Minority Business Enterprises 

Mastering the Supply Chain: 

A Perspective 

Tuck School of Business 

at Dartmouth 

Professor Quintus R. Jett 

Professor David F. Pyke 

Professor M. Eric Johnson 

in collaboration with the 

Minority Business Development Agency 

U.S Department of Commerce 

Washington, D.C. 

Ronald N. Langston, National Director 

Prepared for the National Minority Enterprise Development (MED) Week 

2006 Conference 

August 29- September 1, 2006

 

This project is funded by a grant from the U.S. Small 

Business Administration (SBA). SBA's funding should 

not be construed as an endorsement of any products, 

opinions, or services. All SBA funded projects are 

extended to the public on a non-discriminatory basis. 

The views expressed in this paper are those of the 

authors and not those of the U.S. Department of 

Commerce. 
1
Mastering the Supply Chain: 

A Perspective 

Summary 

Minority business enterprises (MBEs) are a rapidly growing and increasingly 

important segment of the U.S. and global economy. From 1997-2002, the total 

number of U.S. companies increased by 2 million1

 and over 50% of this increase 

was accounted for by minority-owned firms2

. Minority-owned businesses are 

diverse, participating in a wide variety of industries – financial services, health care, 

construction, transportation, and other services. However, despite impressive 

growth in the number of U.S. minority firms, MBEs must increase their size, scale, 

and the economic viability of their firms if they are to compete effectively in the 

global economy. To accomplish this, MBEs must be assertive, innovative 

competitors who will not fear or retreat from globalization. This paper sets forth 

the business case for how MBEs can grow their companies, and cope with the 

challenges of national and global competition, through their participation and 

mastery of supply chain strategies. 

Supply chains move materials, products, information and money from 

suppliers and their suppliers to customers and their customers – literally, from 

digging raw materials out of the ground to the home of the final consumer. Today, 

reverse supply chains also recover products and packaging for environmentally 

responsible recycling and disposal. 

This paper explains how MBEs can become nationally and globally 

competitive by learning about and mastering supply chain strategies. It outlines 

three levels of supply-chain mastery: (1) Managing the fundamentals of the supply 

chain, which includes knowing the different kinds of supply chains, the associated 

problems, and cutting-edge solutions; (2) Addressing concerns businesses may 

have about supply chains; and (3) Transcending today’s supply chain, by migrating 

away from businesses characterized by shrinking value toward new businesses and 

markets that offer high growth potential. To help MBEs achieve this final level of 

mastery, this paper introduces the Supply-Chain Life Cycle, a new framework based 

on our examination of MBEs and their responses to today’s supply chains and the 

global economy. 

 

1 All U.S. firms refers to estimates that exclude publicly held, foreign, and non-profit firms and firms 

not classifiable by race or by Hispanic/Latino origin.

2 Based on U.S. Census Bureau’ 1997 Survey of Minority-Owned Business Enterprises (SMOBE) and 

2002 Small Business Owner (SBO) survey data. 

1
Section 1 

Minority Business Enterprises: 

Mastering the Supply Chain 

 

Summary: MBEs can contribute to U.S. competitiveness in the global economy. 

However, while the number of MBEs is growing faster relative to the number of all 

U.S. enterprises, their share of annual gross receipts and paid employees among 

U.S. firms remains relatively flat. Parity between MBEs and other U.S. enterprises 

on the above metrics may be reached by strengthening their mastery of the keys 

to entrepreneurial success: capital, education and technology (Buckley, 2002), and 

by improving MBE access to management skills, financing, and markets. Global 

sourcing and supplier consolidation make supply chain management a critical skill 

for MBEs to develop and master. Although increased global competition and global 

supply chains challenge many minority entrepreneurs, mastery of supply chain 

strategies can help them create global economic opportunities. 

1.1 MBE growth and the Future of the U.S. Economy 

The growth of minority-owned firms and the managerial leadership 

demonstrated by these companies in identifying and accessing new markets will 

contribute to the future competitiveness of the United States in the global economy. 

Minority enterprises introduce diverse perspectives and ideas in business, which are 

critical for identifying new opportunities and solutions in a global economy 

populated with a variety of cultures3

. 

Minority businesses can contribute to U.S. competitiveness by achieving 

entrepreneurial success similar to the levels seen in all U.S. business enterprises. 

To fulfill this promise, minority entrepreneurs must become central to the 

innovation and growth of the U.S. entrepreneurial economy. They must be 

assertive, innovative competitors who will not fear or retreat from globalization. 

The recent increase in the numbers of MBEs relative to all U.S. firms is a positive 

sign towards fulfilling entrepreneurial parity, but new and early-stage minority 

enterprises need to show higher rates of survival and growth. 

According to the U.S. Census Bureau, minorities represented approximately 

32%4

 of the United States population in 2002, and recent data show a positive 

 

3 Owens & Pazornik (2003). Globalization and Minority-Owned Businesses in the United States: 

Assessment and Prospects. Prepared for the 2003 National Minority Enterprise Development (MED) 

Week. 4 U.S. Census Bureau (2003). Annual Resident Population Estimates of the United States by Age, 

Race, and Hispanic or Latino Origin: April 1, 2001 to July 1, 2002, Table NA-EST2002-ASRO-03. 

2
trend between MBEs and all U.S. enterprises in terms of the number of firms. An 

analysis of data from the recent U.S. Census Small Business Owners (SBOs) survey 

indicates that the number of MBEs increased at a higher rate than all U.S. firms 

between 1997 and 2002. For instance, the growth in the number of MBEs was 

about 50% of the growth of all U.S. enterprises5

 between 1997 and 20026 (see 

Table 1). 

Table 1: Growth of minority-owned firms, relative to growth of all U.S. firms, 1997-

20027

RSE of 

Estimate 

(Percent) for 

Growth in 

Number of 

Firms 

RSE of 

Estimate 

(Percent) for 

Percentage 

Growth of All 

U.S. Firms 

Growth in 

Number of 

firms, 1997-

2002 

Percentage 

Growth of all 

U.S. Firms, 

1997-2002 

Group 

All U.S. Firms 2,040,017 100.00% NA NA 

All Minority 1,066,752 52.30% NA NA 

African American 374,162 18.30% 4 NA 

American Indian and Alaska Native 4,087 NA NA 

Asian 210,599 10.30% 4 NA 

Hispanic 373,704 18.30% 4 NA 

Native Hawaiian and Other Pacific 

Islander 9,578 0.50% 16 NA 

Source: U.S. Census’ 2002 Survey of Business Owners (SBO) and 1997 Survey of Minority-Owned 

Business Enterprises (SMOBE), and the Minority Business Development Agency. 

Meanwhile, total annual sales and receipts, another measure of 

entrepreneurial activity, remains relatively flat. When the growth of annual gross 

receipts between minority and all businesses is compared over the 1997-2002 

period, the gap widened slightly during that time. Although MBEs are increasing 

their gross receipts and paid employees, the growth is not keeping pace with the 

higher number of MBEs and of the minority population. 

 

5 U.S. enterprises excludes publicly held, foreign, nonprofit and other not classifiable firms by race or 

Hispanic or Latino origin. 6 Based on MBDA adjusted data from 1997 SMOBE and 2002 SBO surveys (see Tables 1-3). 7 All U.S. firms exclude publicly held, foreign, non-profit and other not classifiable firms by race and 

Hispanic or Latino origin. Total number of minority firms and other business measures for all 

minorities for 2002 represent MBDA estimates by race and Hispanic origin (excluding white). In 

surveys produced by the U.S. Census, Hispanics may be of any race. The U.S. Census 2002 Survey of 

Business Owners did not provide estimates for total minority firms. MBDA estimates the number of 

minority firms in 2002 by adding the number of firms from all minority groups. For more information, 

please see methodology. Due to the exclusion of tribally held governments in 2002, data for American 

Indian and Alaska Native firms from the 1997 SMOBE and the 2002 SBO are not directly comparable. 

RSE stands for relative standard error; see methodology for implications. NA = not available. 

3
A contributing factor to the slightly widening gap in gross receipts is the 

number of MBEs that entered the birth and adolescent stages between 1997 and 

20028

. These MBEs are in a life-cycle stage where most businesses (MBE or nonMBE) are likely to fail. 

Table 2a. Minority-owned firms, by number, gross receipts, and paid employees, 

20029

2002 

Firms (number) 

RSE of 

estimate 

(percent) 

for firms 

(number) 

Sales & 

Receipts 

($1,000) 

RSE of 

estimate 

(percent) 

for sales & 

receipts 

($1,000) 

Paid 

Employees 

(number) 

RSE of 

estimate 

for paid 

employees 

(number) 

Group 

All Minority 4,105,785 NA $668,261,385 NA 4,727,900 NA

All U.S. firms 22,480,432 NA $8,793,351,161 NA 55,427,792 NA

Minority firm % of 

all U.S. firms 18.30% NA 7.60%

Table 2b: Minority-owned firms, by number, gross receipts, and paid employees, 

1997

 NA 8.50% NA

1997 

Firms (number) 

RSE of 

estimate 

(percent) 

for firms 

(number) 

Sales & 

Receipts 

($1,000) 

RSE of 

estimate 

(percent) 

for sales & 

receipts 

($1,000) 

Paid 

Employees 

(number) 

RSE of 

estimate 

for paid 

employees 

(number) 

Group 

All Minority 3,039,033 - $591,259,123 2 4,514,699 3

All U.S. firms 20,440,415 NA $8,392,001,261 NA 58,901,412 NA

Minority firm % of 

all U.S. firms 14.60% NA 7.10% NA 7.70% NA

Source for Table 2a and 2b: U.S. Census’ 2002 Survey of Business Owners (SBO) and 1997 Survey of 

Minority-Owned Business Enterprises (SMOBE), and the Minority Business Development Agency. 

 

8 Bernard & Slaughter (2004). The Life Cycle of a Minority-Owned Business: Implications for the 

American Economy. Prepared for the 2004 National Minority Enterprise Development (MED) Week. 9 In table 2a and 2b: All U.S. firms exclude publicly held, foreign, non profit and other not classifiable 

firms by race and Hispanic or Latino origin. Total number of minority firms and other business 

measures for all minorities for 2002 represent MBDA estimates by Hispanic or Latino origin only and 

by race (excluding white). In surveys produced by the U.S. Census, Hispanic may be of any race. 

The U.S. Census 2002 Survey of Business Owners did not provide estimates for minority firms. MBDA 

estimates the number of minority firms in 2002 by adding the number of firms from all minority 

groups. RSE = relative standard error; see methodology for implications. NA = not available; - 

represents zero. 

4
1.2 Survival and Growth Rates of MBEs 

MBEs often face entrepreneurial barriers. In general, minority-owned firms 

tend to be smaller and less viable than non-minority firms because they lack 

comparable access to management skills, money, and markets (Bates, 1997)10. 

Bates’ “3M” model implies that MBEs will have enhanced survival and growth rates 

if they have greater access to the expertise, financing, and market opportunities 

that are the essential building blocks of business survival and growth. Buckley 

(2002) makes a similar argument in her study, Keys to Minority Entrepreneurial 

Success: Capital, Education and Technology11. 

With respect to capital, a 2004 report by the Minority Business Development 

Agency12 (MBDA) noted some of the challenges that MBEs face including 

relationships in the commercial lending space. A growing community of minorityowned financiers and venture capital firms that are dedicated to supporting 

minority businesses are offsetting some of these financial limitations. However, 

greater financial capital alone is not the only factor necessary for MBEs to remain 

viable and grow, although it is indeed an essential ingredient. 

Some of the latest research provides insights on the market distinctions 

between high-growth MBEs and other MBEs. Boston and Boston (2007) studied 

African-American firms that grew at least 20% annually in their number of 

employees for several years, and compared them to similar firms who did not 

achieve that level of high growth. Among their findings was that the high growth 

enterprises have markets that were regional, national, or international in scope, 

rather than local. They also found that high growth enterprises did not frequently 

adjust their price as the low/no growth enterprises did. On this last point, Boston 

and Boston concluded that high growth enterprises were not driven by a pricing 

strategy, since they remained consistent in price and were slow to react to market 

changes and volatility. 

 

Harriet Michel, president of the National Minority Supplier Development 

Council (NMSDC), offers an industry perspective on markets and MBE survival and 

growth: "Competing either on price or on established quality features are not 

enough in today’s competitive economy. Companies must compete on other factors 

such as distribution, and delivering high volume fast." Ms. Michel also suggests 

that MBEs strive to: 

• Discover a new market niche that can be occupied, defended, and grown. 

• Exit from businesses that lack growth potential. 

• Make investments towards higher margin areas of a business. 

 

10 Bates's model (1997) of Management, Money, and Markets is a framework that explains the viability 

and size/growth of MBEs, and it is often recognized and cited by academic researchers who study 

MBEs. 

11 Buckley, Patricia (2002). Keys to Minority Entrepreneurial Success; Capital, Education, and 

Technology. U. S. Department of Commerce’s Economic Statistics Administration and the Minority 

Business Development Agency. 

12 U.S. Department of Commerce, Minority Business Development Agency. "Expanding Financing 

Opportunities for Minority Business," (2004). 

5
A significant challenge to the growth of minority-owned firms is that many 

operate as lifestyle businesses. A lifestyle business is one whose primary purpose 

is to provide the owner with personal income that replaces a salary, as opposed to 

an enterprise designed to generate employment and result in a significant economic 

impact. In 2002, about 32% of the U.S. population was minority, while almost 

18% of all U.S. enterprises13 were MBEs. However, the paid employees of 

minority-owned firms amounted to less than 9% of paid employees in all U.S. firms, 

excluding non-publicly held and other not classifiable firms (see previous tables). 

If it is true that MBEs are more likely to hire minority employees compared to nonMBEs, a minority entrepreneur's choice to remain a lifestyle business will reduce the 

economic growth opportunities for the U.S. minority population. The prevalence of 

MBE lifestyle business increases the likelihood that MBEs will continue to take a 

back seat in the U.S. economy, even as minorities become a larger segment of the 

U.S. population. 

The decision to start or expand a business with employees requires the 

acquisition of necessary management skills. Because there is some evidence of a 

relationship between having a higher educational background and achieving 

entrepreneurial success, an emerging number of educational programs have been 

designed for minority entrepreneurs that concentrate explicitly on business growth 

as a critical strategic priority. 

1.3 The Challenge for MBE Suppliers 

Supplier consolidation and global sourcing are challenging the future of 

today’s MBEs. Supplier consolidation remains a long term obstacle to MBEs which 

may not have the capacity to compete for larger, bundled contracts. Although 

supplier diversity programs have greatly increased in number and have become 

very organized in their practices during recent years, most corporations are 

decreasing their number of suppliers and developing longer-term supplier 

relationships. This trend favors suppliers large enough to fulfill the needs of large 

global multinationals. Many MBEs are unable to offer the capacity or global 

footprint to meet these needs. The exception is MBEs that are strategically 

partnering with other firms. 

 

For instance, as a result of a client's supplier consolidation, we encountered 

one minority-owned firm which found itself reduced from a tier-1 to a tier-2 

supplier after having serviced a client for nearly two decades. Tier-1 suppliers 

provide services directly to the client, while tier-2 suppliers are providers of Tier-1 

suppliers. Although the firm regularly competes with much larger suppliers in the 

business of sourcing operations-critical parts and equipment for utility companies, 

its president found himself having to sell company's services to competitors who 

 

13 In 2002, MBEs represented 18 percent of all U.S. business enterprises excluding publicly held, 

foreign, non-profit and other not classifiable firms by race and Hispanic or Latino origin, as well as if 

these firms were included. 

 

6
had the scale to remain a tier-1 supplier. As we will explain in a later section of the 

paper, supplier consolidation has made supply chain management even more 

critical to smaller firms that lack the capacity to compete for large contracts. 

Many owners of growing and mature MBEs understand the value of supply 

chain management, and its knowledge and mastery is necessary to maintain a 

competitive edge in today’s business environment. However, there are still 

minority entrepreneurs of early-stage companies, some with size and scale, who 

are unaware of the characteristics and complexities of the supply chain and the 

impacts of supply chain management techniques and strategies. Others who 

understand the difference may fall short of appreciating supply chain management 

as a necessary component of business strategy. However, there are still minority 

entrepreneurs of early-stage companies, some with size and scale, who are 

unaware of the characteristics and complexities of the supply chain and the impacts 

of supply chain management techniques and strategies. 

There are still minority entrepreneurs of early-stage 

companies, who are unaware of the characteristics 

and complexities of the supply chain. 

MBEs can impact positively their businesses by mastering their supply chains, 

but its mastery will put the management skills of many MBEs to the test. Even 

when supply-chain strategies are understood, much ingenuity and persistence are 

required to implement solutions to supply-chain problems, which are prevalent in 

most industries. In response to this challenge, numerous minority business owners 

have already dedicated themselves to the additional learning they need and the 

expansion of their support networks to master the supply chain. 

7
Section 2 

Supply Chains: An Introduction 

 

Summary: Supply chains shape the economic opportunity of businesses, 

and they have high-stakes outcomes. Supply chain management is a set of 

techniques and strategies that have enabled large multinationals to compete 

in today’s global economy. MBEs that master supply chain strategies can 

similarly gain a competitive edge in today's domestic and global markets. 

2.1 Minority Entrepreneurs: Facing a Changing World

 Minority entrepreneurs have a critical role to play in the global economy, and 

this role requires them as a group to face certain realities. First, business 

perspectives must be regional and global, because there are linkages between local 

economic opportunity and global trade. 

A second reality that minority entrepreneurs must face is the life cycle of 

supply and trading systems, which have life cycles similar to products and 

businesses. Supply and trade systems, both domestic and global, inevitably change 

or perish due to innovation – the introduction of new products and methods which 

provide substitutes to existing products, production, and trade. These innovative 

products and methods need not be technologically sophisticated. Rather, these 

new products and methods are innovative because they change the practice of 

business and commerce, providing new sources of economic growth. Innovation 

here is not simply a new technological invention. From the perspective of business 

and commerce, it is an entrepreneurial act that delivers new economic value, 

providing it where it did not previously exist or, more typically, providing new value 

as a substitution for what end customers have currently available (Schumpeter, 

1942). 

The third reality that minority entrepreneurs must face is the convergence of 

technology and communication which is fueling today’s global competition and 

innovation. The flattening of the global economy, due to factors such as the 

Internet, is influencing companies and nations to develop their natural and 

historical advantages (e.g., geographic location, local talents and skills which have 

been mastered or can be enhanced easily relative to others) and find profitable 

positions within the global economy (Friedman, 2004). In other words, selecting 

positions and roles within global supply and trade systems will be very critical to 

U.S. businesses and overall U.S. competitiveness (Porter, 1985). 

8
A final reality is the need to master supply chain management as a critical 

requirement for participation in today’s global economy. Companies in a growing 

number of industries must understand and manage their role in a supply chain to 

remain viable and competitive. Increasingly, competition is also viewed as supply 

chain against supply chain, rather than firm against firm. Some of the leading firms 

in the U.S. and the world, such as Dell, UPS, and FedEx, are renowned for their 

supply chain prowess. Many publicly-held U.S firms have thrived in part because of 

their ability to manage their supply chains, and adapt to the globalization of supply 

chains. To succeed in today’s competitive environment, minority entrepreneurs 

must also become similarly adept at supply chain management, and increasingly at 

global supply chain management. Through their mastery of the lessons of supply 

chain management, minority entrepreneurs can build operations that deliver high 

volume and/or variety products quickly through distribution channels that are either 

regional or global, thus increasing their business' viability and growth. Supply 

chain management is necessary for MBEs to compete effectively in a global 

economy. 

2.2 Understanding and Managing Your Supply Chain

A supply chain includes all the companies involved in fulfilling a customer 

request – from manufacturers, their suppliers, and their suppliers’ suppliers, to 

transporters, warehouses, wholesalers, and retailers (see Exhibit 1). Supply chains 

move materials, products, information and money from suppliers and their 

suppliers to customers and their customers. For instance, manufacturing supply 

chains literally stretch from digging raw materials out of the ground to the home of 

the final consumer and ultimately back into the ground in a landfill. 

Exhibit 1: Flowchart of a generic supply chain 

Supply Production Distribution Retail

Orders

Product

Order Fulfillment

New Product & Process

Development

Customer

Requirements

Designs/

Blueprints

Recycle 

Reuse 

Remanufacture 

9
In large firms, effective supply-chain management programs involve personnel 

from multiple functions – from product and business development, to sales and 

marketing, operations, distribution/logistics, finance, and customer service. 

Effective supply-chain management programs also foster communication of these 

functions across companies. For example, if marketing personnel inform its 

company’s suppliers of their promotion plans, the suppliers can prepare capacity 

and inventory for the anticipated surge in demand. These suppliers, in turn, can 

communicate these production plans to their own suppliers so that components are 

delivered in time for final production. Neglecting this communication, either 

internally or across firm boundaries, can lead to catastrophic effects even in 

otherwise highly successful firms. Conversely, effective communication with 

supply-chain partners can significantly reduce working capital while increasing 

capacity and delivery performance. 

All kinds of business owners are surprised by the magnitude of cost saving 

and enhanced performance of their operations, once they commit to 

implementation of leading-edge supply-chain management practices. For an MBE 

to achieve this value, its owner or management team should begin by mapping the 

enterprise's supply chain. A supply chain map clearly shows a focal business and 

all other businesses involved in fulfilling a customer request. With the focal 

business in the center of the diagram, suppliers and the suppliers’ suppliers are on 

the left and customers and the customers’ customers are on the right (see Exhibit 

2). 

Exhibit 2: Sample map of a supply chain

Your 

business Customers Customers'

customers Suppliers Suppliers' 

suppliers 

Order flow

Delivery flow

 

One set of arrows from left to right indicates deliveries between different 

companies in the supply chain: from the suppliers’ suppliers, through the focus 

business, to the customers’ customers. Another set of arrows in the opposite 

direction indicates the order requests between supply chain companies: from the 

customers’ customers back to the suppliers’ suppliers. A specific kind of product or 

10
service defines a supply chain. Hence, a business may belong to multiple supply 

chains, consistent with its different offerings. 

When MBEs complete supply chain maps for specific products or services, 

they accomplish three things. First, a supply-chain map draws attention to the 

other products and services the MBE needs to deliver value, as well as to the 

subsequent value added to the MBE's products or services. Second, it reveals other 

companies who could be partners in improving the MBE's internal effectiveness and 

its external contributions to the supply chain. Third, it provides the focus for group 

discussion and brainstorming about supply-chain opportunities and risks. 

2.3 Minority Business Enterprises: Mastering the Supply Chain 

MBEs need to achieve three levels of supply-chain mastery to establish 

growth and leadership in today’s global economy. First, by managing the 

fundamentals of the supply chain (Section 3) MBEs can partner effectively with 

other companies in the supply chain to achieve greater capacity and agility. 

Second, MBEs can take a proactive stance, and seek companies that are at risk of 

receiving poor quality, delivery disruption, or poor service from suppliers, and use 

supply chain management fundamentals to address those needs (Section 4). Third, 

transcending today’s supply chain (Section 5) means, in part, that MBEs should 

take notice of how their supply chains are changing, and then either move to higher 

value propositions or gain entry to other supply chains that have higher growth 

potential. 

11
Section 3 

Level I Supply Chain Mastery: 

Managing the Fundamentals of the Supply Chain 

 

Summary: Supply chains exhibit remarkable variation, but they can be 

categorized based on two types of uncertainty or risk. We will use a 

framework to distinguish supply chains by these two types of risk (demand and 

supply) and thus divide supply chains into four categories. The first level of 

supply chain mastery involves understanding these categories and matching 

solutions and processes to it. Not long ago, this first level was sufficient for 

business growth. However, in today's globally competitive environment, this 

knowledge can only keep a company viable. The next level of supply chain 

mastery offers a greater competitive edge, assuming there is already an 

understanding of the supply-chain management fundamentals. 

3.1 In Which Supply Chain(s) Does Your Business Operate? 

Supply chains and supply chain management tools are not one-size-fits-all. 

Rather, they exhibit remarkable variation, particularly based on two types of 

uncertainty or risk. First, supply chains may be defined by their demand risks. 

According to Fisher (1997), some products have customer demand that is relatively 

stable over time, while for other products, it is highly unstable. Customer requests 

for stable demand products can be forecasted quite accurately, and hence the 

demand for these products is low risk. Examples include essential products that 

satisfy basic customer needs, such as athletic socks, white dress shirts, pasta, and 

certain breakfast cereals. In contrast, when products have unstable customer 

demand, their demand is high risk. Forecasting the timing and volume of customer 

requests for these products is notoriously difficult, resulting in either insufficient or 

excessive amounts of inventory. Examples include consumer electronics, apparel, 

toys, or music, which have a specialized or current fashion appeal. In sum, a 

supply chain can be defined by product demand that is either low risk or high risk. 

Supply chains can also be defined by their supply risks (Lee, 2002). Supply 

processes have low risk when they are highly reliable. Examples include cut-andsew operations, simple assembly, chemical manufacturing, and other production 

processes that involve established and well-understood technologies. Supply 

processes have high risk when they are less reliable and subject to disruption. 

Examples include development processes for cutting edge electronics, 

nanotechnologies, and weather-dependent processes such as some agricultural 

products. 

12
Lee (2002) highlighted the fact that these product (or service) characteristics 

give rise to four categories or “boxes” (see Exhibit 3) that describe quite distinct 

supply chains. He called this notion “The Uncertainty Framework,” and noted that it 

helps bring into focus the needed capabilities for different kinds of supply chains. 

This framework divides supply chains according to different types and levels of 

uncertainty or risk. 

Leading companies today understand the supply chain box in which they 

operate14. Furthermore, they recognize that the problems associated with each box 

vary, and therefore the solutions they employ have to be chosen appropriately. In 

subsections 3.2-3.5, we describe each box, note some of their common problems, 

and highlight cutting-edge solutions. In subsection 3.6, we summarize what these 

problems and solutions mean for MBEs, and note that partnering and technology 

investments impact each of the four supply-chain boxes. 

 

14 Recall that since supply chains are product or service specific, many companies operate in more 

than one box of the framework.

13
Exhibit 3: Modified Uncertainty Framework – due to Lee (2002)

Supply/Demand Risk Demand: Low Risk 

(Functional Products) 

Demand: High Risk

(Innovative Products) 

Supply: Low Risk

(Stable Processes) 

Box 1 

Established production 

and distribution processes 

Established products and 

established markets 

Current examples: Boxed 

pasta, breakfast cereals, 

athletic socks 

Box 2 

Established production 

and distribution processes 

Leading-edge products or 

new markets 

Current examples: 

Desktop computers, 

fashion apparel 

Supply: High Risk 

(Evolving Processes) 

Box 3 

Established products that 

satisfy basic needs 

Unreliable or easilydisrupted production and 

distribution processes 

Current examples: 

Cutting-edge technology 

and some agricultural 

products 

Box 4 

Leading-edge products or 

new markets 

Unreliable or easilydisrupted production and 

distribution processes 

Current examples: High 

end servers, 

nanotechnology products

3.2 Solutions for Box 1 (Low Risk Demand, Low Risk Supply) 

One might expect that supply chain management is easy in Box 1, and it is 

compared to Boxes 2, 3, and 4. Demand is predictable and supply is stable, thus 

both demand risk and supply risk are low. Unfortunately, there are still problems. 

First, the low supply chain risks that make Box 1 desirable tend to commoditize 

these products, and therefore managers continually strive to introduce new product 

variations, and employ price promotions and other initiatives to differentiate their 

14
products. These initiatives in turn create higher levels of demand risk (i.e., 

uncertainty and variability in demand). We will discuss this issue in detail in 

Section 5. Second, firms that lack direct contact with the end customer in supply 

chains experience remarkable fluctuations in demand. In spite of end-user 

demand that is known to be quite stable, suppliers in Box 1 supply chains 

encounter significant volatility in customer orders that wreck havoc on their 

operations. 

In fact, the variability of demand often gets increasingly amplified as one 

moves away from contact with the end customer (e.g., retail) and up the supply 

chain (e.g., towards components and raw materials). Suppliers receive orders that 

fluctuate much more widely than at the contact point with the end customer. This 

phenomenon is often called the “Bullwhip Effect” (Lee, Padmanabhan, & Whang, 

1997), because the pattern of fluctuations is like a whip used to herd cattle, where 

a small snap of the wrist creates a huge swing at the end of the whip (See Exhibit 

4). 

The Italian pasta industry provides a fascinating example. Dry pasta is a 

staple food item in Italy that has relatively consistent retail demand, but because of 

price promotions at the retail level, grocery stores experience peaks and troughs in 

sales. Their suppliers, who are often independent distributors, face larger peaks 

and troughs as grocers react – or over-react – to these fluctuations. Distributors 

are supplied by central distribution centers, which for similar reasons face even 

more severe peaks and troughs. These wild fluctuations are all the more 

remarkable because consumer demand is so flat (Hammond, 1994). 

Exhibit 4: Summary of the Bullwhip Effect

Supply Production Distribution Retail 

Due to the Bullwhip Effect, natural demand fluctuations get increasingly 

amplified moving upstream from the End Customer (or Retail) back 

towards Suppliers of components and raw materials. 

Increasing distortions between upstream orders and actual downstream 

needs at the point of sale increase costs throughout the entire supply chain 

and degrade its delivery and quality performance. 

Products flow downstream towards the End Customer (or Retail). 

15
When we have described the bullwhip effect over the past decade to 

managers of suppliers and other companies upstream from final point-of-sale, they 

consistently respond: “This describes my company’s experience – every day.” The 

consequences of this effect for end customers include higher prices to compensate 

for higher inventory and shortage costs, as well as higher transportation and other 

costs throughout the supply chain, not to mention lower delivery and quality 

performance. 

 

 Firms facing the bullwhip effect must cope with wide fluctuations in demand, 

apparently caused by the poor decision making of supply chain partners. Yet 

leading companies have worked with partners to employ several powerful initiatives 

that reduce the demand fluctuations experienced within the supply chain. These 

include a host of acronyms that represent efforts to share information, coordinate 

planning and forecasting, share decision-making, and even share work. One of 

these, Coordinated Planning, Forecasting and Replenishment (CPFR), is a tool to 

share information about demand and production plans, as well as plans for 

promotions and other demand-management techniques. A variation on CPFR is 

Vendor Managed Inventory (VMI), which is an approach suppliers can use to 

manage inventory at their customers’ sites. 

 

 MBEs that operate in Box 1 must understand these initiatives and be ready to 

implement them, just to keep pace with Box 1 supply chains. Furthermore, some 

firms have successfully approached their supply chain partners with an offer to lead 

a CPFR or VMI effort. This initiative may be difficult to sell to a partner because it 

requires the partner to share information that is potentially sensitive. Yet it can be 

worth the effort because customers who collaborate at this level with their suppliers 

will be significantly less likely to switch suppliers over time. The trust required to 

implement these initiatives cannot easily be replicated. In sum, Box 1 solutions call 

for aligned incentives and information, both within the firm and externally with 

supply chain partners. 

3.3 Solutions for Box 2 (High Risk Demand, Low Risk Supply) 

Box 2 supply chains are those in which the supply processes are fairly 

straightforward, but the products exhibit a high-tech or fashion component that 

allows firms to differentiate themselves and earn higher margins. Many of these 

products require very long development and production lead times. The design 

process for fashion apparel items, for instance, often begins nearly two years prior 

to the selling season. And the production lead times for the textiles and cut-andsew operations can be more than eight months, not to mention long delivery times 

from suppliers to retail stores. But the selling season may only last a few months 

before the next season begins or the next product variation is introduced. 

Forecasting demand of fashion goods over a year in advance of the selling season is 

incredibly difficult. Suppliers therefore regularly see wildly fluctuating orders, with 

sharp peaks followed by deep falls and order cancellations, as retailers try to react 

to the inevitable variations associated with such products. 

16
 Cutting-edge solutions to Box 2 problems include mass customization, 

postponement, and gathering early order information. Mass customization is a set 

of production techniques that allows a firm to manufacture customized products, 

which should entail much higher unit costs, at close to the very low cost of items 

produced by mass production techniques. One tool for doing this is postponement, 

or delaying final customization, which often requires redesigning the product so 

that the customized colors or components can be added quickly and inexpensively 

late in the process, or even in the distribution channel. 

Benetton, for instance, changed the order of operations for its knit shirts so 

that the shirts were knitted before dying, rather than dying the thread before 

knitting. This allowed them to store inventory of undyed knitted shirts, and then to 

react quickly to changing tastes in color. Finally, some firms are creatively 

soliciting customer feedback on their products before the selling season so that 

they manufacture products that seem likely to sell well and avoid producing ones 

that seem unlikely to sell. 

3.4 Solutions for Box 3 (Low Risk Demand, High Risk Supply) 

 

In Box 3, products are fairly standard, and demand is reasonably predictable, 

but the supply processes are risky. Certain agricultural products come to mind 

because they are weather dependent. One might include sourcing standard 

products, say athletic socks, from new and risky sources. Over time, these sources 

may become less risky as firms learn the culture, business practices and supply 

routes, and thus they shift to Box 1. 

 

Solutions to address the supply risks of Box 3 include supply options or 

futures contracts that lock-in price and delivery. In this case, the supply risk is 

transferred to other firms, but often at a cost. Two other approaches include an 

electronic market (exchange) that reaches more suppliers, and pooling inventory 

and other resources to hedge the uncertainty. For instance, Internet-based 

exchanges, such as auctions, are becoming a familiar method to solicit bids from 

multiple suppliers. MBEs are often on the supplier end of auctions, and they 

recognize the power and problems associated with them15. One benefit for buyers 

is that exchanges can mitigate supply uncertainty by providing access to backup 

suppliers. A similar idea is the pooling of inventory and resources to mitigate 

supply risks. For example, when supply risks are high for specific products or 

services, some companies form cooperative agreements and share resources to 

handle possible supply disruptions. 

 

15 See Pyke & Johnson, 2003 for a discussion of the risks and benefits for both buyers and suppliers.

17
3.5 Solutions for Box 4 (High Risk Demand, High Risk Supply) 

 

Box 4, of course, presents the most significant risks – high demand risk and 

high supply risk. These products are so cutting edge that the market response can 

be highly uncertain, and furthermore the processes of supplying the products are 

cutting edge and uncertain as well. 

Some solutions from the previous three boxes can be helpful in Box 4, but 

we have found that two approaches are most powerful. The first is to use a 

combination of postponement and pooling/hedging. In other words, as in Box 2, 

design the product, as much as possible, to create the ability to postpone 

customization until late in the process. This helps mitigate the high demand risk. 

Then, use the Box 3 tools of pooling and hedging on the supply side to reduce the 

high supply risk. Some high-tech firms always maintain a second source of supply, 

even if it is higher cost and lower quality, so if there is a disruption with their 

primary supplier, they have a backup. MBEs can take advantage of the opportunity 

to be this second source of supply, if they don’t win the primary contract. 

The second approach is to design products using platforms and standard 

modules. Such designs use common components and subassemblies, much like 

common subroutines in software development, and piece them together with 

advanced components to create new, perhaps customized offerings. 

3.6 Summary of Level I Supply Chain Mastery for MBEs 

Exhibit 5 summarizes the problems and solutions associated with each of the 

supply chain types, from subsections 3.2-3.5. The solutions in each box, although 

distinct, involve some kind of coordination or partnership with other companies in 

the supply chain. The solutions, effectively, help manage the variation and shocks 

due to demand risk and supply risk, which are both present in all supply chains but 

at varying levels. One of the benefits of supply-chain coordination and partnerships 

is that they enable participating companies to be more agile in their responses to 

supply chain risks. Such coordination assumes that the participants develop the 

metrics and incentives to keep their interests aligned. 

18
Exhibit 5: Supply Chain problems and solutions

Box 1 

 Problem: 

 - The bullwhip effect 

 Solutions: 

 - Alignment of incentives and 

information among supply chain 

partners 

 - Coordinated planning, forecasting 

and replenishment (CPFR) 

 - Vendor managed inventory (VMI) 

 

Box 2 

 Problems: 

 - Long and uncertain development 

and lead times 

 - Highly uncertain demand patterns 

 - Short selling season 

 Solutions: 

 - Mass customization 

 - Postponement of final 

customization 

 - Early orders from customers 

Box 3 

 Problem: 

 - Highly uncertain supply 

 - Disruption risk in supply 

 Solutions: 

 - Pooled inventory and resources 

 - Exchanges to extend reach of 

suppliers and inventory 

 - Contracts that manage risk by 

locking in factors such as price and 

delivery 

 

 

Box 4 

 Problems: 

 - All problems associated with Boxes 

 1 to 3 

 Solutions: 

 - Postponement of final 

customization 

 - Pooling of suppliers to hedge 

uncertainty 

 - Platforms and modular designs that 

allow for postponement of final 

customization 

In today's business climate, achieving the necessary levels of supply chain 

coordination and partnership often requires online exchange. Years ago, the ability 

to link electronically into the systems of another company offered a competitive 

advantage, and it was a differentiator that created business opportunities. Today, 

this ability to link electronically with other companies' systems is a requirement for 

supply-chain participation in many business sectors and a prerequisite before 

consideration will be given on a contract bid. Developing trust and aligned 

incentives are obviously essential for effective coordination and partnership, but 

technological competency is also critical. The proper kinds and levels of 

sophistication for electronic business-to-business collaboration must be present to 

perform supply-chain agreements. 

19
Most MBEs, like most of all U.S. firms, are small businesses earning less than 

$100,000 in annual gross receipts. Thus, there is limited capital and time available 

to invest in technology. Fortunately, the Internet is the foundation of business-tobusiness communications, and Internet systems and services are developing in 

ways that are suited to a variety of needs. 

Some basic points about implementing technologies for supply chain 

participation: 

• More feasible options exist than small business owners may initially suspect. 

• Particular kinds of customers, suppliers, regions, or business sectors will 

gravitate to certain technologies, standards, and features/languages, which 

should be investigated as part of the vendor or product selection process. 

• Some vendors offer free training and demonstrations of technology because 

they want small business customers. 

• Less expensive options can entail compromises (e.g., the vendor hosting 

sensitive business data) that will be unacceptable. 

20
Section 4 

Level II Supply Chain Mastery: 

Selling the Value of a Shorter and 

More Reliable Supply Chain 

Summary: Once MBEs have mastered the fundamentals of supply chain 

management (Level I) they will have both the skills and credibility to create 

new contract opportunities. By using supply chain mastery to find new 

business opportunities, MBEs can address global sourcing or supplier 

consolidation. In the case of global sourcing, Level II mastery entails the 

presentation of your company as a valuable alternative to low-cost suppliers in 

distant countries. For supplier consolidation, Level II mastery requires MBEs to 

develop a customized value proposition for buyers rather than bid on proposals 

that emphasize cost in the narrowest terms. Both approaches similarly refocus 

negotiations from price to total value. 

4.1 Selling the Value of a Shorter and More Reliable Supply Chain 

In some situations, local suppliers have advantages over a global supply 

chain. Global sourcing can result in longer lead times, quality concerns, and other 

management challenges. For example, one relatively small domestic company paid 

over $200,000 in air freight when its supplier in Asia gave notice that a delivery 

would be too late for the prime selling season. By offering flawless execution and 

performance, short lead times, cost efficiencies, and excellent quality, MBEs can 

represent a valuable alternative to distant global suppliers and other domestic 

providers. 

MBEs can represent a valuable alternative to distant 

global suppliers by offering flawless execution and 

performance, short lead times, cost efficiencies, and 

excellent quality. 

Of course, many firms have successful experiences with suppliers located in 

other countries. However, by offering flawless execution and performance, short 

lead times, cost efficiencies, and excellent quality, MBEs can represent a valuable 

21
alternative to distant global suppliers or other domestic providers. Additionally, 

MBEs can leverage their local advantage by providing additional services – such as 

frequent delivery or consolidation of several vendor shipments – to enhance their 

value proposition. Local knowledge of customer preferences or government 

regulation can also increase the value of an MBE’s offerings. The following set of 

questions, developed during Executive Training programs held at the Tuck School of 

Business, illustrate how MBEs can approach their customers and potential 

customers. 

• Is there a risk of late deliveries from a distant low-cost supplier? 

o Every manager we have taught or talked to has responded in 

the affirmative. 

• What if there is a major supply chain disruption? 

o These are not far-fetched, and managers are concerned. 

• Can low-cost providers deliver frequently and in a way that is best 

optimized to the customer? 

o Many low-cost suppliers have large minimum order quantities, 

and there are hidden costs, such as customs clearance, 

associated with inbound logistics. 

• What is the full cost of a late delivery? 

o Air freight and other expedited shipments, assembly line 

shutdowns, lost sales, bad will, lost customers, and future 

revenues, etc. 

• Is there a risk of poor quality? 

o Every manager we have discussed this with has responded that 

they are worried about receiving components or products that 

do not measure up to their current quality standards. 

• What is the full cost of poor quality? 

o Additional inspection, assembly line shutdowns, bad will, lost 

sales, lost customers, etc. 

• What if exchange rates move such that the cost of buying from the 

global supplier increases dramatically? 

• If you decide to source from a global supplier, do you think it is wise to 

maintain a second, domestic source of supply? 

• Can global suppliers provide value-adding services that help customers 

use the product or service?

22
Questions which encourage customers to also focus on the potential risks of 

global sourcing open the door for MBEs to discuss adding real value by becoming a 

customer’s center of domestic insurance. During Dartmouth College’s Tuck School 

of Business Executive Training program for MBEs in supply chain management, one 

Native American entrepreneur said that she approached her customers with this 

exact value proposition. In fact, her company went to potential customers who 

were considering buying components from China and, in effect, told them: “We will 

be your China. We know that you're fearful of the risks of buying from China, and 

yet you want the low unit costs. We operate on a reservation, and our costs are 

very low. But our quality is high, and our lead times are very short. Look at the 

full cost and risks, and consider us as your low risk, low cost, high quality 

alternative.” 

“We will be your China... Look at the full cost and risks, and consider 

us as your low risk, low cost, high quality alternative.” Native 

American firm, Indian Country. 

MBEs can provide valuable alternatives to global sourcing by broadening their 

negotiations to include total value, e.g., reminding buyers global supply chains face 

considerable costs when there are disruptions in delivery or when quality problems 

are discovered after long-distance delivery is complete. In addition to using this 

total-value perspective in response to global sourcing, MBEs can also use this 

approach in response to supplier consolidation. We will provide an example in the 

next subsection. 

4.2 Service to Relieve the Buyer's "Pain" 

MBEs that are not sufficiently large for a tier-1 contract can generate other 

contract opportunities by using their modest size and their mastery of supply-chain 

fundamentals to execute a two-step move. The first step is to identify special 

supply concerns that cause the buyer "pain." The second step is to provide services 

that relieve this pain. Entrepreneurs who offer unparalleled service for subtle (yet 

irritating) buyer problems create opportunities by broadening negotiations from 

price to a wider spectrum of value that the supplier can deliver. 

Intraline, a wholesale distributor of maintenance, repair and operational 

materials (MRO) owned by a Pacific Islander, provides an excellent example of this 

strategy. President Pete Varma of Intraline had invested in business-to-business 

communications technologies, so that he could tie the company electronically to 

customers and seamlessly do business with them. For five to six years, Varma 

invested time and effort in understanding the relevant technologies that would 

simultaneously make the Intraline's internal operations efficient and enable them to 

interface with other companies for effective supply chain participation. For 

instance, Intraline's decision to implement an Enterprise Resource Planning (ERP) 

system was motivated by interests in saving long-run administrative costs. Varma 

23
viewed ERP also as a continued evolution and extension of the company's initial 

manual bookkeeping process to record, manage, and control costs. In addition, 

Intraline invested in XML because it is the critical software language for the 

business in which they compete. 

Varma took a proactive response to take advantage of his company's modest 

size and remain competitive against larger companies. He used the fact he was the 

company's owner when soliciting business because, normally, much larger 

companies are too vertical and departmentalized to establish close levels of 

customer intimacy and high levels of decision-making authority in one person. 

When Varma as the owner met with potential clients, they knew they were dealing 

with the decision maker. While visiting with clients, he listened and paid attention 

to the customer's needs with respect to supply risk. 

Varma focused on what his company could do to "take away the buyer's 

pain," whether it was on-demand services, managing logistics, or managing waste. 

By developing an intimate understanding of the customer’s pains, Varma could 

suggest services that were, "off the menu" (our words), i.e., contract options that 

were not coming to mind for the buyer. 

4.3 Competing on Total Value, Never Price Alone

The strategies for addressing buyer fears and pains will vary for different 

MBEs and their customers. But they share some common imperatives: Stand out 

and differentiate your business rather than conform easily to solicitations that focus 

primarily on price, and become the valued supplier who takes care of the buyer's 

special needs. This is not a recommendation to be insensitive to price, because in 

today's business environment companies must always be sensitive to price. 

MBEs who have achieved Level I mastery have developed skills that create 

options, enabling strong competition on multiple performance factors which include 

price, and the next Level II mastery entails the presentation of capabilities from the 

prior mastery level. Obviously, Level I mastery is not required to make Level II 

promises to buyers. However, real Level I mastery allows an MBE to make a totalvalue promise with credibility (i.e., the systems, performance, and reputation to 

back up the promise). An offer to be a viable domestic alternative to a low-cost 

supplier in China will not be credible, for example, if the offering company has lead 

times and quality issues that are not in the company’s control. 

The second level of supply chain mastery can plausibly be seen as trading 

price for value-added services. In other words, buyers accept a higher price, but 

they get additional value and service in areas that address their critical pains and 

fears. MBEs who have achieved Level I mastery can convincingly shift the sourcing 

decision from price to value, which might include factors such as delivery, quality, 

customer service, or life-cycle costs. 

24
It takes ingenuity, persistence, and negotiation skill to move some buyers 

from a mindset of price to total value. Fortunately, many minority entrepreneurs 

are remarkably skilled in the salesmanship that must be matched with Level II 

supply chain strategies. Thus, it takes a decision not to compete on price alone and 

an ability to sell and execute the supply of total value to customers. It takes 

ingenuity, persistence, and negotiation skill to move some buyers from a mindset of 

price to total value. 

It takes ingenuity, persistence, and negotiation skill to 

move buyers from a mindset of price to total value. 

25
Section 5 

Level III Supply Chain Mastery: 

Transcending Today’s Supply Chain 

Summary: The very latest supply chain strategies take into account the value 

migration within a supply chain and the need to migrate over time towards 

higher-value positions and markets. Thus, Level III supply-chain mastery is 

acquiring the skills to transcend beyond today's supply chain. This includes 

skills in plotting a course through the competitive forces producing continual 

value migrations, and skills to address escalating expectations that create new 

value-fulfilling opportunities. Level III mastery also includes skills in "value 

assembly," i.e., acquiring, merging, and/or partnering with other companies to 

deliver additional customer value. 

5.1 Value Migration 

The value of a company's position in the supply chain will shift over time. If 

the company's managers neglect these shifts, often they will discover, over time, 

the value of their position has eroded beneath them. 

Value migrates in a supply chain due to a combination of factors, including 

changes in customer needs, competition, globalization, and technology changes. 

Global competition is intense for U.S. domestic suppliers who compete 

predominantly on price. Consequently, managers must attend to value migration 

and be engaged in how to alter and upgrade the value propositions of their 

companies. Remaining stationary as value migration occurs is a route to business 

stagnation and failure. 

In today's global economy, managers of MBEs must attend simultaneously to 

their company's value propositions, how these value propositions are changing, and 

the high-potential value propositions their companies might offer in near- and 

longer-term future. Thus, Level III supply chain mastery is acquiring the skills to 

transcending today's supply chain. MBEs with this advanced expertise will act on 

the forces of competition which produce continual value migrations, and they can 

respond to escalating business expectations that occur from factors such as 

regulatory mandates. At this advanced level of supply-chain mastery, MBEs will 

also need skills in "value assembly," i.e., acquiring, merging, and partnering with 

other companies to deliver customer value in high-potential markets, rapidly and 

with sufficient scale. 

26
5.2 Continual Change 

One set of issues in Level III supply-chain mastery is managing the rhythm 

of commoditization and innovation within supply chains, which is driven by ongoing 

competition. To explain these dynamics, we return to the four-box framework that 

distinguished different kinds of supply chains according to the level of demand risk 

and supply risk. When we add competition and changing profit margins, the result 

is a model we call the Supply Chain Life Cycle, which explains how the risks and 

rewards of value propositions change in supply chains over time. 

First, competitive pressures tend to shape and drive different kinds of supply 

chains towards the characteristics of Box 1: a commodity product or service with 

low risk demand and low risk supply, which subsequently has lower margins. 

Supply-chain problems normally arise from uncertainty, or risk, in either demand or 

supply. The most common form of risk is variability. The more variable (e.g., 

unstable, unreliable, or fluctuating) demand or supply is within a supply chain, the 

more likely are higher costs, the potential for disruption, and other operational 

performance challenges. Most supply-chain solutions essentially take away, or 

reduce, this variability and risk. Consequently, as more firms adopt and perfect 

these solutions for a given supply chain, demand and supply risks are dampened 

and the supply chain's characteristics shift towards Box 1 (See Exhibit 6a). 

Exhibit 6a : Commoditization within Supply Chains – Enhanced from Lee (2002) 

1 2 

3 4

So there is a dilemma. Level I strategies reduce variability and help firms 

manage their supply chains. However, as more firms learn these tools, they begin 

to look like commodities, even with high levels of variety. For example, if a 

minority-owned equipment supplier uses common components that can be 

customized at the last instant, it can deliver at low cost a very high level of variety 

that is characteristic of many Box 2 supply chains. If the supplier is the first in its 

27
market to implement this strategy, it will have a more effective system of profit 

making than its competitors since it can offer the variety that customers want at 

lower cost. But when all firms in that market have learned the practice, the playing 

field in that Box 2 supply chain will be leveled, or all firms will in effect shift toward 

or into Box 1. 

When there is widespread adoption of new supply-chain solutions within 

Boxes 2-4, the result is commoditization and an associated increase in pricedominant competition. These put downward pressure on profit margins and create 

significant challenges for business owners to earn profit. With globalization, these 

commoditization forces intensify with the entry of comparatively low-cost suppliers 

from other countries. In the United States, for instance, it is no longer sustainable 

to assume competition will remain local, and this makes Box 1 supply chains even 

more competitive for domestic firms. Altogether, widespread adoption of supplychain solutions and increased domestic and international competition produce 

commoditization forces, which drive existing products and services towards 

competition where price dominates and profit margins shrink. In other words, as a 

result of commoditization forces, the value proposition of existing products and 

services will increasingly migrate towards price. 

In response to commoditization, entrepreneurs regularly seek ways to 

innovate and differentiate from existing companies, products, and services so that 

they can obtain higher levels of profit. Minority entrepreneurs are no different, and 

many have effectively resisted or turned back commoditization in their supply 

chains and its associated reduction in profit margins. 

One example is Liberty Power, a Hispanic-owned firm which provides retail 

electricity to businesses and government agencies. CEO David Hernandez cofounded the company in 2001 after the deregulation of the electricity provider 

industry, which is a commodity business. Electricity generated from entirely 

different technologies is alike, and the electricity provided to all U.S. residents and 

offices in the United States is fundamentally the same, irrespective of the 

generating source, transmission route, and delivery location. Furthermore, the 

transmission of electricity still remains under significant government regulation, and 

electric current, once generated, cannot be stored. These conditions produce a 

market where end consumers would naturally choose their electricity provider 

based solely on price. 

However, similar to the Level II supply-chain strategies discussed in Section 

4, Liberty Power turns the focus of its customers in the supply chain from price/cost 

to total value. By providing excellent customer service, contracts that can fix the 

price of electricity during peak times, and customized invoices that are aligned with 

clients’ accounting software, Liberty has been successful in attracting new 

customers and expanding its reach to different regional markets. In effect, the 

company is moving a Box 1 supply chain with commodity characteristics towards a 

Box 2 supply chain, which has increased demand variability but also higher margins 

and greater potential for market growth. 

28
In the life cycle of supply chains, competitive pressures to innovate are 

operating against commoditization forces. Together these forces create an endless 

cycle and tug-of-war between rival companies in the same business. As 

commoditization forces drive supply chains away from Boxes 2-4 towards Box 1 

(Exhibit 6a), differentiation forces drive supply chains away from Box 1 towards 

Boxes 2-4 (Exhibit 6b). Consequently, the competitive advantage of value 

propositions within a supply chain migrates, moving towards price in response to 

commoditization and moving towards other value propositions (e.g., specific kinds 

of delivery and quality performance) in response to competitive differentiation, or 

innovation. 

While rival companies seek to remain competitive with each other by 

imitating product features, services, and supply chain solutions, each company also 

seeks to differentiate itself. The company that successfully does so will gain a 

temporary economic advantage until competing companies catch up. However, the 

rewards of innovation are not without risk. Introducing novelty in either a 

company's product/service or its processes/supply chain produces, respectively, 

heightened demand risk or supply risk. The operational challenges and solutions of 

these heightened risks were discussed in Section 3. 

Exhibit 6b: Competitive Differentiation within Supply Chains - Enhanced from Lee 

(2002) 

1 2 

3 4

One key aspect of Level III supply chain mastery is anticipating this supply 

chain life cycle and knowing when to aggressively pursue a position in Box 1 by 

reducing demand or supply risk, and when to aggressively pursue a position in Box 

2 by product/service innovation, or in Box 3 by process/supply-chain innovation. 

Business owners should weigh carefully the significant management challenges 

associated with pursuing both product/service and process/supply chain innovations 

simultaneously (Box 4). Firms that achieve Level III mastery understand and 

manage the risk/reward tradeoffs of the Supply Chain Life Cycle. 

29
5.3 Escalating Expectations

The second key dimension of Level III supply-chain mastery is anticipating 

and responding to escalating expectations in business, which create leading-edge 

problems that need to be solved. Solving these most challenging problems often 

produces higher profit margins and offers greater market growth potential, 

especially when compared to solving well-understood problems that generally have 

lower barriers for others to compete. However, many leading-edge business 

problems ultimately become routine problems over time, thus attracting more 

competitors and subsequently lower margins. 

Regulatory mandates are one source of rising business expectations. 

Numerous companies are facing new regulatory issues as they become global; and 

multinational companies have an increasing variety and complexity of regulations to 

manage. Different countries, of course, have different regulations to which foreign 

companies must adapt, and furthermore these regulations are continually changing. 

Although it may at first seem counter-intuitive, such regulatory constraints are, in 

fact, creating business opportunities for companies that can provide services that 

meet these new regulations. 

Legislative changes arising from a heightened sense of societal awareness or 

responsibility will often escalate business requirements. For example, regulatory 

mandates occurring now in the European Union (EU) are fundamentally changing 

how the concept of "supply chain" is defined. One EU directive called Reduction of 

Hazardous Substances (ROHS) requires electronics manufacturers, resellers, and 

others to participate in the reclamation of substances that can endanger human 

health and/or damage the environment. In the past, companies were "done" with a 

product once it has been shipped. Today, companies in the electronic industry 

doing business in the EU must share in the costs of collecting, remediating, and 

recycling their products. This path of reclaiming products for re-use or treatment 

before ultimate disposal is referred to as the "reverse supply chain."16

D.W. Morgan, Inc., based in northern California, is an Asian Pacific Islanderowned business that specializes in supply-chain consulting and outsourced logistics 

services for Fortune 1000 companies. The company's clients include companies 

such as Cisco and Hewlett-Packard, which are directly impacted by the ROHS 

directive. Founder and CEO David Morgan, a Filipino, sees the additional 

constraints that many of his clients are facing due to the diverse set of regulations 

they encounter across countries. He is making it his priority to focus on the supplychain issues that arise from these complex sets of legal requirements. 

Consequently, the ROHS directive and reverse supply chains are among the areas 

that his company helps clients successfully execute. These areas encompass some 

of the most complex challenges that his major clients face, and specializing in these 

 

16 For instance, see Business Aspects of Closed-Loop Supply Chains: Exploring the Issues (2003). 

International Management Series: Volume 2. Papers from the International Conference on ClosedLoop Supply Chains (May 31-June 2, 2001, in Pittsburgh, Pennsylvania). Carnegie Bosch Institute. 

30
leading-edge areas helps make the services of companies like D.W. Morgan, Inc. 

highly valued and profitable. 

As regulatory mandates create new business opportunities abroad, they also 

contribute opportunities to create global partnerships. This can be observed 

through the U.S. minority businesses that follow the needs of their large 

multinational clients in selecting partners in other countries. For instance, the D.W. 

Morgan company is also engaged in partnering opportunities with black-majority 

firms in South Africa. In 2004, South Africa passed the Black Economic 

Empowerment Act (2004) that addresses the economic disparities caused by the 

apartheid system. Because of this act, foreign firms will be asked to have global 

partnerships with companies owned by people of color in South Africa. 

The South African requirement may provide opportunities for MBEs whose 

entrepreneurs possess both cultural affinity and economic interest in establishing 

commercial partnerships with people of color in that country. However, having a 

clear and competitive value proposition to offer non-white South African business 

owners is critical. A cultural affinity African-Americans might perceive, for instance, 

will not be sufficient to guarantee success in forming partnerships with black South 

Africans. However, in some cases it might contribute to increased access and 

understanding that could lay the foundations for business partnerships. 

Aspen Group, Inc., an African-American owned human resources 

management firm, has also partnered with foreign companies by following the 

escalating expectations of its multinational clients. Led by CEO Armentha “Mike” 

Cruise, Aspen Group serves clients such as IBM, Bank of America, and Lockheed 

Martin. The company supports clients by providing staffing needs in other 

countries, among other services. Aspen sometimes must respond quickly to 

customers’ needs. This was the case when IBM asked Cruise to fill a number of 

positions in Australia on short notice. Cruise and her employees accepted and met 

the challenge. In addition, Aspen has recently opened an office in India to serve 

the management and staffing needs of U.S. businesses with operations in that 

country. 

Aspen Group is a member of the National Minority Supplier Development 

Council (NMSDC), which has counterpart organizations in several other countries 

that can facilitate networking to assist MBEs in developing partnerships abroad. 

Aspen Group CEO Cruise has used these networks to gain business partners in 

Brazil, a country with one of the largest black populations in the world. In 2002, 

Brazil established its own affirmative action program to address the economic and 

education disparities of Afro-Brazilians from others. However, it is both the 

economic opportunity of Brazil and its national commitment to affirmative action 

that drives opportunities for MBEs and others to partner with Afro-Brazilian owned 

companies. This combination produces significant economic opportunity in Brazil 

for MBEs such as the Aspen Group. 

Many large multinationals have business relationships in Brazil due to its 

growing industrial base and consumer markets. However, like South Africa, Brazil 

31
is different from the United States in terms of its experience with racial and ethnic 

diversity. While Brazil has achieved remarkable social integration across skin 

colors, it has significant disparities between Afro-Brazilians from non-Afro-Brazilians 

in education and income. Brazilians with African descent make up over a majority 

of the country, but often do not identify with the term “black,” referring to 

themselves according to the myriad skin colors that reflect Brazil’s diverse racial 

mixture. Nevertheless, evidence of racial awareness has been rising in recent years 

with the recognition of the country’s severe economic and education divides that 

are clearly associated with skin color. Brazil’s economy is producing a growing 

Afro-Brazilian middle class with more discretionary income and a greater willingness 

to identify itself as “black,”17 and this creates opportunities for U.S. minorities to 

partner with Brazilian business owners who might see some cultural affinity. 

Broad-based legislation such as the regulatory mandates for product 

recovery and recycling (i.e., the ROHS directive) in the European Union and the 

affirmative action mandates of South Africa and Brazil can escalate the expectations 

imposed on businesses. At the same time, broad-based legislation can create 

opportunities for delivering new value through the advancement of leading edge 

supply-chain practice and the development of new supply-chain partners. 

5.4 Value Assembly 

When value migrates in the supply chain due to competition, or when there 

are escalating expectations for delivering value, many small- and medium-sized 

companies will not have the capabilities or resources to respond adequately. 

Further, when there is fierce domestic or global competition, response to value 

migration and escalation must be swift. Frequently the response must also have 

sufficient scale in terms of geographic reach and product/service volume. To 

remain competitive under these conditions, many small- and medium-sized 

companies will need to rely on partnering and teaming with other companies 

through alliances, joint ventures, or mergers and acquisitions. Through these 

different approaches, modest-sized companies can most quickly assemble the 

means to deliver greater value to customers with the appropriate scale and 

geographic reach. 

The assembly of value through various forms of integration with other 

companies can extend influence and economic impact in the supply chain. At the 

most basic level, small suppliers can band together to perform larger-volume 

service contracts they cannot obtain or perform alone. Integration can also mean 

building larger portfolios of customers or portfolios of products/services, as well as 

expanding operations or supply networks regionally or internationally. Further, 

integration can represent a strategic move to include a different part of the supply 

chain that offers higher growth potential. For example, a company might integrate 

“forward” to merge with a customer’s business, or it might integrate “backward” to 

 

17 For example, see Jordan (2000): Marketers Discover Black Brazil --- Despite Their Huge Numbers, 

Blacks Are Just Emerging As Distinct Consumer Group. Wall Street Journal. (Eastern edition). Nov 24, 

2000. pg. A11.

32
merge a supplier’s business. Integrating either forward or backward in the supply 

chain is referred to as vertical integration. An MBE might also perform horizontal 

integration, partnering, or merging with other companies that serve complementary 

functions. For example, a company that performs product development might 

partner with a marketing firm, a distribution/logistics firm, a finance firm, and/or a 

customer service firm, to create new product/service offerings. 

 

Minority entrepreneurs can make these business-to-business linkages 

through events sponsored by MBDA or a variety of other minority supplier council 

meetings, some which target specific projects and industries. In some cases, the 

supplier diversity programs of large companies play a mediation role in helping 

MBEs find partners who can deliver complementary value. In obtaining global 

partnerships, MBEs have taken advantage of the National Minority Supplier 

Development Council (NMSDC), as noted earlier, which has sister organizations in 

Brazil, Canada, South Africa, and the United Kingdom. 

Assembling the partners or integrating to deliver value to customers also has 

financial implications. Small- and medium-sized companies will likely need access 

to private equity or venture capital to grow or enter high-potential market areas. 

To get access to this financing would require giving up equity in the business, 

something many entrepreneurs are reluctant to do. In its first few years of 

operations, Liberty Power considered raising equity capital by relinquishing some of 

the owner's interest. However, the Minority Business Development Agency, 

through its capital access program, introduced CEO David Hernandez to numerous 

funding sources. Today the company is in solid financing position and is prepared 

to pursue expansion opportunities. Regardless of the capital a company may need 

to transcend a supply chain position, MBEs should learn how to perform valid 

economic valuations of their businesses and other businesses. MBEs with this 

knowledge are better prepared to merge or acquire other businesses and add value 

to today’s supply chain's end-customers. A valid economic valuation is also 

relevant when selling parts of a business to fund new initiatives that will transcend 

a specific supply chain position. 

Level III supply chain mastery encompasses the skill of “value assembly,” 

along with the skills of managing both value migration and escalating expectations 

within supply chains. Minority entrepreneurs who have achieved Level III mastery 

know when and how to exit supply-chain positions with decreasing opportunities. 

They also know when and how to enter and develop new supply-chain positions 

that offer increasing value to both end-customers and their own enterprises. 

33
Section 6 

Minority Business Enterprises: 

U.S. Champions in the Global Economy 

Summary: The three levels of supply chain mastery enable MBEs to 

improve their capabilities within supply chains (Level I), to form viable niches 

within supply chains (Level II), and to migrate towards high-potential market 

areas as supply chains evolve (Level III). In addition to these three levels of 

mastery, there is a revolutionary path of creating a new supply chain from 

scratch as illustrated by two successful companies, Dell and Zara. This path 

expresses the soul of business innovation, entrepreneurship, and economic 

growth. We further illustrate this path by looking at minority business efforts 

taking place today on an Indian reservation in rural South Dakota. 

6.1 Re-inventing the Supply Chain 

 

When outlining the three levels of supply-chain mastery, we have presumed 

actions within existing supply chains. An entrepreneur can also re-invent the 

supply chain. Although this path is more uncertain and has more risk than adapting 

within existing supply chains, when successful, it results in significantly greater 

competitiveness and profit. 

 

Dell Computer’s supply chain model is a classic modern example of supply 

chain reinvention. It developed a novel approach to sourcing, assembling, and 

delivering the various components of a personal computer system, doing it virtually 

through masterful orchestration of supplier networks rather than developing, 

manufacturing, or storing its own system components. This created a competitive 

advantage that challenged other computer makers and put some out of business. 

Another example is Zara, a Spanish clothing company. It can design, 

produce, deliver, and display its designer clothes in hundreds of its stores across 

several dozen countries worldwide, all steps occurring in just 15 days. Its clothes 

move from design to the shelf much faster than other boutique clothiers, offering 

greater variety of designer clothes, at a pace that was previously unheard of. Zara, 

like Dell, developed its own supply chain rather than relying on established supply 

chains. Zara's system runs counter to the conventional wisdom in the apparel 

supply chain. First, instead of partnering extensively with other companies, Zara 

maintains all critical functions (i.e., from design to shelf) in house. Furthermore, 

these functions are almost all performed locally, rather than by global sources. 

34
Through effective management of its own unique supply chain that was created 

from scratch and perfected over many years, Zara has outperformed other clothiers 

both operationally and financially. For instance, from 2001-2004, while many of its 

competitors experienced poor financial performance, Zara's sales and income grew 

at an annual rate of over 20%18.

Dell and Zara's innovations were not technological, per se. Their innovations 

were re-inventions of supply chains that were economically superior to the existing 

supply chains in their industries. These innovations also raised expectations and 

value for customers, and produced significant economic growth for the innovating 

companies. Furthermore, the customer value demonstrated by these new supply 

chains exposed weaknesses in the customary supply chains, or at least made the 

value of customary supply chains less satisfying to their customers. Thus, 

companies attached to the customary supply chains are placed at greater risk, with 

reduced growth rates and, most likely, reduced survival rates over time. 

Companies that do not adopt, imitate, or join the new economically superior supply 

chain model quickly enough, may have to exit that market or perish. 

It requires a different mindset to re-invent supply chains that are 

economically superior to the customary supply chains within a particular industry. 

This mindset, or attitude, requires imagining how value could be delivered to the 

end customer without using existing conventions. As numerous MBEs have 

experienced, the dominant supply chains within an industry can be difficult to 

access and present few opportunities for new entrants who want to gain influence. 

The leading supply chains of many industries have long histories, or have 

companies whose dominant influence shapes the supply chain. Consequently, for a 

new entrant, a reasonable course of action is to look for ways to fit and adapt to 

conditions the existing supply chain provides. There is, however, the higher risk 

option to re-invent a competing supply chain "out of whole cloth," without regard 

for tradition and assuming today’s supply chains for a product or service will one 

day be made obsolete by new economically superior supply chains. 

The re-invention path is plagued with complexity and uncertainty and, thus, 

the result is at risk of being neither viable nor economically superior. At the same 

time, if there is success the windfall can be enormous. Today’s prominence of Dell 

and Zara as supply-chain innovators might create the false impression this path 

requires plentiful resources or unique capabilities. In fact, the opposite was true for 

these two firms. Each company had very humble beginnings – assembling 

computers in a dorm room for Dell, and a single retail store for Zara. Dedication to 

re-inventing their supply chain made these humble companies into global 

champions. 

 

18 See Harvard Business Review article by Ferdows, Lewis, & Machuca, (2004: 94).

35
6.2 Businesses and Supply Chains from Scratch 

 

Companies with scarce resources and lacking natural advantages might be 

the most likely to re-invent supply chains, because conventional options regularly 

do not serve them. Thus, they need to invent new opportunities, and this necessity 

produces an environment where ground-breaking innovation can emerge. 

 

We believe this to be the case for Lakota Express, a full-service management 

and direct marketing company owned by a Native American woman in rural South 

Dakota. Situated on the Pine Ridge Indian Reservation, Lakota Express is located 

in an area that lags far behind the rest of the United States in jobs and the 

infrastructure needed to create businesses and employment. In areas such as this, 

economic opportunity is starkly absent. In a community marked by extreme 

unemployment and an absence of basic resources to start and grow a business, 

Karlene Hunter founded Lakota Express to create jobs and economic opportunity for 

the future19. 

After ten years in business, Lakota Express is now part of a joint venture 

with firms in the United States and China. The enterprise began with its founder 

armed only with her education and the confidence of experiencing how that 

education can open doors. In the initial stages of Lakota Express, a visit to the 

Indian reservation by heads of large corporations, hosted by a U.S. president, 

sought to bring economic opportunity to Pine Ridge, but yielded no follow up or 

assistance. Ms. Hunter began to build Lakota Express literally from the ground up 

because the reservation lacked sufficient water and sewer facilities, and these had 

to be installed to open the Lakota Express office. Even today, the nearest small 

market is about 85 miles distant. 

Since the Indian reservation and the surrounding areas of rural South Dakota 

lacked networking opportunities to grow a business, Ms. Hunter began networking 

and partnering in distant places. She found partners in Washington, D.C., and 

Dallas, Texas. Through these partners, Hunter visited China, where she saw an 

opportunity to add value to the outsourced data-entry operations situated there. 

Seeing quality control as a high-potential niche that could add value to the dataentry operation, she created an economically viable way to enter this business and 

hence the global economy. Unable to find networks to grow her business locally, 

Ms. Hunter created opportunity for Lakota Express through a joint venture 

developed through her personal networking relationships. 

A Chinese firm, situated in Zhuhai, a relatively rural area with limited 

economic opportunity, performs data entry for U.S. businesses. Although the 

Chinese company's data-entry clerks are very technically competent, they are not 

deeply familiar with names, locations, and other handwriting content from the 

United States. Consequently, their work is sent to Lakota Express in South Dakota 

 

19 Our information on Lakota Express comes from interviews with founder and CEO Karlene Hunter and 

additional written sources (e.g., "Lakota business goes offshore and back," Indian Country Today, 

June 13, 2006). 

36
to perform error-checking. Ms. Hunter finds much in common between rural 

America and rural China. Both areas are severely lacking in economic opportunity, 

but the residents there are hungry for it. Through Lakota Express, Ms. Hunter is 

now exploring the marketing and sale of Native American food products in China. 

She is also exploring the use of advanced-degree technical staff in China -- talent 

Lakota did not have access to and likely could not afford in the United States. 

Both CEO and founder Karlene Hunter and Lakota Express executive Mark 

Tilsen note that Native Americans were unable to participate in the Industrial 

Revolution, but they can participate in the Information Revolution. Wars and 

displacement in the 19th century kept many Native American tribes from 

participating in the great shifts from an agricultural economy to an industrial 

economy. Today, however, they can participate in the great shift to an information 

economy. Due to the installation of a broadband Internet connection and the 

development of the staff's web-based and computer application skills, Lakota 

Express takes part in the global economy from one of the most desolate areas of 

rural America. 

6.3 Innovators and U.S. Champions in the Global Economy

To grow the economic significance and impact of their businesses, minority 

entrepreneurs must be assertive, innovative competitors who will not fear or retreat 

from globalization. In fact, they must embrace globalization, and MBEs must see 

themselves as future U.S. champions in the global economy. Many MBEs are 

already doing so. To be assertive and innovative competitors in the global 

economy, minority entrepreneurs need to develop and practice the three levels of 

supply-chain mastery. Hopefully some MBEs will take the most groundbreaking 

step of re-inventing their supply chains. This final step is the work of innovation 

and entrepreneurship in its purest form. Businesses who create economically 

superior supply chains are taking the path towards becoming national and global 

business champions. 

Lakota Express may be at the start of such a journey, forming what could 

one day become a gateway that provides materials, products, services, information, 

and money between rural America and rural China. The concept of a gateway 

between rural America and rural China, led by U.S. minority groups, might be more 

plausible than it might appear on the surface. Emphasis is sometimes placed on 

the competitive advantage of the inner city (Porter, 1995), due to the concentration 

and visibility of U.S. minority groups in urban areas. However, there are also 

concentrations of U.S. minority groups in rural areas, which often go relatively 

unnoticed: the locations of many Native American reservations, the Black Belt 

Region in southern states that are predominantly African American, and additional 

areas throughout the United States where Hispanics and Southeast Asians live 

isolated from the economic development of America’s cities. The economic 

development of rural areas also gains significance to the extent that new U.S. 

immigrants and others settle outside large cities and suburbs with significant 

industrial infrastructure. 

37
 Producing an economic gateway from rural America to rural communities in 

China and elsewhere is indeed ambitious. There are many ways from which MBEs 

can choose to become champions for the United States in the global economy. 

Whatever directions they choose, we believe that some groundbreaking reinvention of supply chains will be necessary by the most dedicated of MBEs. We 

see in Karlene Hunter and Lakota Express some key attributes and values of these 

MBEs: passion for creating and exploiting opportunity; a combination of selfreliance and community values; and persistence in the face of significant barriers, 

adversity, and resource constraints. 

To produce this kind of groundbreaking business innovation is difficult. 

Success is never assured and, if achieved, it may be short lived in the face of fierce 

global competition. Nevertheless, Lakota Express exhibits a taste for opportunityseeking and innovation that more minority business must emulate to become 

champions in the global economy. 

38
Section 7 

Conclusion 

U.S. competitiveness in the global economy is strengthened by the growth 

and leadership of minority business enterprises. While MBEs are growing at a 

faster rate relative to the number of all U.S. enterprises, their share of annual gross 

receipts and paid employees remain relatively flat. MBEs have an opportunity to 

become an overall larger component of the U.S. economy---and this requires 

participating more fully in global trade. This paper illustrates how imperative it is 

that MBEs understand supply chain management in order to reach this goal. 

Supply chain management is a set of techniques and strategies that enable 

companies to compete in today’s global economy. These strategies include: 

• Managing the fundamentals of the supply chain; 

• Selling the value of a shorter and more reliable supply chain; and 

• Transcending today’s supplying chain –no longer competing solely on 

price but promoting a higher value proposition. 

Through several case studies, this paper highlights MBEs that have 

developed and mastered these techniques and have gained economic advantages 

over their competitors. They are experiencing the benefits that accrue from 

understanding where their companies fit within the life cycle of their supply chains 

and anticipating how the value propositions within their business will change due to 

competition and innovation. If other minority entrepreneurs do the same, then 

economic prosperity can be enhanced in communities throughout the nation. 

39
Methodology 

Minority-Owned Firms 

The source for the number of minority-owned firms for 1997 is the U.S. Census 

Bureau’s Survey of Minority-Owned Business Enterprises (SMOBE). The Census 

2002 Survey of Business Owners did not provide data for minority-owned firms, but 

included data on firms owned by five separate minority groups (African American, 

American Indian and Alaska Native, Asian, Hispanic, and Native Hawaiian and Other 

Pacific Islander). 

MBDA calculates the number of minority firms by adding up the five minority 

groups reported in the 2002 Survey of Business Owners (SBO). The total number 

of minority firms is slightly overrepresented because businesses that are owned by 

Hispanic or Latinos may be of any race. In addition, in accordance with the Office 

of Management and Budget guidelines, each owner in 2002 had the option of 

selecting more than one race, therefore, businesses could be tabulated in more 

than one racial group. Owners that reported more than one race may be counted 

more than once in the report. Figures for 2002 annual receipts and paid employees 

of minority-owned firms are calculated using the same methodology as for the 

number of minority-owned firms. 

American Indian and Alaska Native 

The data on firms owned by American Indian and Alaska Natives from the 1997 

SMOBE survey is not directly comparable to the data from the 2002 SBO survey. 

New questions in the 2002 SBO survey may have allowed for the exclusion of 

tribally-owned firms that may have been included in the 1997 survey. 

Relative Standard Errors 

The relative standard error (RSE) of an estimate is a measure of the reliability or 

precision of that estimate. Relative standard error is defined as the ratio of the 

standard error to the survey estimate. For example, a relative standard error of 10 

percent implies that the standard error is one-tenth as large as the survey 

estimate. 

The RSE of an estimate is calculated by dividing the standard error of the estimate 

by the estimate itself. This quantity is expressed as a percent of the estimate.. 

When a RSE is not available for a particular estimate, we cannot define with 

precision the ratio of the standard error of the estimate. 

40
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42
Appendix 

Summary of MBEs highlighted in this paper (in alphabetical order) 

Aspen Group, Inc. 

Aspen Group, Inc. is a full-service human resources management firm 

headquartered in Silver Spring, Maryland. Founded in 1988 by President and CEO 

Armentha “Mike” Cruise, Aspen has grown from a small temporary staffing agency 

to a global supplier of human resources solutions. 

Aspen, an African American-owned firm, serves many Fortune 1000 companies and 

government agencies, among other entities. Cruise has expanded the company 

and maintained its competitive edge by adding value to its human resources 

services, keeping up with technology aligned with clients’ needs and taking 

advantage of the opportunities of globalization. 

Aspen added value to its services by looking at areas in the supply chain generating 

higher profit margins. She aligned the new services with the company, such as 

background checking, training, facility management, and outsourcing, and created 

a full-service management firm. 

The National Minority Supplier Development Council introduced Aspen to 

government officials and potential partners in the United Kingdom, South Africa, 

and Brazil. As a result, Aspen has created a partnership with a human resources 

firm in Brazil, with whom they share profits on a project basis. 

Aspen has also provided human resources services in many countries where its 

Fortune 1000 clients have operations. This led the company to open a branch in 

India, which will be operating in August this year. The new office in India will 

increase Aspen’s capacity to provide human resources services 24 hours a day and 

seven days a week. The company is also looking at opportunities to expand in 

China in addition to its seven offices located throughout the nation in the northeast, 

south and west coast. 

Aspen Group Inc., 1100 Wayne Avenue, Suite 1175, Silver Spring, MD, 20910, 1-800-550-6289 

D.W. Morgan

D.W. Morgan is a supply chain consultant, transportation and logistics service 

provider for many of the Fortune 1000 companies. The company was founded in 

1990 by David W. Morgan and his wife, Palmyra Morgan. The Filipino-owned firm is 

located in Pleasanton, California. 

43
Morgan introduced whole-process management services to its Fortune 1000 clients. 

By overseeing every connection in its client's supply chain, from procurement of 

raw materials to distribution of finished goods, Morgan improves efficiencies and 

reduces costs to clients. 

For D.W. Morgan, globalization poses a challenge to companies because its product 

and distribution systems need to comply with new and diverse regulations from 

different countries. Among these, a new European Union regulation entitled, 

Reduction of Hazardous Substances (ROHS) restricts the use of certain hazardous 

substances in electrical and electronic equipment. D.W. Morgan has seized this as a 

new opportunity to provide clients with solutions that can meet new directives. 

Moreover, changes in the South African constitution are opening the doors for 

South African Black-owned enterprises. In recognition of new opportunities there, 

Morgan has been working on partnering with a Black-owned firm in South Africa, 

and will be making that announcement soon. The company also has a subsidiary in 

Singapore, and a call center in Germany. 

Some of Morgan’s clients include, Cisco Systems, Adept Technologies, Philips 

Electronics Hewlett-Packard, Lockheed Martin Corp, SBC Communications, Johnson 

& Johnson, UAL Corp., B.F. Goodrich, and Chevron Texaco. 

D.W. Morgan, 6685 Owens Drive, Pleasanton CA 94588, 1.800.628.1321. 

Intraline Inc. 

Founded in 1989, Intraline is a wholesale distributor of maintenance, repair, and 

operation (MRO) materials. The company sources and supplies MRO products which 

keep its clients’ facilities and equipment running. This Pacific Islander-owned firm is 

headquartered in Burlingame, California. 

In addition, Intraline specialized service solutions include: supply chain 

management, inventory management, strategic sourcing, warehousing, 

distribution, on-demand services, logistics, integrated supply solutions and supplier 

managed inventory (SMI) replenishment. The company’s clients are in the power 

utility, oil and gas refinery, telecommunications, health care, and transportation 

industries. Many of these customers have facilities located nationwide as well as 

overseas. 

Intraline has differentiated itself in the competitive market of wholesale distribution, 

by adding enhanced services and aligning these services and pricing with its 

customers’ needs 

Intraline Inc., 379 Beach Road, Burlingame, CA 94010, 650-340-9133

44
Lakota Express 

Lakota Express, Inc. is a full service management and direct marketing company 

headquartered in the Oglala Sioux reservation of Pine Ridge, in Kyle, South Dakota. 

The firm was established in 1996 by founder and CEO Karlene Hunter. 

Hunter made a commitment to start the business after she quit her job teaching in 

college, because she recognized the large impact a private business would have in 

creating jobs and contributing to the economic sustainability of the reservation. 

The company is located in an Empowerment Zone. 

Hunter said that it was a challenge to start the business on the reservation because 

the area is remote and had no infrastructure to support the business. She said that 

while it may take 90 days to open a business anywhere else in the United States, it 

takes between one-and-a-half to two years to start a business on the reservation. 

Hunter built her company from scratch, from digging the trenches and bringing in 

fast Internet connectivity to the reservation, to constructing a 6,000 square foot 

office building. 

Today the company provides the following services: management and marketing 

consulting, strategic planning, customer service, telemarketing, database 

management, quality control, surveys, direct mail, fundraising, event coordination 

and online registration, and web development and marketing, among others. Its 

clients include tribal government entities, federal agencies, and small businesses. 

Under Hunter’s leadership, Lakota Express added new services and created new 

supply chains. While most call center jobs were being outsourced to China, Lakota 

Express found a new opportunity to remain competitive by offering quality control 

to companies operating in China. Through a partnership with USE Inc., based in 

Dallas and with facilities in Zhuhai, China, Lakota Express now provides quality 

control for data entry products imputed in China. 

Lakota Express’ partnership with USE Inc. also opened opportunities for new 

enterprises. Hunter is currently exploring how it can leverage the talent of 

information technology professionals in China to expand Lakota Express’ services. 

Hunter has also created a new company, Blended Solutions Group, in partnership 

with USE Inc and Native American Management Services, based in Washington, 

D.C., to explore opportunities to market products in China. Among these, the 

company is planning to launch a new dry meat product, buffalo snacks, in October, 

which will be marketed in the United States and China. 

 

Lakota Express, 287 Water Tower Road, P.O. Box 287, Kyle, SD 57752, 605-455-2187

45
Liberty Power 

Liberty Power provides electricity to businesses and government agencies in New 

York, Maryland, Washington, D.C., and Texas. The company, based in Florida, is 

the only national electric provider that is Hispanic-owned. It was founded by David 

Hernandez, Roshena Ham, Alberto Daire, and Eliezer Hernandez in 2001. David 

Hernandez and Ham, both former Enron employees, saw an opportunity to serve a 

niche market of small and medium-size businesses which Enron was reaching but 

not in a profitable way. 

As a result of deregulation of the electricity industry, Liberty Power has been 

providing electricity in states that have opened the market of retail electricity to 

competition. In 2002, Liberty Power started providing clients with electricity, and 

by 2005 it generated revenues of $100 million. It is planning to gross $2 billion in 

sales within the next few years. 

 

Liberty Power has attracted new clients by adding a value to the commodity it 

serves. The company prides itself in providing excellent customer service, 

affordable electricity, the flexibility of contracts that can lock in prices of electricity 

during peak times, as well as customized invoices aligned with the client’s 

accounting software. The company is also exploring the possibility of partnering 

with other companies to provide additional services to clients. Liberty Power serves 

many small, medium, and large businesses and government agencies, including JC 

Penney, New York Life, and Lowe’s. 

Liberty Power was initially funded with capital from the partners themselves, family, 

and friends. To expand operations, Hernandez searched for other funding sources. 

The Minority Business Development Agency introduced Hernandez to financing 

sources. Hernandez has been successful in obtaining the funding the company 

needed without sacrificing its minority ownership and it is now financially solid with 

no debt in its capital structure. 

Liberty Power, 800 W. Cypress Creek Rd., Suite 330, Ft. Lauderdale, FL 33309, 1- 866-769-3799

46
Authors 

Quintus R. Jett 

Quintus R. Jett is a visiting associate professor at Dartmouth College, where he has 

taught management, statistics, and operations research in the Thayer School of 

Engineering. He has also taught operations management in the MBA and 

executive MBA programs of Rice University in Houston, TX. 

Professor Jett studies new forms of organization that rely largely on individual 

autonomy and peer-to-peer communication rather than top-down, bureaucratic 

controls. He holds a Ph.D. in Organization and Management Theory from Stanford 

University. He also holds a M.S. in Industrial Engineering from Stanford and a B.S. 

in engineering from the University of Pennsylvania. Jett’s experience includes 

employment at IBM and at NASA/Caltech’s Jet Propulsion Laboratory, as well as 

work with management consulting firm Accenture on its study of how companies 

respond most effectively to market uncertainty in the global electronics industry. 

Professor Jett has publications in Academy of Management Review, Advances in 

Strategic Management, and other scholarly journals. A forthcoming publication coauthored with Dr. Liisa Välikangas of the Woodside Institute, entitled “Innovation 

Independence,” explains when managers should offer autonomy rather than 

payment to enhance the creativity and initiative demonstrated by employees. 

M. Eric Johnson 

M. Eric Johnson is Director of Tuck’s Glassmeyer/McNamee Center for Digital 

Strategies and Professor of Operations Management at the Tuck School of Business, 

Dartmouth College. His teaching and research focuses on the impact of information 

technology on supply chain management. 

He has published recent articles on security and collaboration in the Financial 

Times, Sloan Management Review, Harvard Business Review, and CIO Magazine. 

He is particularly interested in the supply chain challenges faced by industries with 

short product life cycles such as computers, toys, and apparel. His research articles 

have appeared in such academic journals as Management Science, Operations 

Research, IEEE Transactions on Engineering Management, Production and 

Operations Management, Manufacturing and Service Operations Management, and 

Transportation Science. 

Before joining Tuck, Johnson taught for eight years at the Owen Graduate School of 

Management, Vanderbilt University. He was previously employed by HewlettPackard Co. and Systems Modeling Corp. He has consulted for diverse companies 

47
such as Sprint-Nextel, Lucent, Mattel, Hewlett-Packard, Accenture, Pepsi, DHL, The 

Parthenon Group, Campbell-Hausfeld, Fleetguard, and Kulic&Soffa. Johnson has 

served on numerous editorial boards including Production and Operations 

Management, Management Science, Interfacses, Operations Research, International 

Journal of Logistics Management, and Manufacturing and Service Operations 

Management. He holds a B.S. in Industrial Engineering, B.S. in Economics, an M.S. 

in Industrial Engineering and Operations Research from Penn State University, and 

a Ph.D. in Industrial Engineering from Stanford University. 

David F. Pyke 

David Pyke, Benjamin Ames Kimball Professor of the Science of Administration, 

came to Tuck in 1987. He earned his undergraduate degree at Haverford College 

and his MBA at Drexel University. He obtained both a Masters and Ph.D. from the 

Wharton School, University of Pennsylvania. In the spring of 2002, he was named 

associate dean for the MBA program, and is currently responsible for all academic 

aspects of the MBA program at Tuck, including the management of the curriculum, 

admissions, the leadership program, and coordination of appropriate committees. 

In addition to teaching the core Operations Management course and an elective in 

Improving Manufacturing at Tuck, he teaches in many of Tuck's executive education 

programs and has held visiting professorships at the International University of 

Japan, Helsinki School of Economics, the Wharton School, and WHU in Germany. 

Professor Pyke’s research interests include supply chain management, pricing, 

inventory systems, low cost country sourcing, sales & operations planning, 

manufacturing in China, production management, and operations strategy. He has 

co-authored two books and has published numerous academic papers. 

He has consulted for The Rand Corporation, Accenture, Corning, DHL, Eaton, 

Markem, McLean-Fogg, Lemmon Company and Black & Decker, among others. He 

serves on the Board of Directors of GW Plastics. He is a scientific advisor for 

SignalDemand and for SeeControl. 

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Tuck School of Business at Dartmouth 

Founded in 1900, the Tuck School of Business at Dartmouth College is the first 

graduate school of business in the United States and one of the top management 

schools in the world. 

Tuck’s faculty members are outstanding scholars with a passion for teaching and 

research. At the cutting edge of their disciplines, they are highly regarded for their 

expertise in key areas of business enterprise. 

Tuck combines the intellectual and competitive strength of a large university with 

the soul of a tightly knit community. The school offers only one degree program – 

the full-time MBDA. Such focus allows Tuck to offer outstanding support to its 

students and faculty. In addition to its MBA program, Tuck offers a select array of 

executive education and other non-degree programs, like the Tuck Minority 

Business Executive Program, now in its 28th year, and similar programs held in 

partnership with the Minority Business Development Agency (MBDA). 

 

Minority Business Development Agency 

The U.S. Department of Commerce’s Minority Business Development Agency 

(MBDA) is the only Federal agency established to foster the establishment and 

growth of minority-owned businesses in America. Created in 1971, MBDA provides 

services to African American, Asian/Pacific Islander, Hasidic Jew, Hispanic, and 

Native American/Alaskan entrepreneurs. Since its inception, MBDA has provided 

business development services to minority entrepreneurs and developed research 

and information about the minority business community. 

MBDA’s mission is to achieve entrepreneurial parity for minority business 

enterprises (MBEs) by enhancing their growth and expansion. The agency 

coordinates and leverages public and private-sector resources in support of its 

mission. 

Over the past several years, MBDA has focused on providing business services to 

minority entrepreneurs who are pursuing accelerated growth. These entrepreneurs 

are well-positioned to impact the local economies by creating jobs and generating 

significant revenues, and expanding into national and global markets. 

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Tuck School and MBDA Partnership 

Through a grant from the U.S. Small Business Administration, the Tuck School of 

Business and the Minority Business Development Agency (MBDA) have been 

working in partnership on a number of programs designed to enhance the 

effectiveness, efficiency, and growth of minority-owned businesses. Among these, 

Tuck faculty members conduct research studies that explore issues related to the 

emergence, survival and prosperity of minority-owned businesses and their future 

impact on local and global economies. The current study entitled, “Minority 

Business Enterprises: Mastering the Supply Chain,” is the third research paper 

written in collaboration with MBDA. 

In partnership with MBDA, Tuck also provides executive training for minority 

business enterprises (MBEs) as well as training for business development 

consultants in its network of funded agencies. In fiscal year 2006, Tuck added two 

special minority executive programs, which focused on mastering the supply chain. 

Through these executive training program, MBDA’s MBE clients learn from some of 

the best faculty in the world, including some of the country’s leading supplier 

diversity professionals, and network with successful minority-owned businesses, 

potential suppliers, customers, and partners. 

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