiple sourcing techniques did assist a corporation in locating more minority vendors. The year of program initiation and corporation size were both related to the number of sourcing techniques used. The earlier the year of program initiation, r = .04 (p :_.001, N = 157), and the larger the corporation, r = .24 (p :_.016, N = 82), there are more sourcing techniques which are used. Larger corporations having more resources can usually develop more of these sourcing techniques. Hypothesis 8: There is no relationship between minority purchasing activity and perceiVed success in using the sourcing techniques (as listed in the previous hypothesis). The analysis was performed in two stages. First, calculations . 4 . were made which averaged the success score for each corporation across all techniques. For example, a respondent who indicated using three techniques with perceived success scores of 2, 3, and 4 received an average success score of "3." These averages were cor- related with the activity measures. Secondly, multiple regressions were performed using the perceived degree of success on the sourcing techniques as independent variables. 4Each respondent indicated a perceived degree of success for each technique on the questionnaire. The degrees were "no success" (1), "little success" (2), "some success" (3), "considerable success" (4), "a great deal of success" (5). 145 The relationship between average perceived success and minority purchasing activity produced significant relationships with (l) self-perceived success, r = .37 (p f_.001, N = 186) and (2) total number of minority vendors, r = .17 (p §_.024, N = 141). Relationships with the other minority purchasing activity measures were lower. Percentage of annual dollar purchases from minority vendors had a correlation coefficient of .03 (p §_.36, N = 123), and total minority vendor dollar expenditures had a correlation coefficient of .05 (p f_.27, N = 141). The results of the multiple regression analysis with the nine sourcing techniques are shown in Table 6.9. Only self-perceived success was significant at the .05 level or better. The four sourcing techniques which explained most of the variation in the activity measures were selected and analyzed using multiple regression analysis. These four key sourcing techniques were: 1. Buyer-initiated contacts with minority vendors. 2. Internally developed corporate directories. 3. Advertisement for sources in minority publications. 4. Distribution of brochures and pamphlets to minority vendors describing products purchased. The results of the multiple regression analysis using these four sourcing techniques are shown in Table 6.9. Both self-perceived success and total number of minority vendors were significantly related to the minority purchasing activity measures. 146 TABLE 6.9 MULTIPLE REGRESSION ANALYSES OF PERCEIVED SUCCESS WITH SOURCING TECHNIQUES Minority Purchasing Nine Sourcing Four Sourcing Activity Measures Techniques TechniquesC 2a Self-perceived success r .373 .317 pb .005 .000 Percentage of annual r2 .154 .076 dollar purchases p .663 .104 from minority vendors 2 Annual minority vendor r .135 .095 dollar expenditures p .632 .075 Total number of r2 .212 .129 minority vendors p .241 .029 2 . . . . r = multiple regreSSion coeffiCient. p = significance level. cFour sourcing techniques are: buyer-initiated contacts with minority vendors; internally developed corporate directories; adver- tisement for sources in minority publications; and distribution of brochures and pamphlets to minority vendors describing products pur- chased. 147 Discussion: The null hypothesis was rejected in terms of self-perceived success but was supported in terms of annual minority vendor dollar expenditures, total number of minority vendors, and percentage of annual dollar purchases from minority vendors. In terms of perceived success, those sourcing techniques which were most closely associated with greater minority purchasing activity were: 1. Buyer-initiated contacts with minority vendors. 2. Internally developed corporate directories. 3. Advertisement for sources in minority publications. 4. Distribution of brochures and pamphlets to minority vendors describing products purchased. The relationship between minority purchasing activity and advertising for minority vendors in minority publications and distributing brochures and pamphlets to minority vendors describing purchased products was surprising in view of the fact that when analyzing the entire sample, they were ranked quite low in respondent perception of their sucéessfulness and degree of use. Advertising in minority publications appears to be a method which those corporations active in minority purchasing successfully utilize in attracting potential minority vendors. Additionally, the focus of the sourcing techniques explaining most of the variance were those over which the corporation had direct control and input. External directories, associations, and trade fairs may provide a good starting base for sourcing; however, those corporations 148 experiencing greater minority purchasing activity relied on success- ful use of the internal techniques such as internally developed directories, advertising in minority publications, and brochures and pamphlets tailored to their Specific corporation. Year of program initiation and corporate size were found to be related to the average success score. Those corporations having initiated their minority purchasing programs earlier, r = .25 (p f. .001, N = 169), and larger corporations, r = .32 (p :_.001, N = 89), perceived greater success when using sourcing techniques. Development of Minority Vendors Hypothesis 9: There is no relationship between minority purchasing activity and the number of supplier development techniques used to develop minority vendors. These supplier development techniques are: --broadening product specifications --breaking up large purchases into smaller quantities --requiring that your suppliers utilize minority vendors --simplifying paperwork requirements --awarding long-term contracts --providing longer vendor quotation times --providing special payment terms --providing technical assistance --providing management assistance -—providing direct financial aid --providing financial aid through company run MESBICS --providing prepayment on large dollar or long lead time items --providing letter of credit to minority vendor's suppliers -—helping minority vendors obtain funds from government loan agencies --helping minority vendors develop effective purchasing practices --helping minority vendors secure raw materials --paying a price differential --allowing longer lead times —-broadening acceptable quality levels. 149 In order to measure development techniques used, each cor- poration was assigned a total score for the number of different development techniques used. For example, a minority purchasing coordinator who provided technical assistance, direct financial aid, and longer quotation times received a score of "3." This score was then correlated with each minority purchasing activity measure and resulted in correlations of r .32 (p :_.001, N = 166) for self- perceived success; r = .08 (p :_.l83, N = 130) for total number of minority vendors; r = -.01 (p.: .465, N = 115) for annual minority vendor dollar expenditures; and r = -.01 (p f_.474, N = 130) for percentage of annual dollar purchases from minority vendors. Discussion: The null hypothesis was supported for all minority purchasing activity measures except self-perceived success. Performing a greater number of development techniques had no relationship to program activity in terms of annual minority vendor dollar expenditures, total number of minority vendors, or percentage of annual dollar purchases from minority vendors. Performing a greater number of development techniques did influence how success- ful a minority purchasing program was perceived to be but did not influence the annual minority vendor dollar expenditures or total number of minority vendors. It appears that all corporations used several of the techniques. Year of program initiation was found related to the number of sourcing techniques used. Those corporations having older pro- grams had used more supplier development techniques, r = .26 (p fi_ .001, N = 150). Larger corporations did not use a greater number 150' of sourcing techniques than did smaller corporations, r = -.07 (p :_.275, N = 80). The more experience a corporation had in minority purchasing, the more development techniques it used. Both large and small corporations used the same number of development techniques. Hypothesis 10: There is no relationship between minority purchasing activity and perceived success in using supplier development techniques (as listed in the previous hypothesis) with minority vendors. The analysis was performed in two stages. First, the average 5 . success score for each corporation was calculated. For example, a respondent who indicated using three sourcing techniques with per- ceived success'of 2, 3, and 4 received an average success score of "3." These average scores were then correlated with the activity measures. Secondly, multiple regression analyses were performed using the degree of perceived success in using development techniques as independent variables. The relationship between average perceived success and minority purchasing activity produced significant relationships with self-perceived success, r = .27 (p < .001, N = 160). Nonsignificant relationships were r = .14 (p < .058, N 128) for total number of minority vendors; r = -.06 (p < .264, N 112) for percentage of annual dollar purchases from minority vendors; and r = .01 (p E .443, N = 131) for annual minority vendor dollar expenditures. 5Each respondent indicated a perceived degree of success for each sourcing technique used on the questionnaire. The degrees were "no success" (1), "little success" (2), "some success" (3), "con- siderable success" (4), "a great deal of success" (5). 151 The results of the multiple regression are shown in Table 6.10. All minority purchasing activity measures were sig- nificant except self-perceived success and percentage of annual dollar purchases from minority vendors. The six development techniques which explained most of the variation in the activity measures were selected and analyzed using multiple regression analyses. These six key development techniques were: 1. Broadening product specifications. 2. Providing special payment terms. 3. Providing financial aid through company-run Minority Enterprise Small Business Investment Companies. 4. Helping minority vendors obtain funds from government loan agencies. 5. Helping minority vendors develop effective purchasing practices. 6. Paying a price differential. Multiple regression analyses performed with these six development techniques resulted in significant findings for all activity measures except percentage of annual dollar purchases from minority vendors. Table 6.10 shows the results of this analysis. Discussion: The null hypothesis was rejected for annual minority vendor dollar expenditures and total number of minority vendors. It was supported for self-perceived success and percentage of annual dollar purchases from minority vendors. In terms of 152 TABLE 6.10 MULTIPLE REGRESSION ANALYSES OF PERCEIVED SUCCESS WITH MINORITY VENDOR DEVELOPMENT TECHNIQUES Minority Purchasing Nineteen Development Six Development Activity Measures Techniques TechniquesC a Self-perceived success r .519 .43 b p .582 .010 Percentage of annual r2 .509 .20 purchases from minority vendors p '615 '074 Annual minority vendor r2 1.00 .602 dollar expenditures p .000 .000 2 Total number of r 1.00 .54 minority vendors p .000 .000 2 c r = multiple regression coeffiCient. p = significance level. CSix development techniques are: broadening product specifi- cations; providing special payment terms; providing financial aid through company-run MESBIC's; helping minority vendors obtain funds from government loan agencies; helping minority vendors develop effective purchasing practices; and paying a price differential. 153 perceived success, four of the six development techniques most highly related to the minority purchasing activity measures involved providing financial assistance. These were: 1. Providing special payment terms. 2. Providing financial aid through company-run Minority Enterprise Small Business Investment Companies. 3. Helping minority vendors obtain funds from government loan agencies. 4. Paying a price differential. For the entire sample, financial assistance provided by MESBICS and corporate assistance in obtaining funds from government agencies were the two lowest ranked development techniques in terms of self-perceived success. Fifty-one of the respondents used MESBICs and the overall perceived success rating was 1.679 ("l"--no success; "2"--1itt1e success; "3"--some success; "4"--considerable success; and "5"--a great deal of success). Helping minority vendors obtain funds from government loan agencies had an overall rating of 1.754 (N = 61). These two types of financial assistance were highly related, however, to the minority purchasing activity measures. It appears that some provision of financial assistance either directed towards providing capital, starting or expanding a business, or in terms of price relief through the payment of a price differential or favorable payment terms is necessary in continuing to increase the number of minority vendors and annual minority vendor dollar expenditures. 154 The strong relationship of development techniques and annual minority vendor dollar expenditures and total number of minority vendors supports the reasoning that it is quite important to utilize supplier development techniques for sustaining an active minority purchasing program. It appears that purchasing personnel should be advised to become familiar in utilizing various develop- ment techniques with minority vendors. Year of program initiation and corporate size were also found to be related to the average success score. Those corporations having initiated minority purchasing programs earlier, r = -.15 (p :_.O33, N = 149), and those corporations which were larger in size, r = .21 (p :_.031, N = 81), perceived greater success when using development techniques. Differences in Problems Between Minority and Nonminority Suppliers Hypothesis 11: There is no perceived difference in purchasing problems between a corporation's minority and nonminority suppliers. These problems include: --inability to understand purchase order specifications --insufficient technological expertise --insufficient production capacity --failure to meet bid deadlines --failure to respond to phone calls --fai1ure to submit samples --failure to deliver on time --low quality/high rate of rejected material --long lead time required to correct quality problems --consistently high prices --1ack of minority vendors at or near operating locations --lack of minority vendors supplying purchased items --1ack of compliance with purchasing procedures --lack of qualified management personnel --lack of qualified sales personnel --lack of qualified engineering personnel --minority serving as front for nonminority business. 155 A paired T-test was performed for each problem area (as listed in Hypothesis 11) across all respondents in order to test the hypothesis. For example, "Failure to submit samples" had a mean of 1.57 as a problem with minority suppliers and a mean of 1.27 as a problem with nonminority suppliers. The difference in these two means was .30 and this was significant at p §_.001. A paired T—test allowed comparison of respondents across both minority and nonminority suppliers. The mean responses for purchasing problems encountered with minority vendors were greater than those encountered with nonminority vendors on all problem areas. Overall results of the T-tests indicated that problem differences were statistically significant in all cases, p f_.001. Table 6.11 shows these results. Discussion: The null hypothesis was rejected. Problem areas were perceived to be significantly greater for minority vendors. Higher ranked problem differences were in the areas of (1) lack of qualified engineering personnel; (2) lack of qualified sales per- sonnel; (3) insufficient technological expertise; and (4) insuf- ficient production capacity. Lower ranked problem differences were in the areas of (1) lack of compliance with purchasing procedures; (2) failure to deliver on time; and (3) failure to submit samples. It appears that since minority businesses are mostly small businesses, newly established, and do not have a history of experienced management personnel, they experience problems in sales, engineering, and man- agement and lack capital necessary for expansion which limits capacity. 156 TABLE 6.11 RANKING OF MEAN DIFFERENCES IN PROBLEMS BETWEEN MINORITY AND NONMINORITY SUPPLIERS Number Mean Differences in Problems Problem Areas of Between Minority Significagce . . Level Cases and Nonminority Suppliers Lack of qualified engineering personnel 133 1.05 .001 Lack of qualified sales personnel 145 1.01 .001 Insufficient technological expertise 152 .97 .001 Insufficient production capacity 151 .86 .001 Lack of qualified management personnel 141 .83 .001 Consistently high prices 147 .72 .001 Failure to respond to phone calls 154 .70 .001 Failure to meet bid deadlines 152 .51 .001 Low quality/high rejection rate 143 .44 .001 Long lead time on quality problems 137 .43 .001 Inability to understand purchasing specs 158 .43 .001 Lack of compliance with purchasing procedures 143 .37 .001 Failure to deliver on time 151 .33 .001 Failure to submit samples 137 .30 .001 aStatistical analysis used was paired T-test. 157 Hypothesis 12: There is no relationship between minority purchasing activity and those corporations perceiving greater problem differences between minority and nonminority vendors (problems listed in previous hypothesis). In order to measure problem differences a numerical score was calculated by using the difference between each respondent's rating of minority and nonminority vendor problems. For minority vendors possible scores were "6"--significant problem for minority vendors; "5" moderate problem; and "4"-—no problem. For nonminority vendors possible assigned numerical scores were "3"--significant problem for nonminority vendors; "2"--moderate problem; and "l"-- no problem. The maximum and minimum calculated differences were "5" and "1" respectively. A score of "3" indicated that there was no difference in the problem for minority and nonminority vendors. For example, one respondent rated "Failure to deliver on time" as a "significant problem for minority vendors"--score"6"--and a "Moderate problem for nonminority vendors" (or a score of "2"). This yielded a problem difference of "4" for "Failure to deliver on time." These differences were then added across all problem areas and a total problem score was assigned each respondent. Only those respondents who indicated the extent of the problem for all problem areas were included in the analysis. The three problems which were solely minority related-- minority fronts, lack of minority vendors at or near the corporation's operating locations, and lack of minority vendors supplying items the corporation purchases-~were deleted from the analysis. The remaining fourteen problems were totalled by corporation. These totals were 158 then correlated with the activity measures. This resulted in a cor- relation of r = .17 (P fi_.036, N = 106) for self-perceived success. None of the other activity measures proved significant at the .05 level or better. Table 6.12 shows these correlations. In addition, an analysis of the individual problem differences revealed only two problem areas which had sufficiently high correlations to be sta- tistically significant on two or more of the activity measures. These were failure to meet bid deadlines and failure to respond to phone calls. Discussion: The null hypothesis was rejected in the case of self-perceived success. Corporations which perceived their programs more successful saw greater problem differences for minority vendors as compared to nonminority vendors. Explanation for this was not found in the data. One possible explanation was that corporations which perceived their programs to be successful were more aware of problems in conducting business with minority vendors. In addition, they have dealt with the problems for a longer period of time. Year of program initiation, r = .10 (p §_.15, N = 95), and corporate size, r = .11 (p :_.12, N = 51), were not highly related to the perception of problem differences. Additional Results These findings resulted from additional statistical analyses which were performed but which were not designed to test hypotheses. 159 TABLE 6.12 CORRELATION ANALYSES OF CALCULATED PROBLEM DIFFERENCES BETWEEN MINORITY AND NONMINORITY VENDORS AND MINORITY PURCHASING ACTIVITY MEASURES Results of Analysis m' ' ha ' inority Purc Sing On Calculated Problem Activity Measures Differences Self-perceived success ra .17 pb .038 NC 106 Percentage of annual dollar r .11 purchases from minority p .171 vendors N 76 Annual minority vendor dollar r .14 expenditures p .108 N 81 Total number of minority vendors r .16 p .075 N 83 a r = correlation coefficient. p = significance level. N = sample size. 160 Establishment of Minority Purchasing Goals Sixty-six percent of the respondents (N = 190) set corporate goals for minority vendor purchasing. Forty-five percent of the respondents (N = 189) set minority purchasing goals at the buyer level. Correlation analyses revealed that if a minority purchasing goal was established at the corporate level, it was likely that the corporation also had set minority purchasing goals for its buyers, r = .51 (p‘: .001, N = 189). In addition, those corporations which had corporate and buyer minority purchasing goals were more likely to consider minority vendor goal achievement as part of the per- formance appraisal. Reported correlations between corporate and buyer minority purchasing goal setting and consideration of minority vendor goal achievement as part of performance appraisal were r = .49 (p E .001, N = 188). Goals at both the corporate and buyer levels were most likely to be set in the following terms: (1) annual purchase dollars from minority vendors; (2) percentage increase over prior year's annual dollar purchases from minority vendors; and (3) number of new minority vendors developed. Goal setting measures at the corporate level and buyer level were significantly related and were reflected in the correlations shown in Table 6.13. Corporations which set corporate goals in terms of annual purchase dollars from minority vendors were also likely to set goals for buyers in terms of annual purchase dollar from minority vendors, r = .79 (p :_.001, N = 57). 161 .mNHm mHmEmm u z “Hm>ma mocmofiMHcmfim n m “HomHOHmwmoo coflumamuuoo u H o o 6 mm 2 H00. m ommon>mo muoocm> mo. u >uflwocflz 302 m0 umoEdz HA 2 mcfi>ammsm mo manommu mud Hoo. m muoocw> wufluocflz mommnousm mm. M umHHoo finance mo mmmucmoumm am 2 muoocm> aoo. m aufluoaflz Eoum mommnousm on. H umaaoo finance mo mmmucmoumm am 2 mHmHHoo Hoo. m mmmnousm m.umo> Hoflum mo. A um>o mmomuocH mmmucmuumm mm 02 Hoo. on or. on mumaaoo mmmoousm Hmscc¢ mcflhammsm mo GHDMQMU muoocm> ommon>mo mu< mu0©cm> xuauocaz mumaaoo mmmsousm wumaaoo muooco> . . m.uom> uoflnm muwuocflz Scum mommnousm mmmnousm >ufluocflz mommnonsm no on Hooc2< uo>o mmmmuocH amazed mcauumm wow 302 mo nunssz HA mmmucmoumm . a Hoaaoo Hm5::¢ mo mmmucmoumm mo mmmucmouwm mamou umwsm MOM mEHmB mpmuomuoo Mom mEMwB meBmq mmNDm DZd m94m0mm00 84 quoo moozm> wBHmOZHS OZHmmHAmdfimm m0 OOEBHS ma.® mqmdfi 162 Sales to the Federal Government and Minority Purchasing; Higher percentages of sales to the Federal Government were related to several independent variables, although unrelated to the minority purchasing activity measures. The larger the percentage of sales to the Federal Government, the more likely it was that the minority purchasing programs (1) were established earlier; (2) had one individual responsible for coordinating the program; (3) had a minority vendor coordinator who was active in terms of annual fre- quency in performing job responsibilities; (4) had trained a greater percentage of purchasing and nonpurchasing personnel in doing busi- ness with minority vendors; and (5) had utilized supplier development techniques--such as, awarding long-term contracts, providing special payment terms, and providing technical assistance. Table 6.14 shows the significant correlations (p f .05) between percentage of sales to the Federal Government and the independent variables. Year-to-Year Changes in the Minority Purchasing Activity Measures Differences in growth between minority purchasing programs initiated during the 1960 to 1974 period (older programs) and those programs initiated during the 1975 to 1979 period (newer programs) were (1) both older and newer programs increased minority purchasing activity from 1976 to 1978 and (2) there are differences in per- centage growth rates between newer and older minority purchasing programs as Shown in Table 6.15. 163 TABLE 6.14 CORRELATION ANALYSIS OF PERCENTAGE OF SALES TO THE FEDERAL GOVERNMENT WITH INDEPENDENT VARIABLES Independent Variables Results of Analyses of Percentage of Sales to the Government Purchasing program structure ra .22 pb .003 NC 145 Year of program initiation r -.17 p .025 N 133 Minority vendor purchasing per- r .17 formance review by purchasing p .026 manager of unit N 132 Minority vendor purchasing r .21 performance review by minority p .007 vendor coordinator N 132 One individual responsible r .18 for coordinating program p .013 N 145 Annual frequency which minority vendor r .28 coordinator provides information p .004 about minority vendors N 126 Annual frequency which minority vendor r .22 coordinator identifies potential p .006 minority vendor purchased items N 111 Annual frequency which minority vendor r .23 coordinator identifies new p .007 minority vendors N 125 Annual frequency which minority vendor r .28 coordinator identifies new minority p .001 vendor for other departments N 125 Annual frequency which minority vendor r .26 coordinator provides assistance p .003 to minority vendors N 66 164 TABLE 6.14--Continued Independent Variables Results of Analyses of Percentage of Sales to the Government Annual frequency which minority vendor r 26 coordinator participates in estab— .018 lishing minority vendor purchasing p ° N 100 goals Annual frequency which minority vendor r .20 coordinator monitors purchases from p .025 minority vendors N 123 Annual frequency which minority vendor r .41 coordinator trains purchasing p .001 personnel about minority vendors N 145 Annual frequency which minority vendor r .29 coordinator trains other functional p .001 personnel about minority vendors N 129 Use of external directories to r .15 locate minority vendors p .040 N 146 Use of membership in Regional or r .17 National Minority Purchasing p .022 Councils to locate minority vendors N 145 Percentage of purchases from r .24 minority vendors of direct products p .011 N 93 Awarding of long-term contracts r .21 to minority vendors p .007 N 121 Providing longer vendor quotation r .17 times p .023 N 140 Providing Special payment terms r .21 to minority vendors p .006 N 140 Providing technical assistance r .15 to minority vendors p .037 N 140 165 TABLE 6.14--Continued Independent Variables Results of Analyses of Percentage of Sales to the Government Helping minority vendors secure .20 raw materials .010 141 Frequency of broadening product .38 specifications .001 79 Frequency of providing financial _ 28 aid through company-run Minority ° . . .036 Enterprise Small BuSiness . 41 Investment Companies Frequency of allowing longer -.19 lead times .036 98 Frequency of broadening acceptable -.26 quality levels .021 60 Willingness to pay price -.16 differential .034 76 ar = correlation coefficient. b . . . p = Significance level. c . N = sample Size. 166 mm.H 66.H lemma\anmao muoocm> >DHHOCHE mo Hones: H6009 om.H m6.H Ahama\mamav muoecm> >uwu02fls mo Hones: Hmuoe om.m HS.H 16ama\aemae mmusuwecmmxm umaaoo Hoocm> xufluocfls Hmscc< mm.~ HR.H iaama\memae mmusunecodxo moaaoo Hoocm> wuHHOCHE Hmsccm on.q mm.m Aonma\n>mao muoocw> >uflHOCHE Eouw mommnousm umaaoo Hmsccm mo monucmoumm Ho.m oo.a Annma\mhoav muopco> wufluocfla Scum mommsousm umaaoo Hoodoo mo mmmucmoumm mnmaumhma vhmaloooa omnmflaomumm mEmumoum omzmflaomumm mamumoum mwmcmco cow: mmOsz> >BHmOZHS ho mmmZDz 92¢ .mmmDBHazmmxm mdddoo mODzm> WBHmOZHE AdDZZ< .mmm<30m3m mdqdoo AdDZZd ho mwdfizmummm mmoz< mH.© mqmde 167 .mMoocm> >MMMOCME MO anfisc Hmuou pom ammMsuMocmmxm MMMHOU Mocco> >MMMOcME Moscow amMoocm> MDMMOCME EOMM mommnOMsm Mmaaoo Hmsccm Mo mmoucmOMmm "some MOM whoa MOM mmMDmMM mnu >n whoa MOM mmMzmMM on» can whoa MOM mmMDmMM 0:» Mb whoa MOM mmMsmHM on» mafibw>flo >n UODMHSOHMO mMmz mmmcmnom vo.a mm.H Monma\hhmav mMoocw> MMMMocfla MO MODES: Hmuoe mm.a hm.H Annma\mbmav mMooco> MMMMOCME MO MODES: Hobos mn.M 66.M Moan\ahmMe mmMsuMocmdxm MMHHOU Moocm> MDMMOGME Housed m6.M om.M MaamM\meva mmusuMecmdxm MmHHOC Moccm> MDMMOGHE Hmscc< no.a mm.H thma\hnoav mMoocm> MMMMOCME EOMM mommnOMsm MmHHOU Hmsccm MO mmmuchMmm mh.a mm.H Annoa\mhoav mMoocm> MDMMOCME EOMM mOmMLOMsm Moaaoo Monaco MO 0060:00Mom ohmaumnoa ghmanooma omananmumm mEMMmOMm owcmflaomumm mEMMmOMm momcmnu CMMUOZ UODCHMCOUIImH . w mamgfi 168 Older minority purchasing programs saw average growth in annual minority vendor dollar expenditures from 1977 to 1978 increase 70 percent. Newer minority purchasing programs saw an average growth of 132 percent in 1978 over their 1977 figures. The median increase from 1977 to 1978 for older minority purchasing programs in terms of annual minority vendor dollar expenditures was 30 percent as com- pared to 68 percent for newer minority purchasing programs. The rate of percentage increase also slowed down as a minority purchasing program grew older. For example, in terms of annual minority vendor dollar expenditures, Older programs showed a median increase of 49 percent from 1976 to 1977. This figure dropped to 30 percent when comparing 1977 to 1978. CHAPTER VII SUMMARY AND IMPLICATIONS This chapter summarizes the results of the research, reviews the research findings, discusses the implications for practice, and addresses the need for future research. Summary of the Research Results Dependent Variables-—Minority Purchasing Activity Measures The objectives of this research were to determine those independent variables which best explained minority purchasing activity. Minority purchasing activity was defined in Chapter IV and included four activity measures. These measures were self- perceived success, percentage of annual dollar purchases from minority vendors, annual minority vendor dollar expenditures, and total number of minority vendors. Independent Variables--Predictors of Minority Purchasing Activity A priori hypotheses were tested utilizing the four afore- mentioned activity measures in conjunction with independent variables utilizing correlational analyses, multiple regressions, and t-tests 169 170 in the statistical analyses. Hypotheses tests were conducted with the following sets of independent variables: Internal purchasing practices consisting of the ten independent variables: --a corporate policy statement about minority purchasing --chief executive support for minority purchasing programs --corporate minority purchasing goals --buyer minority purchasing goals --an individual responsible for coordinating the minority purchasing program --payment of a price differential to develop minority vendors --inclusion of minority vendor goal achievement in buyer performance appraisal --identification of minority vendors --development of minority vendors --frequency of reports of minority purchasing program results. Internal purchasing practices and year of program initiation and size of the corporation. Year of program initiation and size of the corporation. Geographic and demographic factors. Job responsibilities of program coordinator and the frequency of their performance: -—conducting in-house training session about minority vendors --acting as a central data source in providing information about minority vendors --identifying minority vendors for purchasing departments --identifying minority vendors for other departments --identifying purchased items which have potential for minority vendor sourcing --providing assistance to minority vendors --providing assistance to purchasing personnel in solving minority vendor problems --participating in setting minority purchasing goals --monitoring purchases made from minority vendors. Minority vendor sourcing techniques: --buyer-initiated contacts with minority vendors --advertising for sources in minority publications --distributing brochures describing products purchases --attending minority trade fairs --exhibiting at minority trade fairs --external directories --membership in NMPC or RMPC --membership in NAPM --internally developed corporate directories. 171 Development techniques used with minority vendors: --broadening product specifications --breaking up large purchases into smaller quantities —-requiring that your suppliers utilize minority vendors --simplifying paperwork requirements --awarding long—term contracts --providing longer vendor quotation times --providing special payment terms --providing technical assistance --providing management assistance --providing direct financial aid --providing financial aid through company run MESBICS —-providing prepayment on large dollar or long lead time items --providing letter of credit to minority vendor's suppliers —-helping minority vendors obtain funds from government loan agencies --helping minority vendors develop effective purchasing practices --helping minority vendors secure raw materials --paying a price differential --allowing longer lead times --broadening acceptable quality levels. Differences in problems encountered when purchasing from minority and nonminority vendors: --inability to understand purchase order specifications --insufficient technological expertise --insufficient production capacity --fai1ure to meet bid deadlines --fai1ure to respond to phone calls --fai1ure to submit samples --failure to deliver on time --low quality/high rate of rejected material --long lead time required to correct quality problems --consistently high prices --lack of minority vendors at or near operating locations --lack of minority vendors supplying purchased items --1ack of compliance with purchasing procedures --1ack of qualified management personnel --lack Of qualified sales personnel --1ack of qualified engineering personnel --minority serving as front for nonminority business. Summaryyof the Hypotheses Tests The purpose of the hypotheses tests was to determine which of the independent variables were highly related (statistical 172 Significance of 9.: .05) to the minority purchasing activity measures. A summary Of the hypotheses testing is shown in Table 7.1. Results of the tests Showed: 1. Self-perceived success resulted in more statistically sig- nificant relationships (p :_.05) with the hypotheses than percentage of annual dollar purchases from minority vendors, annual minority vendor dollar expenditures, and total number Of minority vendors. In nine out Of eleven hypotheses tested, self-perceived success was significantly related to the independent variables. Respondents who had more internal purchasing practices in operation; had used more sourcing and development techniques; and had perceived higher success when using sourcing and development techniques perceived their programs as being more successful. It appears the more effort respondents perceived putting into a program in terms of use of techniques and policies, the higher the self- perceived success. Total number Of minority vendors was statistically significant (p fi_.05) in eight out of eleven hypotheses tested. This indicated that many of the internal purchasing practices, sourcing techniques, and development techniques do aid cor- porations in increasing the number Of minority vendors from which they purchase. 173 .m.m>~occ coMuvaMMOu. ode. mnm. NvM. cMo. a vow: moachzuou N own. occ. CON. can. M chUMSOm co nmwuusm Mo ovMovv po>Moona . . .. . :oMquooMou Moo puma 000. MvN. voN. Moc o movaczuou chuMson N ONN oco em: . ch. M . - Mo Mensa: Merck Moo. Moo. om_. Nro. a moMuMaMancommOM A OMN. oov. CNN. oNN. M non Mo oucoEMoMMwa . N Mo >uco=UOMM Auscc< . . . . MauchoMoou a N “No. MMM.I WMM.n Moo. M EchcMo Mo 6H oo ocN moMuMMMnMncoanOM boo mEdMooMa ocM Moo. mom. oNc. «so. a ammnoMsa >uMMOCME on: m Can. 060. c>~.: ocN. OM coMumMoaMou a cuMzJ cM magnum Mo M0265: deuce . . . . coMucMuMcM Moo. Moo. MMN. Moc. m EMMDOMQ Mo Mcw> m 00m ooN emo oMN N 0cm undo ouuMooMoo :oMquuMcM o . oo. . .. m EcMOOMQ Mo Moo> can M o. N w. ova. swo. M ouMm can mouMuooMa m New own NCM com N ocMmcLOMso MocMOMCM cmo. may. QNe. Mcc. no nmoMuqud N @nM. Mac. Mmo. Mrv. NM oCMmM£OMsQ MocuoucH a 0 'Q > .mo . mMOpcu> MMMOCM: mOMsuMccwaxm mMocci> >MMMoch mmwuusm moManMo> ucomcwowpcM vac unoccoaoo cmw3uon aMcmcoMuouom MacoMMMcoMm MMMcoMunMuuum Mo Mubzsz Moves HO HUQEBZ H0809 MaMMOQ Mocco> >uMMocM: Muscat EOMM womszuMso MmMMoo Moscc< Mo ovcucouMOA UW>M¢UH0QIWHUW nuanaMMo> unapcOQOOIumUMsmmot >uM>Muu< ucMmczoMsm >uMMOcM: a mmm>4¢z< A= LO >m<£t3m H.h mqmdh all b ..I il‘lr nounoMMo> ucoocomoocM 174 .ucoMoMMMoOo coMuoaoMMoo n M u .~o>oM vacquMMcoMm a an .ucoMoMMMooo coMumoMqu uaaMuMsE I NMo on m A AA .mo. w a. mcoMquUM uccuM (MMcuMn Mo Mensa: MMMOF . . . . >uM>Muuo ocMmuzuMsm . ”M. M“. a. M“. M .2... N anon nuMnl aoMndMMo> . . . . uMOOco> MMMMO:MIMO: N www. mm”. Mm“. “no. N can >MMMOCME cmoiuon NM moocoMoMMMv EOMQOMA 30. 2.... $4. . So. M 536398 M ovM. oMo. 000.: ohN. M Mom amouosa oouMo>< .omeMocu co MMOMouM a ooo. ooo. mMo. Now. a M ed Madge. N ooo.M ooo.M oMm. oMm. M poms movaczoou N acuEQon>oo co mmouosm Mo ouMoov vo>M00Moa Mm4m>aaca MocoMuoaoMMoo. 3o. 3;. NS. So. a com: 66:62:63 N com. CON. ov~.u oom. M McoEQoMo>oo co mmoouam Mo ooMmov oo>MmuMum mma. v v. o . . a coMuaMomMou Mom new: A omo. emc. WM“. “mm. M noqucsoou ucoemoao>op . Mo Mensa: Noyce vNo. ooN. NON. Moo. Q coMquomMou N ONM. omo. omo. ohm. M Mom amouosu oooMo>< MMMM>Moco coMmmuMouM OMQMMM5E. MVN. Nno. nob. moo. a com: mosUMczoou M NAN. mma. OmH. mun. M oCMoMsom co mucouso N Mo ooMoov oo>MoOMum .mo. w a. mMoocw> >uMMocMz mOMsthcoaxm nMOUco> >DMMO:M: m on moMncMMc> ucoccoooccu can Mo Mugged Movco> EOMM momo£OMsm MMMHOO moo m unaccomoo cwwiuom quncoMumamm MonEsz Noyce >uMM0cMz Moscc< Muscat Mo wmcucooMom Oo>oMoMom1MMom uccoMMMcoMm >MMoOMMMMMnum Mo M02222 MMMOF gr“ ""1113... '1‘ qkqnwuvltrp“ wh§.-."ngu. “Innufll I .jfl.“ .n 1 I' ”i.fih .h... «In ”hi‘(~ CODCMUCOUII~.5 mam<9 I .IIINHMJHWNIU ".guun'a' a: 'I'N Ngnu‘ u ."N avaomMMn> ucovcomoocn mwMooMMm> ucopcOQOOIImOMsmcw: >uM>Mu0< chmmnoMsm >MMMOCM: 175 Internal purchasing practices, corporation size, and year of program initiation (Hypothesis 2), corporate size and year of program initiation (Hypothesis 3), and number of states in which a corporation operates minority purchasing programs (Hypothesis 4) were statistically significant with three of the four minority purchasing activity measures. Hypothe- sis 2 and Hypothesis 3 were significant due to the strength of the variables--year of program initiation and corporation size. The results of Hypothesis 4 indicated that those cor- porations Operating minority purchasing programs in a larger number of states spent less of a percent of their annual dollar purchases with minority vendors. It appears this result'was influenced by corporation size since larger cor- porations Spend a smaller percentage of their annual dollar purchases with minority vendors and also were found to operate minority purchasing programs in a greater number of states. The annual frequency with which the minority purchasing coordinator performed his/her responsibilities was highly related (p f .05) to annual minority vendor dollar expendi- tures and less related (p §_.05) to other minority purchasing activity measures. It appears that constant involvement by the coordinator in the program can make a difference in terms of annual minority vendor dollar expenditures. One could argue that a coordinator who spends the majority of his/her time on the minority purchasing program will realize increased annual minority vendor dollar expenditures. 176 Overall Findings and Conclusions Overall findings were: The majority of the corporations had increased the amount of their purchases from minority vendors in terms of number, dollar, and percentage Of annual dollar purchases from 1976 to 1978. Median figures for the sample were: a. Percentage of annual dollar purchases from minority vendors increased from .33 percent in 1976 to 1.0 percent * in 1978. b. Annual minority vendor dollar expenditures increased from $706,000 in 1976 to $1,250,000 in 1978.* c. Total number of minority vendors increased from 31 in 1976 to 55 in 1978.* Typically, a larger share of the purchase dollar was spent with Black minority vendors and was for supplies and ser- vices. Black minority vendors received 66 percent of the purchase dollar, and supplies and services accounted for 40 percent of minority spending by product category. Problems encountered in purchasing from minority vendors which ranked highest were: (a) lack of minority vendors supplying purchased items; (b) lack of minority vendors at or near operating locations; (c) lack of qualified engineer- ing personnel; and (d) insufficient technological expertise. Internal purchasing practices found to have the highest positive correlations with all minority purchasing activity measures were: (a) consideration of minority purchasing * See Table 8.1 for further discussion. 177 achievement in buyer performance appraisal; (b) chief execu- tive support for the program; and (c) existence of a policy statement regarding purchases from minority vendors. Corporate size and year of program initiation were highly related positively to all of the minority purchasing activity measures except percentage of annual dollar purchases from minority vendors. Larger corporations spent a greater amount of dollars with a larger number of minority vendors and had higher self-perceived success than did smaller corporations. Larger corporations spent a lower percentage of annual dollar purchases with minority vendors. One possible explanation was the limited capacity of minority vendors and need for large high volume suppliers. The total number of states in which minority purchasing pro- grams were operated was positively related to self-perceived success and inversely related to the percentage of annual dollar purchases from minority vendors. For example, those corporations which operated programs in a larger number of states rated their programs more successful than those cor- porations which operated programs in fewer states. Those corporations which operated minority purchasing programs in a greater number of states spent a smaller percentage of annual purchase dollars with minority vendors. The job responsibilities of the program coordinator (in terms of frequency of performance) which had the highest positive relationships to the minority purchasing activity measures 10. 178 were: (a) conducting in-house training and education sessions about minority vendors; (b) providing assistance to minority vendors; and (c) providing assistance to purchasing personnel in solving minority vendor problems. Minority vendor sourcing techniques had the highest positive relationships with the minority purchasing activity measures included: (a) buyer-initiated contacts with minority vendors; (b) internally developed corporate directories; (c) advertising for sources in minority publications; and (d) distribution of brochures and pamphlets to minority vendors describing pro- ducts purchased. Minority vendor development techniques had the highest positive relationships with minority purchasing activity measures included: (a) broadening product specifications; (b) providing special payment terms; (c) providing financial aid through company-run Minority Enterprise Small Business Investment Companies; (d) helping minority vendors develop effective purchasing practices; and (e) paying a price differential. Minority vendor development techniques which were perceived by respondents as being most successful were: (a) providing technical assistance; (b) breaking up large purchases into smaller quantities; (c) helping minority vendors develop effective purchasing practices; and (d) helping minority vendors secure raw material. ll. 12. 13. 179 Self-perceived success, annual minority vendor dollar expen- ditures, and total number of minority vendors were reasonable measures of minority purchasing activity. Percentage of annual dollar purchases from minority vendors was not found to be a reasonable measure of minority purchasing activity for the following major reasons: a. Larger corporations' purchases are Often constrained by minority vendors limited capacity. b. Larger corporations purchase many of their large dollar items from other nonminority corporations due to high capital investment necessary to provide for economies of operation--such as, steel and chemical industries. c. Many large corporations purchase highly technical items which few minority vendors are currently capable of pro- ducing. This limits the amount of highly technical pur- chases which a corporation could award to minority vendors. Comparing problems encountered when purchasing from minority and nonminority vendors, respondents perceived greater problems when conducting business with minority vendors. Those corpor- ations which reported a higher degree of self-perceived success perceived greater problem differences. There were several independent variables found to be most highly related to minority purchasing activity measures. These variables are shown in Table 7.2. Findings were: a. Perceived success when using minority vendor development techniques which had the highest positive relationship 180 TABLE 7.2 MULTIPLE CORRELATION ANALYSES OF THE INDEPENDENT VARIABLES WHICH BEST EXPLAIN MINORITY PURCHASING ACTIVITY Minority Purchasing Activity Measures Independent Variables Self-perceived success Percentage of annual dollar purchases from minority vendors Policy statement Perceived success in breaking up large purchases into smaller quantities Perceived success in buyer-initiated contacts with minority vendors Frequency of providing assistance to minority vendors Amount of support given by the chief executive officer Year of program initiation Perceived success in internally developed corporate directories Perceived success in awarding long-term contracts Training other functional personnel on minority vendors Minority purchasing goals at the buyer level a r2 .612 pb .000 Perceived success in requiring corporate suppliers to utilize minority vendors Frequency of providing in-house training sessions on minority vendors Perceived success in providing letter of credit to minority vendor's suppliers Corporate size Frequency of providing assistance to minority vendors Perceived success in membership in National Association of Purchasing Management Perceived success in broadening acceptable quality levels Paying a price premium r .410 p .093 131' TABLE 7.2--Continued Minority Purchasing Activity Measures Independent Variables Annual minority vendor Perceived success in broadening product dollar expenditures specifications Perceived success in providing special payment terms Perceived success in providing financial aid through company-run MESBICS Perceived success in helping minority vendors obtain funds from government loan agencies Perceived success in helping minority vendors to develop effective purchasing practices Perceived success in paying a price differential r2 .602 p .001 Total number of minority Corporate Size vendors Frequency of conducting in—house training sessions about minority vendors Perceived success in broadening product specifications Year of program initiation Perceived success in requiring corporate suppliers to utilize minority vendors Perceived success in advertising for sources in minority publications Policy statement Perceived success in providing financial aid through company-run MESBICs Degree of chief executive support r2 .660 p .010 2 . . . . r = multiple regreSSion coeffic1ent. p = significance level. 182 to annual minority vendor dollar expenditures, total number of minority vendors, and percentage of annual dollar purchases from minority vendors and included: financial assistance through company-run MESBICS, requiring corporate suppliers to utilize minority vendors, and success in broadening product specifi- cations. b. Self-perceived success had a high positive relationship with internal purchasing practices. These included: corporate minority vendor policy statement, minority purchasing goals at the buyer level, and training of nonpurchasing personnel about conducting business with minority vendors. c. Self-perceived success had a high positive relationship with several independent variables. These included: year of program initiation, having a corporate minority vendor policy statement, perceived success in developing an internal corporate directory of minority vendors, and perceived success in breaking up larger purchases into smaller quantities. From the analyses many different variables affect the level of minority purchasing activity. Certain development techniques were positively related to all four minority purchasing activity measures. Perceived success in using these development techniques were par- ticularly related to annual minority vendor dollar expenditures and total number of minority vendors. Corporate size was related to 183 total number of minority vendors, annual minority vendor dollar expenditures, and percentage of annual dollar purchases from minority vendors. Implications for Practice Many of the results from this research effort are applicable to professional purchasers. This section discusses the more applicable findings. Findings are analyzed in two categories: (1) starting a minority purchasing program and (2) enhancing and strengthening an existing minority purchasing program. Newer Minority PurchasingyPrograms For those corporations starting minority purchasing programs, consideration should be given to adaptation of certain program ele- ments which include: (1) establishment of a minority vendor policy statement; (2) establishment of corporate goals for minority pur- chases; (3) assignment of responsibility for coordinating the minority purchasing program to one individual; (4) attainment of support from the chief executive officer; (5) establishment of buyer goals for minority purchasing; (6) consideration of minority vendor goal achievement in buyer performance appraisal; and (7) oper- ation of training session for purchasing and nonpurchasing personnel on conducting business with minority vendors. Initially, the minority purchasing coordinator's main duties include: (1) acting as a central information source in providing information about minority vendors; (2) identifying new minority vendors for purchasing personnel; and (3) monitoring pur- chases made from minority vendors. 184 Locating minority vendors was done best by utilizing a combination of several techniques. These included: 1. Buyer-initiated contacts with minority vendors. 2. Obtaining external directories on minority vendors--such as The Vendor Information Service of the National Minority Purchasing Council. 3. Membership in the Regional or National Minority Purchasing Councils. 4. Development Of an internal corporate directory of minority vendors from the utilization of any or all of the previous mentioned search techniques. Once located, the minority vendor must be made aware of the corporation's purchase requirements. In certain cases, efforts beyond normal purchasing procedures could be undertaken. These efforts include: (1) providing technical and financial assistance to minority vendors; (2) allowing longer lead times on purchased items; and (3) providing minority vendors with longer quotation lead times. Established Minority Purchasing Programs For those corporations operating minority purchasing pro- grams, maintenance of program growth in terms of increasing annual minority vendor dollar expenditures and total number of minority vendors is related to the ability to further develop minority vendors. This development may involve expanding the amount of 185 business with existing vendors or developing additional minority vendors. Those corporations which had higher minority vendor dollar expenditures and had a greater number of minority vendors success- fully utilized many of the development techniques. The development techniques which were highly related to increasing annual minority vendor dollar expenditures and total number of minority vendors included: (1) providing special payment terms; (2) broadening product specifications; (3) helping minority vendors obtain funds from government loan agencies; (4) paying a price differential; and (5) providing financial aid through company-run Minority Enter- prise Small Business Investment Companies. One does not necessarily have to pay a price differential to minority vendors, and most corporations in the research sample did not have this as a standard policy. However, the majority of the purchasing personnel in the sample were given the discretion to pay a price differential in individual cases. This technique did aid in the development efforts. The implementation and successful use of development tech- niques can help a corporation create additional minority vendors or expand the capacities of existing minority vendors. The creation of additional suppliers can help a corporation overcome two significant problems faced when purchasing from minority vendors: (1) lack of minority vendors at or near operating locations and (2) lack of minority vendors supplying items purchased. Support and assistance in successfully implementing develop- ment techniques can be provided by the minority program coordinator. 186 Program coordinators in those corporations who spent more dollars with a larger number of minority vendors were more likely to provide assistance (engineering, managerial, or financial) to minority vendors, assist purchasing personnel in solving minority vendor problems (quality, delivery, etc.), and conduct in-house training sessions of dealing with minority vendors. It was also noted that those minority purchasing programs of corporations with large minority vendor dollar expenditures and larger number of minority vendors relied on self-developed sourcing techniques such as (1) internal corporate directories, (2) brochures and pamphlets describing the products purchased and appropriate contacts, and (3) advertising for sources in minority publications. To effectively monitor the program, buyer and departmental goals Should be established and reported quarterly to a minority purchasing coordinator. Minority vendor goal achievement should also be made part of the buyer's overall performance appraisal. Years of experience in minority purchasing was found to be very important in minority purchasing. Corporations who had operated programs for a longer time period saw themselves as more successful, spent more dollars with minority vendors, and bought from a larger number of minority vendors. The longer a minority purchasing pro- gram was in effect, increased involvement and effort became evident. This was demonstrated by the following: (1) more management levels reviewed minority purchasing program performance; (2) the coordi- nator of the minority purchasing program took on more responsibili- ties; and (3) more techniques were used to locate and develop minority vendors. 187 Corporate Size was a factor in minority purchasing. The larger corporations in the sample perceived themselves more successful and spent more dollars with a larger number of minority vendors. Size, however, should not be considered an obstacle to having an active minority purchasing program. Large corporations began their programs earlier possibly due to their prominence in society. The larger corporations spent more dollars with minority vendors, but they spent less of a percentage of annual dollar pur- chases with minority vendors than did smaller corporations. One possible explanation of this was the limited capacity of minority vendors and the purchases of large dollar items from industries which require large amounts of capital investment-—such as steel and chemical industries. Minority purchasing programs usually experienced rapid growth in the early years. During the first three years of Oper- ation, average dollar gains of over 100 percent were attained. After the initial three years of the program, percentage gains began to decrease; however, increases of 20 to 30 percent per year in minority vendor dollar expenditures were likely. Figure 7.1 illustrates the stages of minority purchasing program development. Program emphasis changes with experience. Possible reasons for such changes as experience increase include: (1) sequence in which policies and procedures are implemented and (2) increasing level of sophistication gained with time. With regard to sequencing of policies and procedures, it appears that certain program elements logically precede others. For example, New or Be innin Pr rams Established Proggggg Internal Policies Chief Executive Officer of corporation identified as supporter of program. One individual assigned the responsi- bility for coordinating minority purchasing program. Corporate policy statement on minority vendor purchases. Corporation established minority vendor purchasing goals. Buyer established minority vendor purchasing goals. Minority vendor goal achievement considered part of buyer's overall performance appraisal. Internal Policies Experience in minority purchasing. Chief Executive Officer support for program. Quarterly reporting of program results. Periodic review of program results by operating and executive management levels. i Initial Responsibilities of Minority Vendor Coordinator Primarily Administrative and Data Collection Acts as a central data source pro- viding information about minority vendors. Identifies new minority vendors for purchasing. Identifies purchased items which have potential for minority vendor sourcing. Potential Responsibilities of Minority Vendor Coordinator Primarily Problem Solving, Providing assistance to minority vendors (engineering, financial. etc.) Providing assistance to purchasing personnel in solving minority vendor problems. Conducting in-house training sessions on dealing with minority vendors. 1 l Sourcing Techniques- Primarily External Buyer initiated contacts with minority vendors. Obtaining external directories on minority vendors. Membership in a National or Regional Minority Purchasing Council. Sourcing Techniques-- PrimarilygInternal Development of internal corporate directories. Distribution of brochures and pamphlets to minority vendors describing products purchased. Advertisement in minority publications. Development Techniques-- Primarily In-house Assistance Providing technical assistance to minority vendors. Allowing longer lead times on purchased items. Providing minority vendors with longer quotation lead times. Development Techniques-- Primarily Financial Paying a price differential. Providing financial aid through company‘run MESBICs. Helping minority vendors obtain funds from government loan agencies. Providing special payment terms. Pig. 7.1.-~Development of Minority Purchasing Programs 189 it appears logical to implement corporate and buyer minority pur- chasing goals prior to making minority purchasing performance part of a buyer's overall performance appraisal. With experience in minority purchasing, it appears confidence in one's ability grows and resources are aimed at solving problems with minority vendors, developing internal directories, and providing financial assistance to minority vendors. Specific program developments which occur in minority vendor programs include: 1. Certain elements provide a necessary base for minority purchasing programs. These include TOP MANAGEMENT SUPPORT, MINORITY VENDOR POLICY, ESTABLISHMENT OF CORPORATE AND BUYER GOALS FOR MINORITY PURCHASES, AND MEASURING PERFORMANCE TOWARDS THESE GOALS. Over time, set reporting intervals are established and more management levels review program progress. Duties of the minority vendor coordinator will probably change over time from primarily administrative (acting as a central data source in providing information about minority vendors) to a problem-solving posture (providing assistance to minority vendors and helping purchasing per- sonnel solve minority vendor problems). The sourcing techniques which can easily be used initially are primarily external. These include external directories ("Try Us," Vendor Information Service, etc.), membership in a National or Regional Minority Purchasing Council, or 190 membership in the National Association of Purchasing Manage- ment. Over time the minority vendor search process should include development of internal directories to identify any additional minority vendors not found in external directories and to provide information about current minority vendors to all purchasers. These efforts also include advertising in minority publications and distributing pamphlets and brochures to minority vendors about products purchased. 4. The minority vendor development techniques which may be first used Should probably include modification of existing practices for minority vendors. These include allowing longer lead times on purchased material and providing longer quotation times. In order to increase minority purchasing activity, the development techniques may have to involve financial assistance. Financial assistance may take the form of providing capital to expand a current minority vendor's business, developing a new business by direct loan through company-run Minority Enterprise Small Business Investment Companies, or through government loan agencies, or paying a price differential and providing progress payments. Need for Future Research This research represents a pioneering effort in the area of minority vendor purchasing. There are several areas which have potential for additional research and would complement these research findings. They include: 191 Setting up a research design which is longitudinal in nature in order to better infer causality between the variables. Establishing a more objective criterion measure for minority purchasing activity which compares maximum possible achieve- ment with actual achievement by each respondent. Controlling for extraneous environmental factors by selecting industry groups who purchase similar items. Research could focus on selected industry groups, such as chemicals, com- puters, electronics, etc. Obtaining a more representative sample. Specifically such a sample could include public institutions, manufacturing and nonmanufacturing corporations, and be randomly chosen. Including in the survey minority business viewpoints and factors which enhance their ability to do business with corporations. Assessing the impact which total purchase dollars and types of commodities purchased have upon the minority purchasing programs. Focusing field research on both corporate and Operating unit perspectives. APPENDICES APPENDIX A QUESTIONNAIRE MICHIGAN STATE UNIVERSITY GRADUATE SCHOOL OF BUSINESS ADMINISTRATION EAST LANSING ' MICHIGAN ° 48824 DEPARTMENT OF MANAGEMENT APPENDIX A QUESTIONNAIRE March, 1979 Mr. Ervin Johnson Director of Championships Magic Manufacturing Corporation 10 Jennison Fieldhouse East Lansing, Mi 48824 Dear Mr. Johnson: Research on Minority Vendor Purchasing Programs is being conducted at Michigan State University, funded in part by a National Association of Purchasing Management Doctoral Research Grant to Mr. Larry Giunipero. This research also has the support of the National Minority Purchasing Council. We need your response to the enclosed questionnaire to determine factors affecting the success of minority vendor purchasing programs. Please take the next few minutes to complete hhe_questionnaire. You have been chosen to participate because your corporation is active in minority vendor purchasing. The questionnaire is being sent to your headquarters location only. Individual responses will be confidential and anonymous. Please respond by March 23rd. We will send you the summary results of the research upon completion if you complete the enclosed form. Thank you for supporting purchasing research in the important area at Michigan State University. Sincerely, Robert M. Monczka Professor of Management 192 193 MINORITY PURCHASING QUESTIONNAIRE Graduate School of Business Administration Michigan State University QUESTIONNAIRE INSTRUCTIONS: Questions should be answered from the perspective of the entire corporation. In decentralized organizations. where it is difficult to answer certain questions from the perspective of the entire corporation, answer questions from the perspective of locations having successful minority purchasing programs. Please return the completed questionnaire in the enclosed envelope. it it it 1. Which best describes your corporation’s purchasing structure? [3 Highly Decentralized. Operating units (plants, divisions, profit centers) have all decision-making authority for purchases Decentralized. Operating units have majority of decision-making authority for purchases Decentralized/Centralized. Operating units and headquarters share equally decision-making authority for purchases DUI] Centralized. Headquarters has majority of decision-making authority for purchases [3 Highly Centralized. Headquarters has all decision-making authority for purchases 2. In what year was your minority vendor program initiated? 3. Does your corporation have a minority vendor policy statement? [3 Yes C] No If yes, what percentage of the operating locations have been formally informed of this policy? C] zero CI 1-25% [I] 26-50% C] 51—75% C] 76-99% (3 100% 4. Does your corporation set minority vendor purchasing goals? [3 Yes D No If yes, in what terms are the corporate minority vendor purchasing goals set? CI Total purchase dollars from minority vendors Percentage increase over prior year's purchase dollars Percentage of annual purchases from minority vendors Percentage of annual purchases which minority vendors are capable of supplying Number of new minority vendors developed DDCICICI Other (please specify) 5. Do individual buyers have minority vendor purchasing goals? (:1 Yes [3 No If yes, which of the following minority vendor performance measures are used to evaluate buyers? C) Total purchase dollars from minority vendors Percentage increase over prior year's purchase dollars Percentage of annual purchases from minority vendors Percentage of annual purchases which minority vendors are capable of supplying Number of new minority vendors developed CIDDEID Other (please specify) 6. Is minority vendor goal achievement considered in a buyer's performance appraisal? D Yes C] No 7. Which management personnel review minority vendor purchasing performance? 10. C) Chief Executive of corporation Chief Executive of operating unit Chief Purchasing Executive of corporation Purchasing Manager of operating unit Minority Vendor Coordinator of corporation DDUDC] Other (please specify) How often do your operating units report progress towards attaining minority vendor program goals? C) not at all [:1 monthly C] quarterly E) semi-annually C] annually (3 other Has one individual been assigned the responsibility for coordinating your minority vendor program? D Yes C] No If yes, his/ her title If yes, approximately how many times per year does this individual or the staff perform the following functions? Frequency of Performance of? t‘ a? {‘63. 4° 539 4:9 '9'? 6“ 0 Conducts in-house education and training sessions about minority vendors D C] C] D D C] 0 Acts as a central data source in providing information about minority vendors D E] C] C] E] C) 0 Identifies purchased items which have potential for minority vendor sourcing C] D C] D C] C] 0 Identifies new minority vendors for purchasing departments Cl C] C] C) D C] 0 Identifies minority vendors for other departments who commit corporate funds (traffic, advertising, etc.) C] C] D Cl C) C] 0 Provides assistance to purchasing personnel in solving minority vendor problems (quality, delivery, price, etc.) 0 Provides assistance (managerial, financial, etc.) to minority vendors 0 Participates in or provides input for setting minority vendor purchasing goals 0 Monitors purchases made from minority vendors 0 Other (please specify) DDDDDDUD 00000000 [30000000 DDDDCIDUCI DDDDDDDD DDDDUDDD Approximately what percent of your purchasing personnel and other functional personnel have attended in-hourse minority vendor training sessions. Percent of Total e <9 ‘P 6" ‘99 ‘9 0 Purchasing personnel C] C) C] C] D C] 0 Other functional personnel (finance, engineering, advertising, etc.) [1 C] C] E] E] D 11. 12. 13. How successful are the following techniques in locating minority vendors? 0 Buyer initiated contacts with minority vendors 0 Advertising for sources in minority publications such as Black Enterprise or Black Times 0 Distributing brochures and pamphlets to minority vendors describing products purchased and appropriate contacts 0 Attending minority trade fairs 0 Exhibiting at minority trade fairs ' External directories such as Try Us, Vendor Information Service, Regional Minority Purchasing Council directories 0 Membership in NMPC or RMPC 0 Membership in NAPM 0 Internally developed corporate directories 0 Other (please specify) Cl C) DE] DUDE] 0. *0 DD DUDE) DC) a” C] DE] DDDU DC] Used C) CID DUDE] DC] 0 06‘ How successful have the following techniques been in increasing the number of minority vendors and/or the dollar amount of purchases from minority vendors? 0 Broadening product specifications C Breaking up large purchases into smaller units/quantities 0 Requiring that your suppliers utilize minority vendor sources 0 Simplifying paperwork requirements 0 Awarding long-term contracts 0 Providing longer vendor quotation times 0 Providing special payment terms 0 Providing technical assistance (engineering, quality control, etc.) 0 Providing management assistance (legal, marketing, etc.) 0 Providing direct financial aid 0 Providing financial aid through company run Minority Enterprise Small Business Investment Companies 0 Providing prepayment on large dollar or long lead time items 0 Providing letter of credit to minority vendor’s supplier 0 Helping minority vendors to obtain funds from government loan agencies 0 Helping minority vendors to develop effective purchasing practices 0 Helping minority vendors secure raw materials 0 Paying a price differential 0 Allowing longer lead times 0 Broadening acceptable quality levels 0 Other (please specify) Does your corporation pay a price differential to deveIOp competitive minority vendors? If was what nercentaoe differential will vou oav and for what time period? ‘7». ‘3 [3000000000 [100000000 DD C] 0/ $ DUE) DDDUDUUDU DDU'DDUUDDDQBX 0 Yes \0 Duuuauuuuug DDDDUDDDD DC) CI 0 [3000000000 [100000000 CID Used Degree of Success 0 a. No v" ..\ Cooéb.“ \° 6 C] Cl C] E] C) D (I) E] Cl C) Cl Cl Cl C] C] C] C] CI D C] C) E) C] C] ‘9v\. 60" .‘GO ‘0" 0 9 ‘3 DDDDDDDDDU CIDDDCJCIDDDD DDUDDDDDD DDDDDDCICICI C) E] D C] C] C] (time period) 22. What is the approximate percentage of minority purchases by minority group? 0 Black Americans 0 Hispanic Americans 0 American Indians 0 American Eskimos 0 American Asians Other (please specify) 23. Approximately what percentage of your corporation's sales were to the federal government in 1978? C) zero [3 1—20% CI 21-40% (I) 41-60% (3 61-8396 [3 81-100% 24. Please circle those states in which you have purchasing locations operating minority vendor programs? In these states, circle the predominant minority groupIs) from which purchases are made? (B-Black; H-Hispanics; l-American Indians; A-Asians; E-Eskimos) ALA ARK ARZ AKS CAL COL B H l A E B H I A E B H I A E B H I A E B H I A E B H I A E CT DEL FLA GA HI ID 8 H I A E B H I A E B H I A E B H I A E B H I A E B H I A E ILL IND IO KAN KY LA 8 H | A E B H I A E B H I A E B H I A E B H I A E B H I A E ME MD MAS MI MN MIS 8 H I A E B H I A E B H I A E B H I A E B H I A E B H I A E MO _MT NEB NEV NH NJ 8 H I A E B H I A E B H I A E B H I A E B H I A E B H I A E NM NY NC ND OH OK 8 H I A E B H I A E B H l A E B H I A E B H I A E B H I A E ORE PA RI SC SD TN 8 H I A E B H l A E B H I A E B H I A E B H I A E B H I A E TX UT VT VA WA WV 8 H I A E B H I A E B H l A E B H I A E B H I A E B H I A E WIS WY 8 H I A E B H I A E Company name (Optional) Please enclose any additional comments you believe useful concerning your (or other) minority vendor programs Complete and return to: Minority Purchasing Research, Department of Management, Graduate School of Business Administration, Michigan State University, East Lansing, Michigan 48824 “innin..- 0...... n:.;.. -- - . , 194 MINORITY PURCHASING RESEARCH RESULT REQUEST If you wish to receive a copy of the Minority Purchasing Research results, please fill in and return the pre-addressed form now or at your convenience. Send to: Minority Purchasing Research Department of Management Graduate School of Business Administration Michigan State University East Lansing, MI 48824 APPENDIX B PILOT TEST COVER LETTER MICHIGAN STATE UNIVERSITY GRADUATE SCHOOL OF BUSINESS ADMINISTRATION . EAST LANSING ° MICHIGAN ° 48824 DEPARTMENT or MANAGEMENT APPENDIX B PILOT TEST COVER LETTER 20 December 1978 Mr. Warren K. Deem Administrator, Small Business & Minority Enterprise Program Lockheed Aircraft Corporation P.O. Box 551 Burbank, California 91503 Dear Mr. Dean: I have enclosed a copy of the Minority Purchasing Questionnaire which we previously discussed. I would appreciate your careful response to this pretest. Your responses and comments, in addition to those of other key minority program managers, will provide valuable information about possible improve- ments to the questionnaire. Please answer all questions. As you proceed through the questionnaire, indicate: --questions difficult to adequately answer due to lack of infbrmation. --questions which are ambiguous. --how questions could be improved. --additional problems/questions you encountered in completing the questionnaire. Please return the questionnaire in the enclosed enve10pe by January 4, 1979, and keep a copy for your records. I will contact you during the week of January 8 to discuss the questionnaire. Thank you for your cooperation in the pretesting of this questionnaire. sincerely, Larry Giunipero 195 APPENDIX C FOLLOW-UP COVER LETTER MICHIGAN STATE UNIVERSITY GRADUATE SCHOOL or BL‘SINESS ADMINISTRATION EAST LANSING . WCHIGAN . 48824 DEPARTMENT OF MANAGEMENT APPENDIX C FOLLOW-UP COVER LETTER April 17, 1979 Several weeks ago we mailed to you the enclosed Minority Purchasing questionnaire. The overall response to the questionnaire has been excellent. If you have completed and returned the questionnaire, please accept our thanks. In the event you have not completed the questionnaire, would you please do so? Your response is extremely important to obtaining the broadest possible response rate. we would appreciate your reply by April 30, 1979, which is our final cut-off date for accepting completed questionnaires. Thank you for supporting Purchasing Research at Michigan State University. Sincerely, Robert M. Monczka Professor of Management 196 APPENDIX D STATISTICAL ANALYSES UTILIZING PERCENTAGE CHANGE IN MINORITY PURCHASING ACTIVITY MEASURES APPENDIX D STATISTICAL ANALYSES UTILIZING PERCENTAGE CHANGE IN MINORITY PURCHASING ACTIVITY MEASURES TABLE D.l MINORITY PURCHASING ACTIVITY MEASURES--EXAMPLE CALCULATION OF CHANGE INDICES USING A SAMPLE RESPONDENT Percentage of Annual Dollar Purchases from Minority Vendors Respondent Data: 1978 = 3.1% 1977 = 2.5% 1976 = 2.0% Calculations: % 1978 3.1 % 1977 2.5 % 1978 3.1 -—-= ——-= 1.24 ———-= ———-= 1.25 —~——-= -—-= 1.55 % 1977 2.5 % 1976 2.0 % 1976 2.0 Annual Minority Vendor Dollar Expenditures Respondent Data: 1978 = $8,100,000 1977 = $7,600,000 1976 = $7,100,000 Calculations: $ 1978 8,100,000 $ 1977 7,600,000 $ 1978 8,100,000 $ 1977 7,600,000 % 1976 7,100,000 $ 1976 7,100,000 = 1.07 = 1.07 = 1.14 Total Number of Minority Vendors Respondent Data: 1978 = 400 1977 = 380 1976 = 300 Calculations: # 1978 400 # 1977 380 # 1978 400 --—-= --= 1.05 -—-—-= -—-= 1.27 -——-= —--= 1.33 # 1977 380 # 1976 300 # 1976 300 197 198 TABLE D.2 SIGNIFICANCE LEVELS FOR T-TESTS UTILIZING CHANGE INDICES ON MINORITY PURCHASING ACTIVITY MEASURES AND INDEPENDENT VARIABLESa--MINORITY PURCHASING PROGRAMS ESTABLISHED 1975-1979 Change in Change in Annual Self- Independent Percentage of Minority Vendor Perceived Variables Annual Dollar Dollar . Success Purchases Expenditures Policy statement .585 .068 .414 Corporate goals 1.000 .877 .766 Buyer goals .011b .071 .059b Performance appraisal 1.000 .533 .766 Individual responsible for program .246 .955 .448 Training sessions purchasing .963 .948 .796 Techniques used to locate minority vendors .746 .752 .458 Techniques used to develop minority vendors .191 .194 .168 Payment of price premium .835 .849 .883 CEO support of b program .089 .052 .112 Sample size 21-25 21-25 24-29 aChange indices were calculated for minority purchasing activity measures. Examples of how these change indices were calcu- lated is shown in Table D.l. The change indices were then (1) ordered from highest to lowest; (2) split into quintiles; and (3) T-tests were run comparing the two higher quintiles with the two lower quin- tiles. This analysis was performed to determine if there were dif- ferences in the various independent variables between those corpor- ations showing higher year-to-year changes than those showing lower year-to-year changes. Responses to self—perceived success were answered on a five—point scale and the T-tests were done comparing the two highest and two lowest quintiles. < bSignificant relationships at p - .05. 199 TABLE D.3 SIGNIFICANCE LEVELS FOR T-TESTS UTILIZING CHANGE INDICES ON MINORITY PURCHASING ACTIVITY MEASURES AND INDEPENDENT VARIABLESa--MINORITY PURCHASING PROGRAMS ESTABLISHED 1967-1974 Change in Change in Annual Self- Independent Percentage of Minority Vendor Perceived Variables Annual Dollar Dollar . Success Purchases Expenditures Policy statement .754 .745 .975 Corporate goals .564 .180 .340 Buyer goals .721 .134 .335 Performance appraisal .131 .762 .856 Individual responsible for program .514 .870 .139 Training sessions for purchasing .169 .414 .444 Techniques used to locate minority vendors .559 .079 .095 Techniques used to develop minority vendors .739 .501 .521 Payment of price premium .621 .247 .985 CEO support of program .090 .391 .661 Sample size 51 51 59 a . . . For a complete explanation of how these change indices were calculated and the analysis performed on them, see Table D.2. APPENDIX E MINORITY PURCHASING ACTIVITY MEASURES TABLE E.1 MINORITY PURCHASING ACTIVITY MEASURES RANGE, MEAN, AND MEDIAN Range Mean Median N Percentage of annual dollar purchases from minority vendors 1978 .010 to 9.99 1.545 1.00 123 1977 .010 to 5.00 1.087 .500 113 1976 .010 to 5.00 .703 .330 85 Annual minority vendor dollar expenditures 1978 7,000 to 216,000,000 5,811,000 1,250,000 141 1977 10,000 to 40,000,000 3,348,000 800,000 129 1976 2,000 to 24,000,000 2,768,000 706,000 101 Total number of minority vendors 1978 2 to 1000 122 55 141 1977 1 to 800 105 31 125 1976 1 to 762 89 31 95 NOTE: Medians and means should not be compared across the three categories since many respondents did not provide information on all three categories. 200 SELECTED BIBLIOGRAPHY SELECTED BIBLIOGRAPHY "Amoco Oil Helps Minority Firms Win Construction Jobs." Access, July/August 1975, pp. 4-5. "AMOCO Production Cited for Support of Minority Firms." Access, September/October 1976, p. 10. 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Brower, Michael, and Little, Doyle. "White Help for Black Business." Harvard Business Review, May/June 1970, pp. 4-16, 163-68. Brownscheidle, Carl H. "Minority Purchasing: An Overview." Niagara Frontier Purchaser, July 1978, pp. 8-12. 201 202 "Buyers, Sellers Meet at Local Business Fairs." Access, July/August 1976, p. 7. Carter, President Jimmy. "The White House: Statement by the Presi- dent." Access, September/October 1977, pp. 9-10. "Changes Seen in Asian-American Business Patterns." Access, November/ December 1975, pp. 5-6. "Cleveland MESBIC Holds Annual Meeting." Access, May/June 1977, p. 12. "Contractors Group Expands Data Network." Access, September/October 1977, pp. 4-5. "Corporate Minority Enterprise Involvement." Access, September/ October 1976, pp. 8-12. "Corporate Purchases from Minority Firms Double." Access, March/April 1974, p. 6. Cronbach, Lee J., and Furby, Lita. "How Should We Measure 'Change'-- Or Should We?" Psychological Bulletin 74 (July 1970). 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"Minority Banks Face New Challenge." Access, January/February 1976, pp. 4-5. "Minority Buying Programs Are Paying Dividends." Purchasing, January 27, 1976, pp. 99-103. "Minority Suppliers: Minority Businesses Still Get Short Shrift." Purchasing, October 16, 1973, pp. 49-69. National Business League. Corporate Guide for Minority Vendors. Washington, D.C.: National Business League, 1977. National Minority Purchasing Council. PurchasingAPower: How Cor- porations Can Locate and Utilize Qualified Minority-Owned Professional Services and Vendors. Washington, D.C.: National Minority Purchasing Council, 1978. Nie, Norman H.: Hull, C. Hadlai; Jenkins, Jean G.; Steinbrenner, Karen; and Bent, Dale H. Statistical Package for the Social Sciences. 2d ed. New York: McGraw-Hill, 1970. 204 "Notes to the Fortune Directory." Fortune, May 8, 1978, p. 260. "Over 43,000 Clients Visit OMBE Centers." Access, November/December 1977, pp. 8-9. Regional Minority PurchasinggCouncil Handbook. Augustine R. Marusi, chairman. Washington, D.C.: National Minority Purchasing Council, 1978. Rosenbloom, Richard S., and Shank, John K. "Let's Write Off MESBICs." Harvard Business Review, September/October 1970, pp. 90-97. Span. John E. Swearingen, chairman. Chicago: Standard Oil of Indiana, 1978. Spratlen, Thaddeus H. "The Impact of Affirmative Action Purchasing." Journal of Purchasing and Materials Management (Spring 1978): 6-8, 32. "Starting a Bank." Access, May/June 1974, p. 15. Steven, S. 8. "Ratio Scales of Opinion." Handbook of Measurement and Assessment in Behavioral Sciences. Chicago: Addison Wesley Publishing Company, 1968. "Supplier Development--Minority Suppliers: No Talk, Only Action." Purchasing, July 10, 1973, p. 20. "The Minority Business Enterprise--What It Can Contribute to an Effective Purchasing Program." Golden West Purchasor, January 1971, pp. 9-10. Thompson, A. A., and Strickland, A. J. Strategy and Policy: Con- cepts and Cases. Dallas: Business Publications, 1978. Timmons, Jeffrey A. "Black Is Beautiful-~Is It Bountiful?" Harvard Business Review, November/December 1971, pp. 81-94. Turton, Harry. "A Forgotten American Right." Access, January/ February 1977, pp. 3-9. ' U.S. Congress. House. Amending the Small Business Act and Small Business Investment Act of 1958. Report No. 95-949, 95th Cong., 2d sess., 1978. U.S. Congress. House. Amending the Small Business Act and Small Business Investment Act of 1958. H.R. 11318, 95th Cong., 2d sess., 1978. U.S. Congress. House. An Act to Amend the Small Business Act and Small Business Investment Act of 1958. Pub. L. 95-89, 95th Cong., 2d sess., H.R. 692. 205. U.S. Congress. House. An Act to Amend the Small Business Act and Small Business Investment Act of 1958. Pub. L. 95-507, 95th Cong., 2d sess., H.R. 11318. U.S. Congress. Senate. Committee on Labor and Public Welfare. Economic Opportunity Legislation, 1974. 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"A Company Seeks Profits with a Sious Indian Tribe." Harvard Business Review, July/August 1976, pp. 7-10. "We Could Be Your Best Customer." Access, January/February 1975, pp. 8-10. Winters, Frank J. "Affirmative Action." National Purchasing Review, November 1976, pp. 20-22. APPENDICES APPENDIX A. QUESTIONNAIRE . B. PILOT TEST COVER LETTER. C. FOLLOW-UP COVER LETTER D. STATISTICAL ANALYSES UTILIZING PERCENTAGE CHANGE MINORITY PURCHASING ACTIVITY MEASURES E. MINORITY PURCHASING ACTIVITY MEASURES SELECTED BIBLIOGRAPHY. vii 192 195 196 197 200 201 16. I7. 18. '19. 21. 20. j. High prices: k. Lack of minority vendors: I. No purchased items supplied by minority vendors: m. Procedures: n. Insufficient management skills: 0. Insufficient sales skills: p. Insufficient engineering skills q. Minority fronts: r. Other: How much support does the Chief Executive Officer give the minority vendor program? (3 None I] A little l'_'] Some C] Considerable How successful does your corporation feel the minority vendor program is? Slightly Successful Moderately Successful 1 2 3 4 What approximate percentage of total purchases were from minority vendors? 1978 _% 1977 _% 1976 What were your approximate total dollar purchases from minority vendors? 1978 $ 1977 $ 1976 $ From how many minority vendors were purchases made in the following years? 1973 1977 1 976 What is the approximate percentage of purchases from minority vendors by category? 0 Direct product purchases 0 Supplies and services (MRO, office supplies, janitorial, etc.) 0 Construction 0 Capital equipment Traffic/warehousing Advertising and artwork Other (Please specify) D Complete Highly Successful 5 I4. 15. Supplier problems are often encountered in purchasing. Indicate the extent of these problems for your minority and non-minority vendors? (Check all categories that apply) Extent of Problem Minority Non-Minority e 0‘ ‘d e .0: 06.?“ 05.1?“ {‘6 fifty 06.;‘oobbéf‘ ¢‘°°§‘®\:& (3:90 Q,o°‘,;\<‘° 9‘ ‘ovo‘ {Id ‘30 $06 (50‘ o“' faves 38 ‘10‘ ‘0, Q‘so" ‘0‘ Q‘o‘!‘ $00 a. Inability to understand purchase order specifications D C] C] C) D E) b. Insufficient technological expertise D C] D C) D C) c. Insufficient production capacity [3 Cl C] E] Cl C] d. Failure to meet bid deadlines Cl E) El (3 Cl C] e. Failure to respond to phone calls D (:1 Cl C] D E] f. Failure to submit samples Cl C] C) C] E] E) 9. Failure to deliver on time C] D E] C) C] C) h. Low quality/ high rate of rejected material C] E] Cl Cl C] C) i. Long lead time required to correct quality problems Cl C] C] C) C) E] j. Consistently high prices [I] Cl E) El (3 E] k. Lack of minority vendors at or near operating locations C] D Cl C) E] El I. Lack of minority vendors supplying items you purchase C] C] C] C] D C) m. Lack of compliance with purchasing procedures C) C] Cl C) D C] n. Lack of qualified management personnel C) Cl Cl C) C) C] 0. Lack of qualified sales personnel (:1 C] E] C) D E] p. Lack of qualified engineering personnel Cl C) E] Cl C) E] q. Minority serving as front for non-minority business C] C) Cl C] Cl C) r. Other (please specify) (3 E] D E] I] (II D E) Cl Cl C) D C] (I) D D D E) How have you overcome these problems? 8. Specifications: b. Insufficient technological expertise: ' c. Insufficient capacity: d. Bid deadlines: e. Phone calls: f. No samples: 9. Poor delivery: h. Low quality: i. Long lead time: j. High prices: k. Lack of minority vendors: I. No purchased items supplied by minority vendors: m. Procedures: n. Insufficient management skills: 0. Insufficient sales skills: p. Insufficient engineering skills q. Minority fronts: r. Other: How much support does the Chief Executive Officer give the minority vendor program? Cl None D Alittle D Some E) Considerable C1 Complete . How successful does your corporation feel the minority vendor program is? Slightly Successful Moderately Successful Highly Successful 1 2 3 4 5 . What approximate percentage of total purchases were from minority vendors? 1978 ___—96 1977 ___96 1976 _-__.... 96 . What were your approximate total dollar purchases from minority vendors? 1978 $___ 1977 $____ 1976 $ From how many minority vendors were purchases made in the following years? 1978—__._. 1977 ___—— 1976 What is the approximate percentage of purchases from minority vendors by category? 0 Direct product purchases 0 Supplies and services (MRO, office supplies, janitorial, etc.) 0 Construction 0 Capital equipment Traffic/warehousing Advertising and artwork Other (Please specify)