Incorporating more diversity into your supplier base can deliver considerable benefits for your organisation, including increased innovation and improved quality. Numerous studies have shown that diverse suppliers produce superior results and improve the top and bottom line. But while the advantages are clear, it’s not always obvious to companies how they can start sourcing from diverse suppliers, especially if their current supplier base lacks diversity. Undertaking the development of a more diverse supply chain may seem like a formidable task but, if the last few years have taught us anything, it’s that it’s time to move from words to actions in achieving your organisation’s diversity objectives.
What is supplier diversity?
A diverse supplier is a company that’s at least 51% owned and operated by an individual or group that’s part of a traditionally underrepresented or underserved group. Common categories include small-business enterprises (SBEs), minority-owned enterprises (MBEs), and woman-owned enterprises (WBEs). Recently, the definition of diversity has expanded to businesses owned by other minority groups such as LGBTQ+, veterans, and people with disabilities. In the US, an estimated 10,000 certified businesses owned by minorities, women, LGBTQ+ people, veterans, and the disabled earn $10 million a year or more and they are ready to compete for business. According to Coupa, a company specialising in business spend management, spending on diverse suppliers rose an average of 54% between 2017 and 2020.
What are the advantages of having diverse suppliers?
Supplier diversity programmes can be part of an organisation’s efforts to sustain high moral and ethical standards, for example, by producing wider societal benefits through creating economic opportunities for disadvantaged communities, or by supporting the development and success of diverse suppliers. However, there are also many advantages for the organisation itself.
- Attracting the best talent: According to a recent report by McKinsey, 64% of millennials say they won’t work for companies that perform poorly on corporate social responsibility.
- Attracting top investors: Investors prioritise companies with a clear diversity, equity, and inclusion (DEI) strategy. The same report by McKinsey found that 33% of assets under management from 2016 to 2018 - totalling $30-plus trillion - were invested with environmental, social, and governance (ESG) considerations in mind.
- An inclusive procurement strategy expands the pool of prospective suppliers and drives competition in the supply base, which can result in improved product quality and lower costs.
- A diverse supply chain can make supply chains more resilient and agile, which is becoming increasingly crucial in these uncertain times.
- MWBEs have shown that they have a positive impact on the economy. They offer their corporate partners year-on-year cost savings of 8.5%, substantially more than the 3 to 7% annual procurement savings that most organisations achieve.
In addition, the National Minority Supplier Diversity Council reports that certified MBEs generate $400 billion in economic output that leads to the creation or preservation of 2.2 million jobs and $49 billion in annual revenue for local, state, and federal tax authorities. And those numbers are steadily increasing.
7 ways companies can implement a successful supplier diversity programme
If accomplishing supplier diversity were easy, every organisation with ambitious DEI goals would have done it by now. Turning well-intentioned ideas into practice can be the tricky part. Here, we look at seven ways businesses can implement a successful supplier diversity programme.Prioritise supplier diversity
Your entire organisation should be working together to drive the inclusion of diverse suppliers in contract opportunities – everyone from the CEO and the rest of the C-suite to your procurement team and category managers need to be on board. For your supplier diversity programme to truly succeed, it must be a priority from the top down.Set specific and measurable goals
An organisation needs to be clear on its goals from the start to create cohesion on what success looks like. The first step is defining what the supplier diversity programme aims to achieve. Which underrepresented group is the company hoping to target and what are the desired outcomes?Measure and report your success
Once a company has set clear goals, the only way to know whether it’s getting closer to achieving them is by looking at the data. Consider which metrics need to be included to satisfy stakeholders, how often to report, and how to get the most out of the data you’ve collected. Think about what you can automate when collecting data, as well as using technology to protect data integrity.Run more competitive sourcing events
Making use of new technologies to automate the sourcing process is one way to reduce time spent on outdated analogue RFPs, as well as boosting competition, driving down costs, and increasing the number of diverse suppliers your company has access to. If stakeholders keep giving contracts to the same old legacy suppliers, there’s very little chance of a supplier diversity programme achieving its goals.Make it easier to onboard new suppliers
Many companies have complicated and obscure onboarding procedures for new suppliers, which create obstacles when considering working with a provider they haven’t used before. Look at your processes to see whether there are ways to cut the time and paperwork required to onboard a new supplier through the use of new, AI-driven tools.Communicate, communicate, communicate
Establishing an internal communication plan will help keep everyone in the loop about programme goals, initiatives, and current challenges. As your programme grows, maintaining consistent communication with both employees and suppliers will become even more critical so create a plan for how your communication process will evolve over time.If the programme’s not working, change it
Regular reviews provide opportunities to see what’s working and what isn’t. Assisted by the new technologies and platforms available, an organisation will eventually strike the right balance of actions, measurement, and processes to develop a successful supplier diversity programme.
By following these methods, businesses can increase their supplier diversity in order to gain access to new offerings, new markets, and new perspectives, among other benefits. Starting from scratch may seem daunting but working with e-commerce platforms and diversity-related organisations can help your business embark on a sustainable and impactful supplier diversity programme.