By selecting diverse suppliers, procurement works against social injustice and promotes inclusion. And did we mention the business benefits? Supplier diversity is more than “nice to have.” Learn how it differs from supplier diversification, and why sub-tier visibility is key.
1. What is Supplier Diversity and Why Is It Important?
Supplier Diversity is when you source and procure goods from diverse supplier base. Diverse suppliers are businesses that are majority-owned by people in traditionally under-represented groups. Such groups come from cultural, ethnic, immigrant, health and gender sectors, or from other minorities. Diverse-owned businesses also tend to be smaller businesses, which also often puts them at a disadvantage when seeking purchasing opportunities.
Supplier Diversity Facts: Societies and workplaces increasingly value diversity and inclusion. The importance of supplier diversity is clear when you consider the demographic change. In the United States, for example, by 2045, minorities will make up more than 50% of the U.S. population – the so-called majority minority. Their purchasing power and economic impact will increase significantly.
Similarly, diversity is a powerful contributor of income and jobs. The US Census Bureau estimates nearly 20% of employer businesses are owned by women, and 18.5% are minority-owned. Small and medium-sized enterprises (SMEs), which have fewer than 250 employees, employ nearly half of the nation’s workforce. Furthermore they generate roughly a third of exports, according to the US Small Business Administration. Figures from the OECD show that globally 60% -70% of business are SMEs.
Are “Supplier Diversity” and “Supplier Diversification” the Same? Not quite. When you diversify your supplier base, you source from your partners who offer various unique traits, as a way to hedge against risk. Traditionally, supplier diversification is selecting suppliers based on factors such as location, size, cost, flexibility, time-to-deliver, innovation, or technologies, for example. Diversifying your supplier base to include diverse suppliers is a sound sourcing strategy for making your supply chain more agile and resilient.
2. Five Steps for Starting a Supplier Diversity Program
In a supplier diversity program, you make inclusive procurement a priority. You encourage diverse businesses to register for purchasing opportunities with your organization. And you intensify your search for products and services provided by diverse-owned businesses.
Here are some first steps:
1. Identify your diverse suppliers
The first step to ensuring diversity in your supplier base is to have visibility of your entire supply chain. Why? Let’s say a manufacturer has 100 tier-1 suppliers. Each of these has 50 suppliers, and so on into the n-tier. With visibility into the sub-tiers, the number of business enterprises in your network expands exponentially. And so do the opportunities for inclusive sourcing.
2. Develop a Supplier Diversity Action Plan
Initiate a strategy that seeks out and welcomes businesses run by ethnic minorities, women, or socioeconomically under-represented groups. These shape the global supply diversity landscape, and help you develop a more agile supply chain. Include diversity as a metric in your supplier management process. Appoint a supplier diversity manager to help build supplier relationships, and champion inclusive procurement.
3. Search for and support diverse suppliers
Your supplier diversity manager can offer vendor support services before and after sourcing events. Smaller businesses may not have the technologies required. So you may need to guide first-time applicants with their requests for proposals (RFPs).
4. Include diversity certification in supplier evaluation and onboarding
Diverse businesses can be certified by a third party. In general, such certification is required for large corporate contracts or federal purchasing opportunities. Where necessary, make use of targeted supplier development opportunities, such as mentoring, or technical assistance. This should help grow the number of certified diverse businesses in your supplier database.
5. Use technology for visibility and accountability
Using a supplier information management system helps you keep contracts and certification in one place. This eases the workload when identifying and classifying suppliers, and for reporting and analysis. You can classify first-tier suppliers up front, and capture the amount of n-tier spend with diversity suppliers. Then you know how effective your action plan and measures are.
3. What Are the Advantages of Supplier Diversity?
By selecting diverse suppliers, procurement demonstrates thought leadership, and works against social injustice and to promote inclusion. Having a diverse supplier base and inclusive supply chain are pillars of corporate social responsibility. Downstream, diversity and inclusion generate customer loyalty, and strengthen your reputation.
The commercial benefits of an inclusive supply chain include increased market share, or access to government contracts that require supplier diversity. Additional value-adds include:
- Encourages healthy competition between suppliers
- Draws in under-utilized skills and diverse perspectives
- Empowers businesses that represent changing demographics
- Drives innovation for competitive advantage
- Challenges the status quo to get better outcomes
Related socioeconomic benefits include providing workplaces for people often discriminated against, which may secure their economic opportunity. You help create jobs in disadvantaged communities, provide income for individuals in such groups, and support workforce diversity.
And very significantly, a diverse supplier base widens the pool of applicants for companies seeking the best business partners.
4. How to Find Diverse Suppliers
National or regional organizations perform supplier diversity certification based on ownership criteria. You can also look for certified, qualified diverse suppliers through your country’s small business administration, associations for minority-, immigrant-, or women-owned businesses, or chambers of commerce and trade.
Look for specialist networks such as the National Minority Supplier Development Council, or WeConnect International, which promotes the interests of women business owners. EU-wide organizations include Supplier Diversity Europe, which publishes The Handbook on Supplier Diversity in Europe. Also look for national or local supplier diversity and procurement initiatives. Dedicated supplier diversity sourcing software also provide locator tools.
And, of course, a great way to find and enlist diverse suppliers is through your tier-1 suppliers, who may have their own diversity programs. Ideally, with their help, you can map your supply network through your sub-tiers, where diverse suppliers and smaller businesses tend to operate.
5. Why Sub-tier Visibility is Key to Supplier Diversity
To understand the types of businesses in your supply base, the first thing you need is visibility into your sub-tiers. Along with this visibility comes the opportunity to collaborate with your tier-1 suppliers. You can support them to expand and improve supplier diversity among their business partners. Transparency is key to advancing your mutual equality and sustainability initiatives.
This is why visibility and diversity go hand in hand. And supplier diversity is the foundation of an inclusive supply chain. This gives all relevant businesses equal access to purchasing opportunities. And, by widening the pool of potential suppliers, supplier diversity also serves to control costs and reduce risk in your supply chain.
riskmethods was acquired by Sphera in October 2022. This content originally appeared on the riskmethods website and was slightly modified for sphera.com.
