Procurement departments have thrown around the term ‘supplier diversity’ for years now. While companies contracting with the Federal government must have a supplier diversity mandate, procurement professionals outside of the government realm are coming to realize the significant benefits of supplier diversity. The problem, however, lies in getting all internal stakeholders on board and convincing them of the benefits. With that in mind, here’s what you need to know:
Supplier Diversity and The Bottom Line
Simply put, supplier diversity aims to create an inclusive supply chain comprised of diverse vendors, such as women-, minority-, and veteran-owned businesses. A common misconception about creating a supplier diversity program is that it’s expensive. The reality? A diverse supply chain not only benefits those small businesses, it also makes good financial sense for the company mandating the program. According to a 2015 study by The Hackett Group, “on average, supplier diversity programs add $3.6 million to the bottom line for every $1 million in procurement operational costs.”
That’s just one reason why supplier diversity matters … there are many more:
Part of the reason why supply chain diversity has such a positive influence on a company’s bottom line is that employing such a program drives competition among incumbent and new vendors. When companies take stock of their supply base, suddenly, incumbent vendors find their pricing and contractual agreements thrust into the spotlight and under greater scrutiny. This paves the way for diverse, often smaller, vendors that otherwise would not have been considered; thus, leveling the playing field among suppliers and opening the door for greater cost savings for the company. A larger supply chain also broadens the numbers of vendors available, so the company has access to a greater pool of vendors to choose from to source their needs.
Another positive aspect of supplier diversity programs is the potential to spur innovation. Diverse vendors are often smaller and more agile than their larger counterparts, allowing them to move and maneuver with greater flexibility and ease. As a result, this allows companies to benefit from greater innovative leaps that come with smaller, diverse companies and has the potential to improve upon their products and services. Moreover, the addition of diverse suppliers to the supply chain may urge incumbent vendors to keep pace and innovate as well, further benefiting the company and its bottom line.
Yin and yang: the bottom line and corporate reputation. Now, more than ever, consumers are holding companies to higher standards, making it increasingly difficult for companies to partake in bad business practices. Stocks plummet and bad press abounds when poor business practices are unearthed. And diversity, even in its most general term, is a hot button issue now. With that in mind, companies are increasingly moving toward diversification not only for its financial benefits but for its ability to support a positive image of the company as well. A company committed to developing a diverse supply chain displays its commitment to doing business with and supporting the economic growth of all communities.
Transforming the Vision to Reality
The road to starting a supply chain diversity program need not be an uphill one. The first step is realizing the significant benefits that implementing such a program can bring to the company and presenting those benefits so that internal stakeholders can appreciate them. This will be a huge step in getting management onboard and supporting your vision for a diverse, innovative and competitive supply chain.