Did you know according to a recent Hackett report there is an expected 50% increase in diversity spend goals by 2025?
Yes, supplier diversity has become a necessity – more than ever before. While it has always been a corporate nucleus, the need to demonstrate inclusiveness and equal opportunity is further augmented thanks to federal requirements.
Supplier diversity drives significant value. Not only does it successfully counter discrimination by creating equal opportunity for suppliers who are disjointed from the mainstream sourcing landscape, but it also boosts the company’s business performance. That being so, many organizations have recognized the impact that diverse suppliers can have and have introduced supplier diversity solutions to strategize the procurement process.
What Is Supplier Diversity?
Supplier diversity refers to a company’s supply chain which includes a multitude of underrepresented groups (ethnic minorities, veterans, women, and people with disabilities).
However, to be a qualified diverse supplier, a company must own at least 51% of a member of a minority group’s stake. Having said that, to ensure that these programs are not taken advantage of businesses need to be certified to be eligible.
Businesses focusing on diverse owners gain a competitive edge, boosting economic standing and reaching
a broader audience.
With the U.S. set to be ‘minority majority’; by 2045, tapping into minority purchasing power, projected to hit $3 trillion by 2030, is key for growth.
As a case in point is Walmart because it has recognized the power of investing in women-owned businesses for their female customers.
Why is Supplier Diversity Important?
Supplier Diversity is a greater priority because of the UN Sustainable Development Goals, and legislation in various countries regarding spending with diverse suppliers. Also, the substantial attention to racial and gender inequality has implanted Diversity into organizations’ strategy and culture.
Mainly, companies commit to diversity through Supplier Diversity Programs that promote diversity within the sourcing process.
While several organizations have often deprioritized such programs when things got tough— unfortunately missing a host of benefits a true Supplier Diversity Program brings.
Organizations can reap key benefits by prioritizing supplier diversity within their procurement strategy:
Ethical Business Expectations
Many organizations have accepted that corporate social responsibility can actually usher profits and the much-needed talent, innovation and customer loyalty through diverse suppliers.
Walmart and IBM focused on social responsibility increasingly by spending over $1 billion with minority businesses.
E&Y and the UN Global Compact report that an effective supply chain diversity program is crucial in
bringing in talent.
Growing Profits and Economic Impact
Because global populations are becoming more diverse, minority audiences and minority-run businesses make up a larger portion of small businesses.
According to CVM Solutions, minority business enterprise sales are growing 34% annually— propelling towards an economic growth.
Companies that spend more than 20% of their budget on diverse suppliers can attribute as much as 15% of their annual sales to such programs, according to a Hackett Group study. An ROI of 133% has been estimated by previous studies based on annual sales figures.
In 2016, Walmart sourced about $250 million internationally through the women’s economic empowerment project.
Increase supplier competitiveness
A potential sourcing pool with diverse suppliers increases competition for contracts, thereby improving quality and cutting costs. Additionally, an increased sourcing option makes the supply chain resilient and agile.
To illustrate, imagine supply routes ceasing activity in certain parts of the world. In such situations, companies can easily and quickly transfer to alternate suppliers. In some cases, or as a need may arise, some suppliers may quickly adapt to the emerging needs too!
For example, during the pandemic a hair product manufacturer and a minority-owned business quickly pivoted to producing hand sanitizers and multi-purpose cleaners.
Driving Innovation
A company can tap into newer perspectives and ideas, simply by populating the sourcing pool with diverse suppliers. Diverse suppliers deliver innovation as they are smaller and more flexible.
They tend to co-innovate with their customers, ramp up rapidly, and execute innovations quickly— combating competition by producing newer products in the marketplace.
To demonstrate, Google collaborated with women, minority, disabled, LGBT, and veteran-owned businesses to optimize their supply chain and promote innovation.
Elevate Market Perception of Impact
Consumer behavior is evolving, demanding companies to take clear stances on social and political issues. Accenture’s 2019 Global Consumer Pulse Research highlights that Generations Y and Z prioritize purpose, influencing their spending decisions.
They are more likely to reward companies aligning with their values, with one-third willing to pay more. Moreover, over half have shifted spending away from companies that disappoint on social issues. The impact of supplier diversity is evident in companies like UPS, spending $2.6 billion annually, with those aware of their diversity programs being 86% more likely to choose UPS.
How to Build a Diverse and Resilient Supply Chain?
Now that companies have recognized that investing in diverse suppliers provides exponential returns, it is essential to identify the steps involved in diversifying the supply chain.
The key step is to identify where the current expenditure is going, and how it is distributed across sectors and companies. With this knowledge, you can redistribute money and identify gaps in your reach among companies and sectors for your tenders.
You can now identify suppliers that fulfill your requirements in those gaps and align with your strategic goal of diversifying your current pool of suppliers.
The Gainfront platform implements these transparent steps while creating a list of all the suppliers that your company has invited to the platform as part of their sign-up process — making it easier to identify potential suppliers.
With Gainfront you can connect with over 6 million suppliers spanning the globe and choose from 20+ industries, ensuring a perfect match for your needs. Not only that, but you can also achieve over 70% search accuracy for precise matches by leveraging AI/NLP for advanced supplier categorization. Additionally, our RFx concierge service reduces 60% of your evaluation time.
Still further, the Audit Trail logs all events related to an RFx after sending it to suppliers. It tracks invited suppliers, award recipients, and evaluation details, enabling companies to uphold accountability for inclusive initiatives and drive success.
If you are interested in driving more Supplier Diversity beneficial practices in your company, we’d love to connect with you!
Rahul Asthana has a PhD in Operations Management from the Anderson School at UCLA. He has 25 years of experience in supply chain management, starting his career in IBM working in supply chain operations. He then moved into product management and product marketing of supply chain software while at SAP and Oracle. He manages product strategy and product management at Gainfront. In terms of hobbies outside of work, he really enjoys tennis. Follow Rahul Asthana on Linkedin!
