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Supplier Diversity

Why Procurement Needs a Mandate to Pursue Supplier Diversity

By TealBook

Diversity makes a difference

What is the point of diversifying a supplier base? 

Most would say that it’s good for a company’s reputation and might make customers feel more inclined to buy based on the do-good feeling that comes from that. Instead, let’s talk about how diversity brings benefits that are invisible to the outside world but can make a huge impact on the success of procurement functions.  

In this blog, we’ll discuss three of the key benefits of working with a more diverse supply base, as well as touch on how you can source and vet these suppliers to bring them into your procurement processes. 

In the United States alone, there are 16 categories that technically classify a business as diverse, but diversity encompasses more than race, gender, sexual orientation, age, etc. Diversity is also about individuals and companies contributing their unique experiences, skills, and ideas — and a supplier network is stronger if these factors are drawn from a broader base, more representative of society as a whole.

The benefits of a broader supply base

Suppliers who are part of an underrepresented or underserved group, such as minority-owned business enterprises (MBEs), women-owned business enterprises (WBEs),  or veteran-owned small businesses (VOSB) have to tackle challenges and overcome obstacles to sustain and grow.  The most common challenges include equal access to private capital, limited business networking opportunities, and unconscious bias.

For example, as US-based businesses worked to recover from COVID-19 disruptions in 2020, 27% of minority-owned businesses, who often did not have the resources needed to complete the hefty amount of paperwork to receive PPP loans through large banks,  faced closure, compared to 18% of other small businesses. 

It’s more likely these types of businesses have a deep understanding of teamwork, leadership, and the value of a strong work ethic. This is confirmed by a McKinsey study that found that ethical and culturally-diverse teams outperformed less diverse teams by 36%.  They know how to solve complex problems by adapting quickly to changing circumstances and situations. 

Plus, a diverse supply base is likely to promote innovation through the introduction of new products and services or improved business processes and workflows. According to a study done by Economic Geographic, businesses that were led by culturally diverse teams were more likely to develop new products to serve the organization than those led by homogenous groups.  Diverse businesses also have nuanced insights into local communities and cultures, and this can add to a company’s market reach.

Reduce risk and increase competition

By being able to source from a larger group of suppliers, organizations with diversity programs are more resilient and maintain better agility in the face of supply chain shocks.

For example, during the pandemic when logistics networks were strained to the breaking point, the most agile organizations diversified their portfolios of freight carriers to include not just large nationwide third-party logistics companies (3PLs) but also small, often minority-owned, local carriers who serve particular transport lanes well that are flexible and cost-effective.

Diversification is also good for promoting healthy competition between suppliers and may eliminate some unproductive costs. Even if well-intentioned, “old boy” networks can cause an increase in unplanned and undocumented change on projects as well as cost overruns.

Expand business opportunities

As supplier diversity programs allow for new market segments to emerge from small and diverse suppliers, organizations can take advantage of new business opportunities previously unrealized.

Business-to-consumer enterprises ignore these developments at their peril, so it is worth building cross-functional teams bringing procurement together with sales, marketing, and product development to explore the opportunities. For example, if you begin working with a diverse supplier whose offerings allow your team to make your existing product more eco-friendly, you can develop a marketing and sales strategy to highlight this new feature and unlock further revenue opportunities.

Attract talent

An often overlooked benefit is that supplier diversity will strengthen a company’s ability to attract and retain young talent — a Glassdoor survey found that over 75% of people will take a company’s diversity into consideration when looking into offers. In 2021, a reported 80% of companies implemented human resource policies to encourage diversification and inclusiveness. Even for companies that have announced diversity initiatives, there is still a long way to go to successfully implement and live these plans, giving brands the opportunity to deliver on promises of diversity and inclusion.

Identifying and selecting diverse suppliers

There are many internal benefits to supplier diversification — but what must an organization do to ensure that it captures those benefits? 

Align procurement and diversity

There are many large organizations that have established diversity and inclusion units and appointed directors or VPs of Diversity and Inclusion. This is great, but if they have no real influence over spending decisions, this can be, or at least appear to be, tokenism. To pursue supplier diversification, procurement needs to get a mandate from senior leadership, and it needs targets. Some of the largest corporations in the world have announced supplier diversity targets that are set to be met over the coming years.

Ensure suppliers are actually diverse

It is important to ensure that suppliers are genuinely diverse, which means they should be certified through third-party certification agencies. The U.S. federal government has put mandates into place to increase the number of diverse suppliers used within its various agencies. This, in turn, gives diverse companies strong incentives to become certified as it gives them the opportunity to gain new contracts with those agencies.

There are various entities at national, state, and local levels that offer certification services, such as the Women’s Business Enterprise National Council (WBENC) or the Department of Veterans Affairs. Most third-party agencies require a company to be at least 51 percent owned by individuals who meet the criteria for applying for certification. But it’s not enough to be an owner just in name. Diverse individuals must also be in control of management and day-to-day operations within the business.

Consider uncertified suppliers

It is also worth considering companies that do not yet have a certification but would qualify for it. Thousands of suppliers meet the criteria to be certified but have not yet been able to invest the time and money needed to earn said certification.

Traditionally, suppliers will put in the effort to get certified within one agency, then work tirelessly to get in front of larger buyers, all the while those buyers are trying to find small and diverse suppliers through manual search efforts. Those without certification are entirely left out of the search, even though they could help achieve the goals those larger organizations are trying to meet.  

There are mentoring and training programs that support diverse suppliers, helping them to get certification but also providing workshops, professional matchmaking services, access to capital investment, and management education.

Gain needed visibility

Finally, and most importantly, to do these things, a company must have visibility into the supplier market. To take our example, say you are based in Chicago and would like to appoint a suitably qualified minority-owned carrier to take care of your transportation in a corner of New Mexico. How do they find it? To support a supplier diversity strategy, one needs a supplier diversity data strategy.

There needs to be the proper technology in place to allow teams to have a holistic view of their supplier base and identify areas that can be improved.  By investing in the data used to make decisions regarding supplier diversity, organizations can ensure that they have access to the largest supplier pool possible based on reliable information. When teams can trust in their supplier data, they can make decisions that best meet diversity, equity, and inclusion-based goals.

Taking steps towards diversity

Now that we’ve gone over the benefits of supplier diversity and the steps you can take to reach your diversity goals, it’s time to get to work. Armed with the knowledge from this blog and the resources shared within, we encourage you to take a hard look at your current supplier diversity initiatives and see where you can make improvements. If your organization doesn’t currently have a supplier diversity program, there’s no better time to start one than today.

Not sure where to start? Contact our team today to learn more about how your organization can benefit from a data-first supplier diversity program.

Unleash procurement possibilities.

Whether you’re looking to maximize diversity spend, optimize supplier diversification, or identify emergency sourcing options, the best available supplier data makes all the difference.

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