Why Supplier Diversity Matters

A strong ethical case can be made for increasing supplier diversity. Large companies who choose to diversify their suppliers provide opportunities for populations that have historically had fewer of them. Those populations include small businesses, minority-owned businesses, women-owned businesses and, increasingly, businesses owned by other underrepresented groups: members of the LGBTQ+ community, for example, as well as veterans and people with disabilities.

But there’s an equally strong business case to be made as well. A more inclusive procurement strategy can give businesses more ways to meet their needs, increase innovation, increase quality, increase healthy competition (thereby bringing down costs), and make supply chains more reliable and flexible – something that has become a business imperative since the disruption caused by COVID-19.

This open-and-shut business case is something we stress in our work connecting major companies and suppliers at our Global Supplier Diversity Conference (GSDC) held in September this year. It’s also something we encourage the suppliers on our Global Supplier Diversity Accelerator to emphasise.  
 

Innovation and new business

Supplier diversity means product and service diversity. When companies expand their sweep of suppliers, they encounter a far wider range of goods and solutions than they would otherwise, and this creates opportunities for innovation and new business development. It also grants large companies access to the markets in which their suppliers work, which means they encounter new consumers and demographics who may want to buy their products.

Supply chain resilience

Supply chain resilience was made explicit in an article for Harvard Business Review written by Katie Date, the Corporate Outreach Manager of the MIT Center for Transportation and Logistics, and Ashley Barrington, the founder of MarketPearl, a B2B sourcing marketplace. They said that an inclusive procurement strategy ‘widens the pool of potential suppliers and promotes competition in the supply base, which can improve product quality and drive down costs.’ They added that supply chain agility was an increasingly big advantage during times of uncertainty.

Greater profitability

A study by the Hackett Group in Atlanta, Georgia, found businesses with a strong focus on supplier diversity had a greater procurement return on investment than their counterparts who didn’t. The research, which considered 50 companies from the service and manufacturing sectors, showed that those companies who took supplier diversity seriously generated 133 percent higher ROI – amounting to an additional $3.6 million.

Recruitment

Supplier diversity is also attractive to investors and potential talent. A third of all the assets under management were invested in companies with ESG considerations in mind. Sixty percent of Gen Zers have said they want brands to represent their values – diversity, equity and inclusion – and this will soon extend to the supply chain, which is now a key focus for regulators. Nearly two-thirds (64 percent) of all millennials, too, say they won’t work for companies that don’t take social responsibility seriously. And in a survey commissioned by UPS, more than half of the respondents said a company with a supplier diversity programme was a positive factor in considering where they wanted to work.

How to boost it

So how should large companies go about boosting supplier diversity? Of course, it varies from business to business. But as always, it’s important to have buy-in at the highest levels of the organisation. If the business and ethical case haven’t yet been made, it might be time to make them. When everyone is on board, it’s time to put a strategy in place. Research, planning, setting measurable goals, and communicating are vital parts of this. You’ll need to audit your existing suppliers, outline how you intend to expand your procurement channels, and put in place a system of tracking and reporting so you can show your progress and course-correct if necessary.

One specific and practical step that you can take is to connect with dedicated supplier diversity organisations. The National LGBT Chamber of Commerce, Women’s Business Enterprise National Council, and National Minority Supplier Development Council are just a few examples of organisations in the US that can help you to connect with diverse suppliers. If you run a smaller business, you might also find regional affiliates of national organisations that have the information and contacts that are right for your stage of the journey.

You might also want to consider how you might need to change your ways of working to accommodate smaller businesses. These changes might include introducing quicker payment terms and processes, and helping suppliers to navigate large corporate systems.  
 

Final thoughts

Given the wide-ranging benefits of diversifying the supply chain, as well as the open-and-shut ethical case for doing so, it isn’t surprising that more and more companies are proactively seeking out diverse suppliers or making commitments to increase supplier diversity. More than 95 percent of U.S. corporations now have a supplier diversity goal in place, and 80 percent mention supplier diversity in their annual reports.

Other companies have stated publicly that they aim to increase the number of products or services that they procure from diverse businesses and are striving to provide more opportunities to underrepresented business owners. Almost 30 major retailers, including Victoria’s Secret, Sephora, and Gap have signed on to the Fifteen Percent Pledge, founded in 2020 by Aurora James, which commits them to give over 15 percent of their shelf space to Black-owned brands; this is to recognise the Black Americans who comprise 15 percent of the US population.

This is progress. And we can be sure that when it becomes crystal clear to all that businesses with diverse suppliers benefit in myriad ways, those who have fallen behind will quickly follow suit.