Supplier diversity is becoming a top priority for many organisations, emphasising a shift of corporate objectives towards social and economic inclusion. Since 2008, P&G has spent more than $2 billion with diverse-owned businesses globally every year, and the company is well on its way to spending $3 billion by 2030. Cisco Systems plans to commit $50 million over five years to increase the diversity of its partner ecosystem.
A 2021 study by Hackett found that almost three quarters of organisations either already run or plan to expand their global supplier diversity programs by 2023, and that the average target is to spend 13% with diverse suppliers by 2025.
Supplier diversity will continue to gain traction as customers, investors, employees, workers, and communities demand that organisations operate in a more socially responsible way. Driven by these expectations, Procurement functions are already seeing the need to consider selection criteria beyond those that are purely commercial.
The business case for Supplier Diversity
Increasingly, there is evidence to demonstrate that not only is a diverse supply chain the right thing to do, but it can also positively impact business performance.
- Improves ROI. As organisations prioritise diversity and inclusion as part of their corporate culture, they equally expect the same of their partners. Adoption provides a distinct competitive advantage for businesses, arguably best evidenced by the United States government firm stance on diversity, and requirement for potential partners to subcontract with diverse business enterprises in order to participate in Government programmes.
- Provides new Procurement Channels. Continually engaging an existing supply chain potentially impacts value creation and evolution. Engaging diverse suppliers offers an opportunity to diversify the supply chain and gain an alternate perspective.
- Promotes innovation. Often diverse suppliers will look to innovation advantages to differentiate themselves from their competitors and as a result are likely to promote innovation.
- Drives socioeconomic impact. Diverse, local suppliers deliver positive socioeconomic impact in local operating markets by promoting job creation and bolstering the local economy.
Organisations that are consistently ranked by analysts as operating upper quartile supply chains typically operate a diverse supply base.
What gets in the way
However, despite aspirations to do so, many companies still struggle to achieve their supplier diversity objectives, often this is due to several potential barriers.
- Unconscious bias. This is one of the biggest challenges that organisations face in establishing a diverse supply chain; it keeps organisations from making objective decisions about the companies they do business with.
- Lack of strategic alignment. Organisations often fail to achieve their supplier diversity goals because competing business priorities take precedence.
- Lack of dedicated resources. Diverse suppliers require support to succeed and grow. Supplier diversity initiatives will struggle if organisations do not invest in the capabilities required to support new or developing suppliers.
- Lack of support from the top. The success of any supplier diversity program depends upon the level of support it receives from organisational leaders. For a supplier diversity initiative to succeed, there must be the buy in and backing from your leadership team
- Goals limited to Tier 1 spending. Leadership teams typically target the Tier 1 supplier pool and don’t consider increasing diversity among Tier 2 suppliers. A narrow focus on Tier 1 spending restricts the ability to grow a diverse supplier ecosystem.
5 steps to implementing a successful Supplier Diversity programme
Any supplier diversity program should be well monitored and have a quantifiable ROI, while fitting in with the company’s existing social responsibility policies. Below are some practical steps to support you in successfully establishing a supplier diversity initiative:
- Establish a baseline. Data is key. Analyse the spend / supplier activity and identify current diverse suppliers to set a baseline. Consider spend categories where change will have the most positive impact.
- Engage the right people. Securing leadership and key business users support will aid understanding of the opportunities and adoption. Show them data and the potential value that this could add to your organisation.
- Mindset shift. Expand selection criteria as a new standard from simply commercial to one that combines social value, sustainability, and cost management.
- Overcome barriers. Break large contract requirements down into to smaller requirements. Don’t prevent smaller organisations being a part of your programme with unachievable contractual requirements i.e., rethink insurance requirements/consider making RFP’s shorter and less complex/offer technical support to diverse businesses.
- Publicise your efforts. Diverse Suppliers will become aware of your approach and more likely to partner, further improving adoption. This has a secondary benefit for your brand awareness and positioning as well as addressing customers, investors, employees, and community expectations.
AMS support many of our clients with Supplier Diversity insights across multiple categories i.e., Ethnic Minority Businesses (EMBs), Woman owned Business Enterprise (WBEs) and Veteran Owned Businesses (VET).
These insights assist our clients in making informed decisions when initially developing their supplier diversity programme and are a key building block of any future programme evolution.
At AMS we care passionately about the DEI agenda across all service lines, for more information on how AMS can support you with your Supplier Diversity, please contact firstname.lastname@example.org.