Supplier diversity is a business strategy that ensures a diverse supplier base is utilized in the procurement of goods and services for any business or organization. Organizations undertake a proactive program to partner with businesses that are owned by and otherwise reflect a broad demographic. Supplier diversity is usually a component of a larger Diversity & Inclusion (D&I) program that encourages the use of businesses owned and operated by people from socially or economically disadvantaged groups, such as minorities, women, the LGBTQ community, and veterans. It’s essentially about making connections with diverse suppliers and building solid working relationships that will be of mutual benefit and worth the effort to all parties involved.
BENEFITS OF SUPPLIER DIVERSITY
The vast majority of organizations cite corporate social responsibility, alignment with corporate culture and workforce inclusiveness, and customer requirements as the top drivers for their supplier diversity efforts. These are typically some of the same reasons that companies have a D&I program. Supplier diversity supports D&I in purchasing, just as workforce diversity ensures D&I in hiring and retention.
The benefits of having a robust supplier diversity program include increased competition between current and potential vendors, expansion of the various channels to procure goods and services, innovation by the introduction of new products, and organizational pride in the commitment to doing business with diverse suppliers. According to a 2015 study by the Hackett Group, supplier diversity programs on average add $3.6 million to the bottom line for every $1 million in procurement operation costs.
At my organization, we increased our diverse operating spend by 19% from 2017 to 2018. And 6.6% of the new vendors we added in 2018 were small and/or minority-owned vendors.
FIGURE OUT YOUR WHY
It isn’t enough just to jump on the D&I bandwagon. Having the full support of senior management and the board is vital, but knowing as an organization why a supplier diversity program is right for you is crucial to keep everyone on track. Then to successfully implement a program, a person or team will need to be hired or designated to oversee the program. A strategic plan will need to be developed along with a working action plan that will require updating as the program is developed. These documents will lay out the mission, objective, first steps, and maintenance plan for the program.
As your program is developed, collaborate with the procurement/purchasing team to develop policies, internal buying strategies, process changes, and networking and outreach methodologies to increase the potential number of vendors. It’s important to involve someone familiar with federal, state, and local laws around utilizing minority-owned or other underrepresented companies (i.e., researching whether you must go with the lowest price or if you are free to select based on other criteria). You also will have to conduct internal staff training on the policies and expectations for the new supplier diversity program. It’s truly a team effort to implement and maintain a robust and effective program.
Some other key components of implementing a supplier diversity program are setting expectations with senior leadership on realistic goals and targets and what can be accomplished on an agreed-upon timeline. Make sure the personnel responsible for the program get training in diversity and exposure to other professionals. A few ways to do this are to attend or host networking events that target the groups with which you are looking to increase the diversity spend, collaborate with other professionals and organizations, attend diversity-related conferences, and use the internet; there’s a wealth of information online.
REPORTING AND MANAGEMENT
Reporting will be vital to the success of the program. Always keep in mind that “What gets measured gets managed.” It’s key to calculate the current supplier diversity spend. Use this information to develop targets of where the supplier diversity spend should be; this could be by ethnicity, gender, LGBTQ, and/or veteran status. Calculate diverse spend based on the established targets on an annual basis to see if progress is being made, and make adjustments to the program as needed.
Obviously the organization is going to want to see if the supplier diversity program is obtaining the desired outcome. There are metrics that can be used (see Table 1), but metrics are going to be specific to each organization’s industry, size, geographic location, and so on. The metrics will change and evolve as the program develops and more data is gathered over time.
Implementing a supplier diversity program takes dedication, commitment, and support from senior leadership. Throughout the process, make improvements, learn from mistakes, and celebrate the successes.