The strategic importance of diverse enterprise spend continues to rise. While supplier diversity programs were initially created to target spending on goods and services from socially or economically disadvantaged businesses, their impact goes beyond social responsibility. These programs have proven to be instrumental in promoting healthy competition—resulting in lower prices and fostering innovation within the supply chain.
Why does supplier diversity matter?
What was once seen as a nice-to-have has now evolved into a business imperative. As the benefits of supplier diversity programs have become more quantifiable, organizations are increasingly focusing on the added value they deliver. And, by engaging with diverse suppliers, companies can tap into a wider range of perspectives, expertise and innovative solutions that may not be readily available through traditional suppliers.
Supplier diversity can be a critical lever for expanding growth opportunities. This was especially clear during the pandemic, particularly through the lens of supply chain disruption risk. Relying on a broader pool of suppliers—especially more nimble, diverse suppliers—allowed some organizations to avoid the unforeseen consequences of disruption that affected many during this period.
In addition to positive impact on the bottom line, supplier diversity programs strengthen relationships with customers and communities. Actively supporting diverse businesses, and helping to stimulate economic growth in underserved communities, can demonstrate commitment to inclusivity and social equity, which can in turn enhance organizations’ reputation and brand image.
Commitment to supplier diversity
Mere implementation of a supplier diversity program or even a supplier diversity staff doesn’t equal a true commitment to the practice. Instead, a holistic, multidimensional approach is necessary. For example:
- Executive sponsorship: It starts at the top. It is crucial for senior leadership to actively support and champion supplier diversity initiatives, including allocating resources, setting goals and holding the organization accountable for progress.
- Metrics and goals: Define key performance indicators (KPIs) that measure both process (right behaviors) and outcomes (right results). Establish growth targets by categories within procurement such as increasing the percentage of diverse suppliers in the procurement process.
- Diverse spend reporting: Regularly track and report on supplier diversity metrics to monitor progress and hold the organization accountable for its commitments. Leading companies will leverage automated tools to facilitate data collection, resulting in more accurate direct spend reporting.
- Subcontracting mandates, outreach and evaluation: Clearly articulate the accepted diversity designations and mandate that every sourcing opportunity will include a percent of diverse supplier participation. Actively seek out and engage with diverse suppliers through targeted outreach efforts, including attending supplier diversity events and conferences.
- Evaluation and integration: Implement fair and transparent evaluation processes that consider the capabilities and qualifications of diverse suppliers, ensuring a level playing field. While many firms are comfortable hiring diverse firms for services like cleaning and landscaping, it is particularly important to enhance the focus on supplier diversity within professional services, as this is an area where diverse firms are often excluded because of misconceptions that diverse firms don’t exist in this space or aren’t qualified due to size and capacity.
Return on investment
The return on investment (ROI) of suppler diversity is often discussed—but not always openly. ROIs can be significant and multifaceted with the right executive support and KPIs. Some examples of ROIs for supplier diversity include, but are not limited to:
- Access to new markets
- Innovation and creativity
- Brand enhancement
- Cost savings
- Employee engagement
- Compliance and regulatory benefits
By adopting these leading practices, organizations can demonstrate a tangible commitment to supplier diversity and contribute to a more inclusive and equitable business environment. Increasing supplier diversity is an investment into a more innovative, cost effective and resilient supply chain—the right thing for business and communities.