Supplier Diversity

Dec 17 2021

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Businesses have a social and moral obligation to give back to the society around them. Among the ways businesses take care of community welfare is through supplier diversity. This is an all-inclusive policy that guides how businesses procure their goods or services but more importantly where they procure them.

Still, how is a supplier diversity program helpful to a business and its community? This guide explains what supplier diversity is, why it's essential today, and how to implement the program successfully.

What is Supplier Diversity?

Supplier diversity is a business strategy that allows companies to choose from a wide pool of suppliers instead of from a select few. Started in 1968 by General Motors, the culture aims to promote equality among people from all walks of life.

A diverse supplier is someone from the underrepresented communities who owns and operates at least 51% of a business. These include minority-owned businesses, small business enterprises, and even woman-owned enterprises.

Over the years, the term diverse supplier has extended to include veterans, the LGBTQ community, and people with disabilities.

Typically, before a business can be categorized as a diverse supplier, it must obtain a diversity certification. This document proves that the majority business owner comes from an underserved community. It doesn't come easy, neither is it free.

Common organizations that offer certification include the Women's Business Enterprise National Council, the National LGBT Chamber of Commerce, and the National Minority Supplier Diversity Council. Other recognized institutions include state and local government.

Why is Supplier Diversity so Important?

Supplier diversity is more relevant for the current generation because of the challenges minority groups face. However, they're not the only parties who benefit from supplier diversity programs as the procuring businesses gain much from it too. These include:

Improved Corporate Image

Working with the underrepresented in society is a picture that many firms want to associate with. This is because partnering with diverse suppliers shows a business is keen on uplifting those who are down in the society and hence, forms part of good PR.

Once people feel close to a business, they're more likely to make a purchase, which favors the business's overall bottom line.

Source of Income for the Disadvantaged

As of 2019, 8 million businesses in America are owned by the minority community. These companies employ at least 2.2 million people; generate $400 billion in revenue, and pay $49 billion tax annually.

In addition, diverse suppliers in tier one tend to subcontract to tier two, allowing them to make something as well.

For example, when Target, procured $1.4 billion worth of goods from first-tier suppliers that they, in turn, outsourced $800 million to second-tier suppliers. In the end, every party involved makes money from diverse supplier programs.

Increased Supplier Competition

Monopoly creates exploitation because the supplier knows you can't get products of similar quality. However, in this case, supplier diversity eliminates any monopolies by allowing firms to cast their nets wide when searching for suppliers.

This way, if a product from a supplier is expensive or not standard quality, you always have other options. The more avenues there are to get supplies, the greater the supplier competition, which lowers prices.

Wider Market Reach

If your goal is to penetrate new markets, a diverse supplier program can help you achieve this target. The more you reach out to diverse suppliers, the better insight you have about their business networks.

Once you get connected to these networks, they can become a new line of customers. According to the Department of Commerce, the minority will contribute 70% of total purchasing power from 2000 to 2045.

Better Innovation

Getting your supplies from the same supplier year in, year out limits the room for growth. A single supplier will always apply the same level of thinking when solving different problems instead of approaching them with a different mindset.

Since diverse suppliers are mostly small and medium-sized businesses, they're more agile and encourage creativity in all that they do. So, the more diverse your supply chain is, the better solutions you'll get about existing problems.

Ways to Start and Grow a Successful Supplier Diversity Program

In truth, a diversity supplier strategy doesn't fall into place with the wave of a magic wand. It takes dedication and a lot of discipline to make it a culture in your organization. Basically, this is what you need to do:

Build a Case for Executive Support

Final decisions involving the procurement process may not lie with you, but you may be in a position to build a strong case for a diversity program. First off, identify how a diversity program could align with your company's mission and vision.

Then, confirm if some of your long-term goals could be achieved from the program. Once you have all the research, pitch the idea to the executives stressing the benefits of diverse suppliers. If the pros outweigh the cons, the board will most likely sign off on the idea.

Identify Key Suppliers

Now that you have the green light, the next step is to know your supply chain. This involves sieving through various diverse supplier catalogs to find the best among the rest. Find out companies that have implemented the diversity program successfully and collaborate with them to share their knowledge.

Plus, attend various supplier diversity programs near you to network and build long-lasting relationships with these suppliers. If none of this works, leverage the power of web crawling technology to scarp through databases and find suitable candidates. Here, you can compare each supplier's diversity category information and break down their prices dollar-dollar

Align the Program with Corporate Goals

What is your main reason for starting a diversity program? Perhaps it is to paint a stronger brand image to the world and increase sales to meet the bottom line. Or, to solve the global unemployment problem by creating jobs on a larger scale.

Whatever your goal, aligning the supplier diversity almost always guarantees you hit it and surpass. In fact, according to Elizabeth Vazquez, CEO of WEConnect International, the more a diversity program aligns to company goals, the more it becomes a culture in an organization and not just some best practices.

Invest in your Diversity Program

Starting a diversity supplier program alone isn't enough as it needs time and resources to grow, and eventually, become a company culture. If you have the budget, you can first hire a diversity manager to oversee the program's long and short-term strategy.

If not, investing in the right tools will make running your diversity supplier program easier. For example, a supplier database system could help identify specific underrepresented groups that supply your product or service.

Plus, since the business needs to profit from the supplier diversity program, you can track ROI on your goals through technology.

Track Performance

The last step of ensuring a successful diversity supplier program implementation is to track the performance over time. Ask yourself, are we meeting our quarterly, bi-annual and annual goals through the program?

  • The best way to judge if a diversity program is working or not is through:
  • Number of suppliers' onboarded
  • Percentage increase of total spend
  • Diversity program savings
  • Customer satisfaction
  • Local community impact
  • Economic impact (jobs created and income generated)

Challenges facing Supplier Diversity

Supplier diversity isn't a smooth road, and many times, you may encounter speed bumps that threaten to slow you down. So, be aware of some of these challenges to avoid getting caught by surprise:

Tokenization of Diverse Supplier Programs

One of the problems facing diverse supplier programs is they're only created for convenience rather than purpose. Many companies regard their diverse program office as nonessential and never involve them in the procurement process.

This fact comes after various diverse suppliers claimed that many of these programs are talk and nothing more. Simply put, companies, especially big brands need to show more commitment to their diversity programs and those who run them.

Unqualified Diverse Suppliers

Most suppliers struggle to meet the buyer procurement requirement and thus, lose out on the opportunity to do business with big brands. One area, in particular, that is problematic for many diverse suppliers since they're small or medium-sized is obtaining diversity certification.

If a supplier lacks this certification, established businesses may not trust them to deliver. The best way to solve this problem is to seek these small suppliers and mentor them on how to obtain the certificate. In the end, it ends up being a long-term business relationship with many perks.

None Genuine Groups

Some diverse suppliers are not genuine in their transactions so much that they lie about subcontracting tenders to tier two suppliers. This is contrary to subcontracting small business requirements plus the federal acquisition regulations.

Just make sure to get in bed with the right diversity suppliers by relying only on credible sources to find them. These include the United States Small Business Association, National Minority Supplier Development Council, and the Federal government.

Supplier Diversity: Leading from the Front

In a world where talk dominates, take the step of leading by action and actually implement a supplier diversity program. Make sure it is for the right reasons, which is to help the community at large first and then make a profit.

If you'd like to partner with a premium diversity supplier service provider, contact us for resources, information, and methodologies of successfully implementing the program.