While not a new consideration, for the last few years, companies globally have had to reassess the answer to one very difficult question–one that, for many, they haven’t liked the answer to:
How diverse, equitable, and inclusive is your business?
While the scope of that question is immense and touches every part of the enterprise, procurement plays a vital role in evaluating the response to that question. That is, how diverse is your supply chain?
As a definitional baseline, supplier diversity is the inclusion of businesses that are at least 51-percent owned by underrepresented populations–ethnic minorities, women, members of the LGBTQ+ community, people with disabilities, and veterans of the armed services–within a company’s supply chain.
While tracking aggregated data on supplier diversity is nearly impossible, as metrics vary across organizations, the fact that the topic continues to arise is telling. The fact is, many businesses feel they have work to do to promote diversity, equity, and inclusion (DEI) within their companies and that work is important to their continued growth.
Large companies get this. A quick search reveals names like Walmart, Intel, Verizon, AT&T, Microsoft, and McDonalds (within the first three pages of results) as companies that have programs to promote diversity and inclusion among their suppliers. These companies often have large staffs and budgets devoted to supply chain diversity. It is estimated that 97 percent of the Fortune 500 have set dollar or percentage goals relating to diversity in their supply chain.
However, according to recent data from the Association for Supply Chain Management, only 24 percent of small businesses have improved supply chain DEI as an objective.
Overlooking DEI could be detrimental to their success.
Why is a diverse supply chain important?
For companies to be dropping major investments into supply chain diversity, there have to be benefits not only for their reputations, but for their bottom line as well. In fact, healthy, resilient supply supply chains rely on supplier diversity. Benefits of a diverse, equitable, and inclusive supply chain beyond it just “being the right thing to do” include:
A CVM solutions report measuring the success of supplier diversity programs found that minority business enterprise sales are growing twice as fast as the national average. A study by the Conference Board of Canada found that companies that adopt supplier diversity programs can see a higher ROI from their procurement, lower operating costs, and less risk to their supply chain. Findings by the Hackett Group in 2015 report that supplier diversity programs add $3.6 million to the bottom line for every $1 million in procurement costs.
Meeting the Expectations of Your Customer Base
Your customer base is likely to comprise a diverse set of consumers and businesses. Changing demographics are resulting in younger people being more concerned about true DEI action at enterprises; these concerns drive their choices as consumers. Minority-owned small businesses are also more appealing to younger consumers, as they are seen as offering a more personal touch and feel to their products and services.
Additionally, when your customers understand that the company is a reflection of society as a whole (and themselves); is in tune with their needs; and makes the products and delivers the services that they buy, they are more than likely to provide greater support to your business.
Talent Attraction and Retention
Ernst & Young’s State of Sustainable Supply Chains report found that having diverse procurement practices plays a role in attracting top talent. When DEI is woven into the company’s fabric and represented in their practices, employees feel the business supports their ideas and individual and cultural needs. Since 2008, the National Association of Colleges and Employers (NACE) has asked new graduates to rank the importance of diversity. That first year, diversity ranked 12th out of 15 options. By 2020, it had risen to seventh out of 19 options, with more than 79 percent of respondents calling it “very important.”
Widening the Pool of Suppliers
When looking more broadly at potential suppliers, you promote competition in the supply base and greater competition leads to an improvement in the quality of work.
Faster Rate of Innovation
Many diverse suppliers are small businesses, which means they can often be nimbler and enact changes more quickly than larger companies that may be dealing with internal processes and bureaucracy.
Diversity, equity, and inclusion initiatives are no longer nice-to-have initiatives for public relations campaigns or buzzwords to make investors feel good; they are hallmarks of successful, responsible businesses. Taking a deep look at your answer to the initial question in this blog is a starting point to evaluating your maturity as an organization, but starting a supplier-diversity program requires proactive activities to ensure that all relevant, potential suppliers have the fair and equal opportunity to compete for business within their supply chains.
To learn more about the challenges and benefits of a diverse supply chain, download our latest whitepaper.