by Gregor Stühler, Co-founder & CEO, Scoutbee
Supplier diversity. Everyone’s talking about it but there are still many questions as to what it means exactly and why it’s important. In our new series of blog posts, Delving Deeper into Supplier Diversity, we’ll take a more detailed look at the benefits of working with diverse suppliers, from woman-owned to veteran-owned enterprises, and everything in between. But first, let’s get an overview of some of the advantages of working with diverse suppliers in general.
What is a diverse supplier?
Before we dive into the benefits of supplier diversity, we need to first answer the question of what supplier diversity actually is.
Diverse suppliers, according to the U.S. definition of the term, are businesses that are at least 51% owned and operated by either an individual or a group that belongs to a traditionally underrepresented or underserved group. These groups can include minority-owned enterprises, woman-owned enterprises, and businesses owned by minority groups such as LGBTQ+ individuals and veterans. In the United States, for example, there are approximately eight categories used to identify diverse businesses. Many organizations are now implementing supplier diversity programs designed to foster, support, and increase the participation of diverse businesses within their company’s supply chain.
Working with diverse suppliers can provide your business with many benefits you may not be aware of. Here, we take a closer look at just some of the advantages of partnering with diverse suppliers.
5 benefits of implementing a supplier diversity program in your organization
Supplier diversity drives innovation
Quite simply, the more diverse a company is, the more access to different ideas and perspectives you’ll gain. If you’re looking for inspiration and problem-solving abilities, working with experts who have varied backgrounds or distinctive outlooks can be a real treasure trove. Diverse suppliers also have the potential to deliver a more efficient client experience; because they’re usually smaller in size, they are often more innovative, agile, and responsive than their larger competitors.
Supplier diversity creates supply chain resilience
It stands to reason – when you work with more diverse suppliers, you achieve more sourcing options, which is an increasingly important advantage in these uncertain times. Diverse suppliers are usually less hierarchical so they can be more flexible, more efficient, and faster at delivering goods and services. So, it makes sense that when supplies are in doubt, you can trust in your partnerships with diverse suppliers to keep your operation running. As Terrez Thompson, Vice President of Global Supply Inclusion and Diversity at Coca-Cola told Harvard Business Review, “Diverse suppliers can turn on a dime and are now considered for contracts that they would not have been otherwise due to the imperative for flexibility. They have proven themselves to be agile in terms of responsiveness.”
Supplier diversity attracts top talent
Supplier diversity programs are also a major selling point when hiring. According to a recent report by McKinsey, 64% of millennials say they won’t work for companies that perform poorly on corporate social responsibility. When you work with diverse suppliers, you’re not only putting your money where your mouth is, but demonstrating to the world at large where your true priorities lie. Diversity shows that your organization has a healthy and inclusive culture, which can be extremely appealing to potential employees – and clients – alike.
Supplier diversity creates commercial advantages
A diverse procurement strategy opens up your pool of potential suppliers and stimulates competition in the supply base, improving product quality and driving down costs, while reducing your direct and indirect spend. In addition, an article from The Wall Street Journal cited research by the Hackett Group which discovered that the operational costs of diverse organizations are often lower. They spend an average of 20% less on their buying processes and have fewer procurement staff which allows them to pass their operational cost savings on to you, the end client.
Supplier diversity has a wider economic and societal impact
Inclusive procurement doesn’t just give your bottom line a boost, it helps society as a whole by creating economic opportunities for underrepresented businesses and the communities in which they operate. For example, according to the U.S. Census Bureau, there are currently approximately 9.3 million minority-owned businesses in the USA. The National Minority Supplier Diversity Council reports that certified minority business enterprises generate $400 billion in economic output that leads to the creation or preservation of 2.2 million jobs and $49 billion in annual revenue for local, state, and federal tax authorities. And those numbers are steadily rising. The opportunity cost of not building a diverse and inclusive supplier network could amount to billions of dollars for the U.S. economy.
In short, anything companies can do to diversify their suppliers and their supply chains will open up more opportunities. As businesses today continue to face seemingly endless disruption, the suppliers companies choose to work with can be make or break. Supplier diversity is not only crucial when it comes to improving your bottom line but, as we’ve shown, it will also benefit your business in many more ways than simply impacting spend. In fact, it’s no exaggeration to say that diversifying your supply chain is a key indicator of your organization’s willingness to adapt to a more diverse world as the two increasingly go hand in hand.
In our next post in this series, we’ll delve into the advantages of working with woman-owned enterprises. Spoiler: there are a lot.
Scoutbee can help you find more diverse suppliers and is the only solution on the market that powers a seamless integration of all data, from internal and external sources, to give you a complete visualization of your supplier base and bring these five benefits – and more – to your business.