Due to the upward trajectory of the diversity topic, both startups and enterprises are increasingly aware of what it means to have diversity in their supplier base and why it is imperative. Also, it is because of the fact that some of the world’s leading giants such as Johnson & Johnson, Accenture, Walmart, etc. have embraced supplier diversity like no other company has. But before you get to know the benefits and upsides of supplier diversity, let’s first understand what supplier diversity exactly means.
What is Supplier Diversity?
As the term says, supplier diversity is a strategic variation of a business’s suppliers to include more and more excluded groups. The more suppliers you have of excluded groups, the more diverse your supply chain is. Generally, the excluded groups in this context mean minority, backward, or any underrepresented demographics and groups. Including more diverse suppliers can help your supply chain evolve immensely and move further away from conventional models and suppliers.
Not just for the sake of goodwill, it is now a legal requirement that a public sector business of procurement and supply chain must have a certain percentage of diverse suppliers in various countries. In addition to that, numerous countries of governments and local authorities across the globe have stakeholders and teams dedicated to supplier diversity programs. Initiatives like this can have a major effect on underrepresented groups, boosting job creation and economic growth are just the tip of the iceberg.
Diverse Suppliers Vs. Supplier Diversity?
Supplier diversity is when a business or enterprise encourages the process of hiring suppliers from a variety of groups such as minority-owned, women-owned, veteran-owned, LGBTQ+-owned, physically challenged, etc.
Now, the diverse supplier is defined as when a business is at least 51% owned and run by an individual or group that is a part of conventionally underrepresented groups.
Working with Diverse Suppliers/diverse Businesses
If you are indeed planning to improve your diverse supplier base and make them a strong foundation of your business and your supply chain strategy, then there’s something you need to understand first and that is not all diverse suppliers and businesses are equal. For instance, there are some businesses that categorize themselves as diverse suppliers and highlight their credentials by mentioning the same. On the other hand, there are also businesses that have certifications for their diversity initiatives that emphasize their status. Having said that, diversity has a broad definition as it includes a comprehensive range of underrepresented groups, hence there is no one authority in any country that can audit enterprises and grant certification.
If you are new to supplier diversity, then the public sector supplier diversity policies mention a detailed list of what certifications procurement and sourcing departments should check for when hiring the suppliers. Even though it is not mandatory for a private business, businesses may take a look at supplier diversity practices to support their CSR (Corporate Social Responsibility) activities. Hence, it certainly is worth your time to create and build a similar framework so that your sourcing and procurement teams and stakeholders can be consistent in their decision-making.
Benefits of Supplier Diversity
- Encouraging creativity and innovation
No matter how great and consistent your existing suppliers are, if you continue to source from the same suppliers, you might probably miss out on the creative benefits that otherwise you would get from new suppliers. As a business, you should promote new small and medium underrepresented groups as they bring fresh talent and innovation to the table, differentiating themselves from their competitors.
- Support small businesses
Most of the diverse suppliers across the globe are small, local businesses at the crux of the communities either they or their owners are a part of. Now, businesses like those might have got affected more due to the pandemic and the multiple lockdowns. Bu including diverse suppliers, not only will you support such small-time businesses but also influence at least indirectly the entire community to which they belong.
- Build new procurement and sourcing channels
Once you hire new diverse suppliers for your procurement requirements, you instantly get more choices and options for sourcing products and services. That way, your business can enjoy the lowest prices, flexibility, and much more. In addition to that, with a diverse supplier base, your business will be immune to small-time disruptions whether due to pandemic or any other disaster or factor.
- Lowest prices and better competition
As you enjoy a diverse supplier base, more and more businesses will want to provide you with your requirements. For instance, if your current suppliers even get a sniff that you have other suppliers who can provide you with the products you need, they will surely up their game. This is especially true if you decrease your requirement as there is a new supplier on your list.
What will you get out of this? You will get better quality products at a much lower price. As a result of diverse suppliers, they might as well start offering you added-value products and services just to keep their business on the top and ahead of their competition.
- Penetrate new markets
Even though online purchasing has seen new heights in the last two years, global customers are still facing social challenges when making new purchasing decisions. For example, if you are making a product for everyone (All genders), then your business might not have the right tools that can show what percentage of your customer base is LGBTQ+ or males or females for that matter. But once you start including diverse suppliers, customers who are a part of that community will instantly recognize you.
Driving bottom-line success
Regardless of what business you are into, supplier diversity is the best practice that you should adopt. Apart from benefiting your business and community, it also offers a healthy and distinct competitive upside for enterprises. According to a report by the Hackett Group, businesses with supplier diversity programs make a 133 percent greater return on procurement investments when compared to businesses with zero diverse supplier base.
Supplier diversity is essential to enhance your bottom line and as we have discussed above, having a diverse supplier base will benefit your enterprise in more ways than you can imagine. Find out how iQuantum can amplify and reinforce your supplier diversity initiative and bring all these benefits to your business with supplier management. Request a demo here.