The biggest challenge to supplier diversity is not what you think


The biggest challenge to supplier diversity is not what you think

by Jon W. Hansen

When I read the Scoutbee post from October 24th, 2022, “Supplier Diversity – What does it mean?” several lightbulbs went off simultaneously.

Supplier diversity is nothing new, as its origins date as far back as the 1950s with the emergence of the civil rights movement. However, it was not until the 1968 race riots in Detroit that the auto industry launched one of the very first real supplier diversity programs.

Why is this history lesson so important? Because it raises the question: is supplier diversity – and diversity initiatives, in general – the response to an acute social crisis or sound business practice? After all, as the head of Facebook’s supplier diversity program stated during an interview, this latest diversity push started with the George Floyd incident and was further fueled by the COVID-19 pandemic. Once the crisis has passed, as it did in 1968, will the efforts to create diversity in our supply chains wane?

In other words, will diversity in the supply network finally make the leap from being the “right thing to do” to also being the “smart thing to do”?

It’s a small world

According to a March 2022 study, “two out of three (67%) of small businesses are run by underrepresented groups”. Why is this important?

It’s crucial because companies – especially larger ones – are not as adept at engaging, onboarding, managing, and paying small business suppliers on a timely basis.

For example, the 2014 SupplierPay initiative was a notable recognition by the U.S. government that “a healthy supply chain is good for business” – especially small businesses. Unfortunately, shortly after the 2020 pandemic began, one of the first moves by most organizations was to seek extended terms from their suppliers to preserve cash flow.

The obvious problem with extending payment terms is that it passed on and exacerbated the cash crunch problem throughout the supply network. While a few innovative CPOs found a way to alleviate some pressure by offering to pay suppliers earlier rather than later – through upfront early payment discount programs to succor their critical supply networks – they were not the majority.

As for technology and digital transformation, challenges with onboarding SME suppliers are also a significant concern. Sure, we’ve come a long way since the days of EDI and even XML regarding onboarding and managing suppliers, but there are still challenges we need to address.

Before we can establish a sustainable supplier diversity initiative, we must address the systemic challenges within the SME engagement process overall.

Using technology to deal with challenges to supplier diversity

Once again, knowing that developing a strong and diverse supply network is not only the right thing to do but also the smart thing requires more than just good intentions. It requires planning and a commitment to leveraging digital technologies to streamline existing processes fully. In other words, make it easier for diverse suppliers to do business with you.

In the same report cited above, of the 67% of small businesses that are run by underrepresented groups, “less than half (43%) have a diverse-owned business certification that communicates their identity”.

One potential area of focus is how you can leverage technology and the expertise of your solution provider to facilitate the certification process to bring more suppliers into your orbit. There are, of course, many other areas in which today’s technology can play a significant role.

The main thing to remember is, when it comes to supplier diversity, being the right thing to do and being the smart thing to do is a two-way street, in which both buyer and supplier realize the benefits.