Procurement
Top three reasons 2023 is the year for procurement and supplier diversity to align

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Top three reasons 2023 is the year for procurement and supplier diversity to align

By: Jamie Crump, President, The Richwell Group

There’s nothing like an idea whose time has come. I’ve spent most of my procurement and supply chain career trying to get executives to invest in procurement and/or supplier diversity. Now, the supply chain disruption caused by the pandemic and the murder of George Floyd in the US have created the perfect storm for procurement and supplier diversity to have an impact. As we look to 2023, here are the top three reasons why this is the year for proper alignment.  

Supplier diversity is no longer an island

Diversity, equity, and inclusion (DEI) has become a standard part of company structure over the past two years. DEI relates to the diversity of the employee makeup of a company. It makes sense that if a company gains the benefits of a diverse employee base (better problem solving, higher profitability, exceptional talent), then having that throughout a company’s supply chain will reap exponential benefits. 

DEI tends to reside in the human resources area of the company. This is not always a natural fit with supplier diversity, which is usually found in or around the procurement department. But now the goals are so similar that the two groups are combining forces to move the needle for both. 

Another area is Environmental, Social, and Governance (ESG). Supplier diversity is part of the “S” in ESG. Studies consistently show that companies cannot get to net zero without addressing their supply chain. It is, in fact, the single largest lever for any aspect of ESG. The ripple effect of business opportunities and economic impact is far greater when implemented throughout the supply chain rather than just in the company alone.

Challenges: The amount of attention DEI and ESG are receiving is a good thing. However, supplier diversity can get lost or pushed down the priority list as companies focus on measuring their carbon footprint and the makeup of the board and senior management. Supplier diversity may be outside the comfort zone of human resources and environmental professionals. The groups will need to align to generate the desired results. 

Good data has arrived

Technology has caught up with the needs of businesses. The largest stumbling block to supplier diversity is often data, including:

  • Spend – knowing how much is being spent in various categories is key to making informed choices.
  • Diverse spend – companies must be able to identify how much is being spent within the various diverse categories and how much is certified. 
  • Contracts – knowing when categories come up for renewal, rebid, or a test of the market is critical to understanding when opportunities might arise. 
  • Credible data – standardized reporting will eliminate gaps in the data. Many track but do not report their results. Others report a dollar figure or a percentage of spend but not necessarily both. Percentages are sometimes reported as a measure of “addressable” spend, i.e., the spend that companies believe they can have an impact on versus how much the company is spending overall. 

Despite record-breaking inflation and continued disruption in the supply chain, the demand for data isn’t slowing down. The Hackett Group’s annual Procurement Agenda survey asks CPOs what is foremost on their minds. In their 2022 report, they found that the top item on the agenda was to step up digital transformation. 

Challenges: Third-party data reporting needs to get on the supplier diversity agenda. Credibility needs to be the same as financial reporting and the ESG reporting requirements that are being put in place. This can be good news for supplier diversity. If they are part of the overhaul happening in the procurement process, DEI and ESG will bring a higher awareness of – and credibility to – the data being reported. 

Investors are watching

When investors watch something, everyone pays attention. Firms are not just watching what’s happening, they are investing heavily in it. Partnerships such as McKinsey and Moody’s or EY and Thomson Reuters show there is a demand for getting this done correctly and quickly. 

Institutions such as the Stock Exchange of Hong Kong, NASDAQ, and the US Securities and Exchange Commission (SEC) have put together reporting rules and are going after companies who don’t take them seriously. The most recent was Goldman Sachs Asset Management (GSAM) who agreed to pay $4 million in fines to the SEC.

In August 2020, ten venture capital firms committed to including a diversity rider in the boilerplate rider language of their standard term sheets. The rider seeks to increase the representation of minorities in all venture capital deals at investment and board levels. Since that time, the list has grown to over 100 firms. 

This is no time to wait to be asked. US Congresswoman Shirley Chisholm said, “If you don’t get a seat at the table, bring a folding chair.” It’s time to grab that folding chair and go sit at the table. Supplier diversity’s time has come.