Global corporations around the world are adopting the business strategy of creating and maintaining supply chains that incorporate businesses owned by diverse individuals or groups. This is in a bid to ensure that the organization maintains a diverse supplier base in its procurement of goods and services.
The supplier diversity strategy has found its way into the procurement plans of government institutions, not-for-profits, and private industries. Recent research revealed that about 68% of organizations globally claim that the advocacy for inclusion and equitable practices, including the Black Lives Matter movement has increased internal pressure for supplier diversity initiatives over the years.
So, let us define what supplier diversity means in the corporate world.
Supplier diversity which is also referred to as ‘inclusive procurement’ may be described as a proactive measure or strategy undertaken by contracting authorities with a view to ensuring that all relevant, potential suppliers have the fair and equal opportunity to compete for business within their supply chains.
The diverse supply chain may include MSMEs (micro, small and medium enterprises), social enterprises, local vendors (where ‘local’ is defined by the scope of the contract) and enterprises that are majority owned and controlled by minority or underrepresented groups in the community. These groups may include historically underutilized businesses belonging to ethnic minorities, people of colour, immigrants, women, LGBTQ+, armed forces veterans and persons living with a disability, etc.
Generally, supplier diversity is a business strategy that in recent years has gained momentum in its adoption by global corporate organizations. It basically seeks to ensure a diverse supplier base in the procurement of goods and services for any business or organization. It emphasizes the creation of a diverse supply chain that works to secure the inclusion of diverse groups in an organization’s procurement plans.
Since procurement plays a key role in diversification, supplier diversity strategy brings about a creative supply base. This in turn creates some form of economic and moral value that benefits the organization through its presentation of more flexible supply opportunities and potentials.
It is worth noting that some of the world’s largest and most successful companies, for example, Walmart, Johnson & Johnson, and Accenture, are publicly committed to supplier diversity in their procurement. Creating diversity in their supply chains has in turn boosted their innovation and improved their ethical credentials in the business world. A Global Supplier and Sustainability lead at Accenture; Nedra Dickson in describing the benefits of supplier diversity said:
“When you leverage a small, diverse business, they are more nimble and able to ramp up faster in some cases.”
Here are 3 key benefits of supplier diversity to organizations:
- Providing a distinct competitive advantage for business organizations
An organization’s use of supplier diversity strategies in its policies drives bottom-line success through the leverage it grants to organizations.
Hackett Group, a foremost business consultancy, published a recent report on ROI-related Supplier Diversity which revealed that companies who participate in a long-term supplier diversity program generate a 133% greater ROI than organizations that stick to only suppliers that they have always relied on. The said report also claims that supplier diversity programs drive an additional $3.6 million to an organization’s bottom line for every $1 million spent in procurement operating costs.
Apart from the financial benefits relating to the return on investment, the Hackett Group report concluded that procurement organizations that work with a diverse supplier base also had lower overall operating costs.
- Avenue for sourcing goods and services from multiple procurement channels
Supplier diversity allows organizations have the leverage of engaging and promoting multiple suppliers at the same time. This will in turn enable them as buyers to make decisive choices relating to factors such as price, location, and product quality. This opportunity helps in reducing the overall cost of the desired product and or service. The multiple channels created by supplier diversity also enable organizations to create new relationships with suppliers that promote their goodwill in supplier circles.
- Promotion of innovative supply solutions
Small and medium enterprises are known for the array of creative solutions and agility they constantly offer in other to distinguish themselves in the market space. As such, a diverse supply base allows organization access to different innovative ideas and solutions to everyday business challenges, which may not really be possible when they stick to their traditional supplier base.