Diagnostic of Aboriginal Procurement Strategies

Electricity Human Resources Canada (EHRC) has undertaken a diagnostic study of Aboriginal procurement. This interest follows EHRC’s successful project on Aboriginal recruitment, advancement and retention. The Diagnostic of Aboriginal Procurement Strategies project was funded by Indigenous and Northern Affairs Canada in 2011. This project was designed to look at procurement strategies within the electricity and renewables industry for both Aboriginal and non-Aboriginal businesses. The project identified several specific challenges in Aboriginal procurement and provided solutions to help overcome these barriers. These challenges and solutions, as well as other project elements, can be found in the project report.

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Project Report

The report identifies ways that businesses operating in the electricity and renewables sector can increase their procurement of goods and services from Aboriginal businesses. A considerable part of the report is devoted to a description of the strategic and operational dimensions of the procurement process. This report also includes case studies that illustrate the ways companies in the sector are developing supplier relationships with Aboriginal businesses. The case studies also serve as an industry diagnostic illustrating the range of business and procurement opportunities that will be available to Aboriginal businesses. Industry interviews and secondary research contribute to our understanding of the full range of procurement opportunities in the sector.

This report also provides recommendations pulled from research to help companies build upon current practices and to encourage consideration of Aboriginal businesses as viable suppliers. It examines the benefits of having an Aboriginal procurement strategy and provides the template for companies looking to develop an Aboriginal procurement strategy of their own.

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Diagnostic of Aboriginal Procurement Strategies

Business Case

The business case for working with Aboriginal businesses is driven by legislation, social responsibility, and long-term strategic thinking. Legislation encourages companies to consult with First Nations that may be impacted by any developments on or proximate to their traditional lands. Social responsibility is informed by the business ethic that companies ought to develop good relationships with Aboriginal peoples and communities to ensure that development progresses beneficially. In addition, the business case is informed by the total cost of ownership (TCO) approach, which is moving companies away from short term price-based decisions in favour of a more strategic, long-term approach that measures all costs and benefits of a firm’s relationship with its suppliers. The TCO approach means that other factors such as corporate social responsibility comes into play in procurement decisions.

Approach

Adopting an enterprise-wide and inclusive Aboriginal procurement strategy requires the cooperation of all layers in the organization. It requires that company leaders embrace the issues inherent in Aboriginal development and inform themselves or hire people to teach them. Informed company leaders then need to reach out to Aboriginal communities to establish the basis for partnerships. These leaders also need to establish a definitive stance on the issues for the company. This is usually achieved through policy statements or directives which create the imperative for Aboriginal inclusion within the company. One of the key findings of the Diagnostic project was that such policies need to be driven from the top down and that, without this, buy-in from the rest of the organization is especially difficult. Ideally all departments within a company are tasked with developing strategies and programming which impel the organization to develop and achieve goals in Aboriginal inclusion.

It is within this organizational framework that the procurement department develops its strategies for Aboriginal procurement. This department also develops operational mechanisms and tactics, which further define the company’s policy towards Aboriginal procurement. The operational details of the policy are critical because they can effectively either invite or discourage Aboriginal businesses. A company’s strategy may be inclusive on paper, but it is at the operations and tactical level that defines how proactive the company is in working with Aboriginal businesses.

Operational & Tactical Mechanisms

Companies that have their own procurement division or department need to build the right mechanisms that are inviting to Aboriginal business. Consider the following practices and tactics which are already in use within the sector:

  • Companies may “unbundle” large contracts so that Aboriginal suppliers can bid;
  • Companies may encourage non-Aboriginal suppliers to partner with Aboriginal suppliers to bid;
  • Companies may adjust criteria in bids specifically to accommodate Aboriginal suppliers;
  • Companies may establish a “set-aside” style program which invites bids from only those businesses that have self identified or qualified as Aboriginal businesses;
  • Companies may have established targets for Aboriginal procurement.

Capacity Building

Many companies will base their decision on whether to purchase from an Aboriginal supplier entirely on the fiscal value of that relationship. They select all suppliers very carefully and take on new suppliers only after considerable due diligence. Aboriginal businesses will also carefully assess which companies they want to do business with to determine which one will be the best match for them. But on a business level, the relationship between Aboriginal suppliers and companies needs to be based on trust. Companies need to establish supplier capacity programs and Aboriginal suppliers need to ensure that, if they are awarded contracts, they can meet the contract’s quality and fulfillment requirements.

RFPs & Tender

Like other small businesses, some Aboriginal businesses are experiencing challenges in wading through the myriad of requirements contained in formal RFPs and tender documents. They need information on the typical procurement process and the basic requirements to do business with a firm. They would benefit from a better understanding of standard procurement arrangements and how to qualify for them, such as preferred supplier lists used by large companies. For the industries that use them, and most do in some form, being on the pre-qualified suppliers list is extremely important.

Networking

Aboriginal businesses, especially smaller businesses, report difficulty in learning about opportunities to work with companies. It is important to recognize that there are formal and informal processes, and in some cases the informal network is just as significant as the formal procurement processes. Often the relationship building begins well before a proposal is made public, and these relationships can lead to long-term partnerships.

Joint Ventures

Aboriginal businesses would benefit from assistance in locating potential joint venture partners, and in understanding how to effectively negotiate a joint venture agreement, as well as the factors that contribute to maintaining the partnership through the life of the business venture. Companies with insights into partnership building could assist Aboriginal businesses to better understand their competitive advantages and their core competencies.

In these ways, and more, electricity companies can help Aboriginal businesses overcome organizational barriers to success. For more information on how Aboriginal businesses can grow, check out EHRC’s Aboriginal Business Assistance Program.