Building a diverse and inclusive business has become a priority for many organizations. Better hiring practices, mentorship, training, and diversity KPIs are all key tools to help you make your business more diverse and inclusive. But your procurement process also has countless opportunities for improving your diversity. And the benefits are many—from boosting your reputation to improving your bottom line.
When businesses include minority-owned and operated partners in their supply chain, they improve product quality, lower costs, and are generally more agile. This guide breaks down the benefits of supplier diversity and shows you how to build a supplier diversity program for your organization.
What is supplier diversity?
Supplier diversity is adding vendors that are at least 51% owned and operated by people who come from marginalized groups. Women, people of color, veterans, and the LGBTQ community are a few common examples. These groups are not only marginalized in society, but their contributions are also often underrepresented in business. This is made especially egregious by the fact that they often have a lot to offer in terms of competition and innovation. Supplier diversity programs recognize this fact and aim to draw as many of these vendors as possible into an organization’s supply chain.
Inclusive procurement practices like supplier diversity are the right thing to do, full stop. But on top of that, supplier diversity provides significant economic benefits for both your organization and the communities you serve. The U.S. Small Business Administration estimates America has about 8 million minority-owned companies. These generate some $400 billion in economic output, leading to 2.2 million jobs and $49 billion in annual tax revenue, says the National Minority Supplier Diversity Council. Whether ethically or economically, anyone who fails to see the value of adopting inclusive practices is bound to be left behind.
Why is supplier diversity important?
The global coronavirus pandemic’s impact on business made one thing clear: When supply chains break down, people and businesses suffer. Building a robust supply chain has become mission critical to organizations around the world. Chief among supply chain resilience strategies has been adding more local suppliers to safeguard against logistics disruptions, and partnering with vendors who are innovative and price competitive. Adding supplier diversity into your supply chain often accomplishes both these strategic goals.
Here’s how.
Supply chains are more resilient and flexible when they include diverse suppliers. The pool of potential suppliers is widened. Diverse businesses are often more price competitive, so including them on your roster often promotes competition and drives down costs. More sourcing options and a more inclusive procurement strategy also makes organizations naturally more robust and nimble—important qualities to have in an uncertain economic environment.
Including diverse suppliers improves your bottom line. One study found that even when procurement teams only had slightly higher adoption rates of supplier diversity, they managed to generate 133% better returns on the cost of procurement, which drove an extra $3.6 million to their organization’s bottom line.
An inclusive vendor policy boosts your organization’s competitive edge. That’s because innovation often happens outside the mainstream—and that’s often where diverse suppliers are forced to operate. These businesses can be true innovators bringing fresh ideas to your business. Making your supply chain more inclusive is also a good way to draw in new customers as society becomes more diverse. Realigning your supply base to the makeup of your customer base is the smart thing to do if you want to win—and keep—more customers.
Demonstrating your organization’s supplier diversity—and your perpetual commitment to inclusivity—is also a good way to attract top employees and talent. People want to work for companies that reflect their own values, and will remember the ones that don’t.
Supplier diversity best practices
There are a few tried-and-true best practices for managing a successful program.
First and foremost, the program needs buy-in from the top. Supplier diversity programs touch on every corner of an organization—from mission-critical purchases all the way down to buying paperclips. So, if the chief executives and key managers aren’t onboard, the program doesn’t have much of a chance.
Goals need to be set, quantified, communicated, and monitored. Without an idea of where you’re headed, you’ll never get there. Goals need to be reachable and quantifiable—for instance, adding at least two more diverse suppliers a year and ensuring that a diverse supplier bid is included in every RFP. These goals then need to be communicated throughout the organization so that everyone knows they are important. Then they need to be monitored throughout the year so that your organization has the opportunity to meet them.
Accountability is also a key best practice. If goals are set and monitored, people in the company need to be held accountable for their targets. Award good performance and penalize deficiencies. Link supplier diversity program performance to evaluations.
Many of the largest and most successful companies have understood the value of diverse suppliers for decades. IBM and General Motors both started their programs in the 1960s. Coca-Cola, Harvard University, Starbucks, Nike, UPS, and Walmart are all big-name brands in the long list of supplier diversity program companies that exhibit best practice.
Starting a supplier diversity program
Once your organization decides to create a supplier diversity program (well done!) make sure you’re positioned to succeed.
Step 1: Make it central
Supplier diversity should be central to your wider strategic sourcing efforts, so be sure to implement the right tools to make the process efficient and organized.
Step 2: Get leadership buy-in
Remember, if this program isn’t seen as a top priority for management, then it’s unlikely the rest of the organization will get on board.
Step 3: Set your goals
Ensure these are achievable and take into consideration your community’s demographic trends, procurement’s targets, and the organization’s overall corporate goals. Goals must also align with the organization’s overall commitment to diversity.
Step 4: Widen your reach
To find diverse suppliers, you’ll need to look outside your traditional network. Some of the best opportunities to find diverse suppliers are below your top tier.
Step 5: Make working with you easier
Often new suppliers find engaging with new partners a challenge. They may not be used to the RFP process, they might not realize they lack aspects of your selection criteria, or the onboarding process could be complex. Work with them! Provide guidance and resources to help diverse suppliers engage with you.
Step 6: Measure everything
Fifth step: You can’t demonstrate how great your program is if you can’t quantify your success. Be sure to measure your progress so that you can identify impediments and act accordingly.
Committing to supplier diversity is an easy choice: it’s a win-win for your business and for the world at large. Actually implementing a supplier diversity program, however, takes a little more effort. But with the right sourcing tools, buy-in from leadership, and metrics that hold your organization accountable, achieving supplier diversity is possible.
For more resources, check out Fairmarkit’s blog, The Source.
