Key Takeaways
- Supplier diversity refers to a business’s commitment to establishing supply chains that consider and consist of suppliers owned by individuals or groups from underrepresented populations.
- Supplier diversity is rapidly improving procurement’s efficacy, inclusivity, and reach.
- Because consumers are placing greater importance on the ethical and social conduct of businesses, establishing a diverse base of suppliers is important to maintain a positive brand reputation and an ethical business.
- While finding diverse suppliers can be challenging, procurement personnel can take advantage of several resources at their disposal to build a more diverse, inclusive supply chain.
Supplier diversity programs encourage procurement departments to source goods and services from suppliers owned by individuals or groups from traditionally underrepresented and underserved populations. Several businesses fall under this distinction, including companies owned by women, veterans, minorities, and LGBTQ+ individuals. With well over 15 different diversity categories and counting, suppliers designated as diverse comprise a vast array of backgrounds and experiences.
Too often, supplier diversity is portrayed as a token program with little value-add to businesses. This couldn’t be further from the truth. Available data suggests there is a clear competitive advantage for businesses that implement supplier diversity programs. A recent study by the Hackett Group demonstrated that diverse suppliers met or exceeded buyers’ expectations 99% of the time. A study by supplier.io supported these findings, as 93% of CEOs believed diverse suppliers had a positive impact on their businesses. a diverse supplier base presents value to businesses and their operations. Having a supplier diversity program with equitable supply chains is also the ethically right thing to do.
What benefits does supplier diversity provide?
The ways in which supplier diversity brings value to businesses include:
- Promoting Inclusivity: Supplier diversity programs encourage inclusivity for its own sake. While inclusivity doesn’t need the backing of hard data to be valuable, supplier diversity programs level the playing field by creating jobs, boosting revenue, and creating opportunities for underrepresented businesses and communities.
- Providing Agility: As most diverse suppliers are small or mid-sized enterprises, they are often highly nimble. With greater capabilities to meet specific requests and deadlines as needed, the flexibility of diverse suppliers affords you a competitive advantage within your market. Diverse suppliers provide dynamic solutions, practices, products, and services that may go overlooked by larger institutions less willing to challenge established procedures and status quos.
- Improving Messaging: Armed with valuable insight and ideas from a diverse pool of suppliers, you can adopt a more comprehensive representation of your customers and stakeholders. By understanding wider, more diverse perspectives, you can tailor your messaging and marketing to resonate with your business partners and consumers.
- Enhancing Reputation: Today’s consumers are more socially conscious now than ever before. A survey by Top Design Firms, a company that sources design and development companies, revealed that 64% of consumers are more likely to purchase products or services from companies that advertise diversity and inclusion. Another study from Accenture highlighted that 51% of consumers aged 18-39 stopped doing business with companies that disappointed them on social issues. A diverse supply chain is not simply a luxury for a business: it’s a necessity.
How do I find diverse suppliers?
While the benefits of a diverse supplier base are clear, finding diverse suppliers remains challenging for many in the procurement space. However, there are several practices and resources you should use that make sourcing diverse suppliers seamless:
- Search Supplier Directories: There are several publicly available search engines and directories with curated lists of certified diverse suppliers. Such resources include supplier.io’s Supplier Explorer and Thomasnet.com’s Supplier Diversity Tool.
- Utilize E-Procurement Platforms: Many e-procurement platforms have standardized application templates that increase the accessibility and fairness of the bidding process for diverse suppliers, which may lack the capacity to provide highly complex paper bids. These platforms not only increase your bid reach but also provide a central channel of communication between your business and diverse suppliers.
- Work with Third Parties: You should discuss sourcing options with governmental and third-party organizations as an additional resource when sourcing diverse suppliers. Organizations such as the Council for Supplier Diversity provide a wide variety of services, including verifying, sourcing, and connecting businesses with diverse suppliers.
How should you maintain supplier diversity programs?
Once you’ve sourced diverse suppliers, what next steps should you take to ensure your supplier diversity programs are resilient and working as intended?
- Track Tier 1 Spend: Tier 1 spend refers to your total spend on suppliers. Programs that track Tier 1 diversity spend ensure the diversity status of suppliers is certified, updating the status of businesses that change ownership. When you’re working with hundreds of diverse suppliers, such software removes the headaches of continually verifying the diversity status of a given supplier.
- Tracking Tier 2 Spend: Tier 2 spend refers to the amount your suppliers spend on their suppliers. Tier 2 diversity spend tracking affords you greater insight into your suppliers’ own diverse spending practices, regardless of their own status as a diverse business. Several certifications and businesses now include Tier 2 diversity spend as part of overall net spend towards diverse suppliers; this allows companies to partner with larger, non-diverse businesses while at the same time supporting their supplier diversity initiatives.
- Highlight Efforts: When seeking to increase diversity and representation in your supplier base, you should prioritize highlighting your supplier diversity initiatives. By broadcasting your supplier diversity efforts through dedicated reports and web pages, you incentivize other diverse suppliers to take part in future bidding processes, enhancing your supplier diversity program as a result.
- Implement Procedures: You should establish benchmarks for supplier diversity sourcing to establish precedents for future RFPs. Benchmarks may include ensuring at least 15% of considered vendors are diverse during the RFP process.
- Establish Goals: Goals and milestones ensure supplier diversity programs are on track and working as intended. Goals may include increasing diversity spend as a percentage of total business spend.
- Onboarding: When suppliers are onboarded, they should complete a business classification form and include any third-party certifications or self-classifications regarding their diversity status. These forms make it easier to keep track of relevant supplier diversity data going forward.
- ProcurementIQ: Utilize ProcurementIQ’s Supply Chain & Vendors section of our market reports for more information on a market’s diverse supplier percentage and opportunities, or contact our representatives for more information on how we can support your supplier diversity initiatives.
