Supplier diversity - what does it mean?

Many companies have an active diversity and inclusion policy—including every one of the Fortune 500. Some even have board-level D&I executives. But there’s confusion about what such policies really mean. (To take one common misunderstanding: they’re not about quotas for who you employ!)

And when it comes to supplier diversity—giving companies in your supply chain the same opportunities and protections you give your employees—comprehension is even lower. That matters. Because as you’ll see, supplier diversity isn’t just a good thing in itself; it’s good for business, too. Companies who ignore it are also ignoring the potential competitive advantage it can bring.

That’s the goal of this article: to define what “supplier diversity” really means in practice. Let’s define it, explore it, and see what it delivers for today’s procurement professionals.

The meaning of supplier diversity

First, it doesn’t mean having more than one supplier for the same product, or second-sourcing your inputs to keep your production line humming. Supplier diversity is about opening your procurement function to companies and markets you might not have heard of before—but which are just as good a strategic fit as your current suppliers. And which can do great things for your sales and profits, too.

This is key. Procurement professionals may resent being asked to think about “diversity” when they’ve got their hands full managing rising costs, global inflation, and supply shortages. What’s important to note is that supplier diversity can solve these problems, not add to them.

Yes, the term can refer to minority-owned businesses. But a “minority” means more than race or origin. It’s also about women-led businesses who may find it harder to get their message out. Businesses in disadvantaged areas, seeking to bring back life to their communities. And those led by disadvantaged groups, such as disabled veterans. The USA defines “diverse” businesses as:

• Woman-owned business enterprises

• Minority-owned business enterprises

• Veteran-owned small businesses

• Service-disabled veteran-owned small businesses

• Veteran-disability owned business enterprises

• Disability-owned business enterprises

• LGTBQ+-owned business enterprises

• HUBzones—historically underutilized business zones

If that sounds broad—well, broad (and deep) is what supplier diversity is all about! Think of how many businesses matching the criteria above may be producing excellent, innovative parts and products your business could use … at a competitive price.

Discrimination is often unintentional

So with such a diversity of suppliers out there, why aren’t companies using them? After all, few people in procurement actively discriminate against minorities. (Thankfully).

But poor supplier diversity often isn’t due to overt prejudice. It’s simply “doing things how they’ve always been done”: the same suppliers, the same sourcing publications, and so on. Which often cuts non-traditional supplier out of the loop. Yes, a lack of supplier diversity is often just a lack of information about them.

Solving supplier diversity issues

So the key is to expand your universe of potential suppliers. If you’re looking at the same trade publications, going to the same conferences, reading the same websites to research them—take a step back. There may be non-traditional information sources that can lengthen your consideration list with exciting new partners around the world.

Supplier diversity keeps the supply chain safe

There are other good effects. Being open to a diverse range of suppliers lets you set up multiple sources to insure against resource shortages, and research alternative solutions. Even making those suppliers compete with each other for your business, driving your costs down as a bonus.

An approach many companies have taken is to apply protections (such as zero child labor) to their supply contracts worldwide, giving different cultures and customs the chance to compete on a level playing field for your business.

Of course, contracts aren’t everything—supplier diversity is a mindset to foster within your business, not a PDF document. But making it clear that anyone can bid for your business if they meet the criteria is a great start.

That’s supplier diversity. Opening up to a broader choice of suppliers from all backgrounds and cultures, finding new products and services that improve your outputs, and most of all being open to the varied ideas and innovations of our diverse world. Because the Next Big Thing in business always comes from an unexpected place, doesn’t it.

Together with our  partner supplier.io, Scoutbee enables procurement to get insights into the diversity status of its supply base. Schedule a call with our sales team to find out more.

In the meantime, check out the article by Ashlee Nelson and Roger D. Blumberg on supplychaindigital.com about the top 10 strategies to increase supplier diversity.