Supplier Diversity and its Importance in Supply Chain Management

Importance of Supplier Diversity in Supply Chain Management

Supply chain diversity; It all started with a handful of socially conscious global companies addressing racial injustice effectively through supplier diversity programs that encourage an all-inclusive approach to procurement. Albeit, some may look at ethics and profits as eternally mutually exclusive, shrewd enterprises, though lately, but surely, are realizing that malingering CSR (Corporate Social Responsibility) can bring down their profits and cost them twice the much-needed talent and customer loyalty that global diverse suppliers can bring to the table.

These supplier diversity programs are more important than ever, yet only a few enterprises are following and those who have included them in their CSR activities are nothing more than token gestures.

What is Supplier Diversity, though?

“A business that is at least 51% owned and operated by an individual or group that is a part of the traditionally underrepresented or underserved group.” Harvard.

Some of the classic examples are SBEs (Small Business Enterprises/Entities), minority-owned business enterprises (MBEs), and Woman-owned Business Enterprises (WBEs). For the enterprise to record and report diverse supplier spend, it is important to make sure its suppliers are certified through 3rd-party certification agencies.

But why is diversity in supply chain management so important?

You might think you have the freedom and power to choose who your suppliers should be. And you do. However, the reasons vary from basic CSR to adding value to the bottom line. Usually, supplier diversity blends the best of your business objectives for a better, more impartial and unbiased world, and the drive to be a competitive leader in the marketplace.

Apart from that, expanding your enterprise’s supplier base can offer you tremendous confidence in the continuity of supply and adds fresh perspectives that can bring substantial benefit to your enterprise.

The problem of consolidating procurement through global supply chains

Being the largest manufacturer, China is known as “The world’s factory” due to its strong business ecosystem and competitive currency practices. Having said that, when the pandemic took the world by surprise, China went into lockdown, resulting in worldwide shortages of everything. From basic children’s toys to the parts of the robotic welding machine, supply dried up.

Given the current situation of the Ukraine-Russia war, it’s not just an unusual pandemic or lockdown that poses a threat. Every single day, the supply chain industry is being disrupted because of national/international politics, war, technical issues, and many more.

With supplier diversity, enterprises will have a plan B just in case things go south. When your competitors ramble around looking for options and choices, you will have alternatives ready in place.

Supplier Diversity Brings More Opportunities

Diversity and opportunity go hand-in-hand and this is no exaggeration. A variety of suppliers will have different things to offer. The more diverse your supplier base is, the more diverse the range of solutions and services you are going to get.

There is an immense pool of talent across the globe that you can easily overlook if you only consider traditional suppliers. There are tons of small enterprises that are run by people in underrepresented groups, creative start-ups, and many more. Every supplier can add value and offer a fresh perspective and can provide better services when compared to big-time enterprises. In order to get big players in the market as customers, often, such non-traditional businesses tend to be more competitive.

Working with diverse suppliers that fall outside the mainstream may offer you new insights into different demographics and give you a chance to enter new markets. In addition, for an enterprise, a diverse supplier base is an essential part of the CSR division. Through inclusive procurement, your enterprise can show a commitment to making a positive contribution to an unbiased and fairer society.

3 Ways to Increase Diverse Supplier Base

  1. Get Tier 1 and Tier 2 Reporting

    A core means of tracking your supplier diversity is to identify your diverse Tier 1 suppliers. This provides a view of your immediate diverse uplift.

    Next, one of the common ways to expand the impact of your supplier diversity initiative is by compelling your large and strategic prime suppliers to report on who their diverse suppliers are and what they are spending with them. This process is known as Tier 2 reporting.

    More and more enterprises are now understanding that Tier 2 spend is extremely important to measure the impact of the supplier diversity programs.

    There are many diverse suppliers who do not have the capacity to offer services to large enterprises such as Fortune-500 or Fortune-1000 companies, they can provide their services under a second-tier agreement. This is one of the effective ways to build a robust relationship with diverse suppliers and later they can be moved into a Tier 1 relationship. If you are considering executing a second-tier strategy, make sure to set crystal clear expectations for your prime suppliers and specify goals and objectives for inclusion procurement and spend to second-tier diverse suppliers in their contracts.

  2. Partner with Supplier Diversity Organizations

    Companies that specialize in vendor diversity management can assist you in adding new diverse suppliers to broaden your supplier diversity base. For instance, iQuantum works with enterprises to build and widen their supplier diversity programs by enabling diverse vendors to register in QLeads, a database of millions of vetted, diverse qualified suppliers with updated profiles. This will allow companies to search the database to find the right suppliers.On the other hand, enterprises can reach out to register with non-profit organizations and trade organizations to hire new diverse suppliers.

  3. Use Current Supplier Relationships
    Once you take the initiative to increase your supplier diversity base, it will be relatively easy to build a trustworthy relationship with your suppliers and reap additional advantages of working with veteran-owned, minority-owned, women-owned, and other diverse suppliers. Ensure to leverage your existing supplier relationships so that you can get access to their networks of diverse partners which you may not be able to get otherwise.

Diverse suppliers can be a linchpin of any business’s success, assisting enterprises in ethically and efficiently sourcing goods and services while retaining profits, uplifting the economy, growing customers, and enabling innovation. With forward-thinking supply chain management and efficient strategic sourcing, enterprises and diverse suppliers can benefit mutually by going into business together.

What is Supplier Diversity, though?
But why is diversity in supply chain management so important?
The problem of consolidating procurement through global supply chains
Supplier Diversity Brings More Opportunities
3 Ways to Increase Diverse Supplier Base

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