Why Getting Supplier Diversity Right is Vital for Procurement

How important is it for procurement leaders to promote diversity while choosing suppliers? Do they understand the significance of promoting supplier diversity in procurement?

But first, who is a diverse supplier?

A diverse supplier is one who is at least 51% owned and operated by an individual or group that is part of a traditionally underrepresented or underserved group.

While working with diverse suppliers may be a key priority for procurement in one enterprise, it may not be a part of the supplier checklist for another.

So, does supplier diversity vary in significance across different industries and businesses? Or do businesses need to approach this in a more structured manner?

Let’s find out.

Companies are increasingly focusing on supplier diversity, which can be seen in their efforts to collect accurate supplier diversity data.

According to research (The 2023 State of Supplier Diversity Report), 67% of companies reported using third-party data to monitor supplier diversity status. Increasing use of third-party data services enabled companies to spend more time on the program and focus on tasks like benchmarking, data usage and management, the report adds.

The key objective is to create a more inclusive supply chain that depicts the diversity of the broader society. In this process, businesses can benefit from improved brand image, increased innovation, and reduced supply chain risks.

Better Innovation, Lesser Risks

By working with diverse suppliers belonging to different cultural and social backgrounds, businesses can gain fresh and innovative ideas and viewpoints. They can leverage these insights as well as specialized skills of diverse suppliers to develop differentiated products and services.

Focus on supplier diversity can also differentiate businesses from their competitors, enhance brand positioning and loyalty and attract a customer base that is more aware and conscious than ever.

Another key benefit of embracing supplier diversity is reduced risk. By working with a diverse supplier base, businesses can mitigate regional and industry concentration risks. Also, diverse suppliers are often local suppliers, which increases proximity and provides a valuable alternative to offshore suppliers.

Why Procurement is Best Suited to Drive Supplier Diversity

While all business functions have a combined responsibility to drive supplier diversity, it is procurement that is ideally placed to lead the initiative. In their routine operations, procurement teams have to shortlist suppliers, negotiate favorable terms and conditions, and evaluate supplier performance against predefined deliverables.

With its supplier-facing work profile, procurement is in a prime position to frame a diversity policy, drive it forward and gather the metrics needed to evaluate performance and maintain momentum. Additionally, by bringing diverse suppliers onboard, procurement can ensure that business spend is used wisely and has a broad impact on society.

In many enterprises, procurement now has a defined target to meet supplier diversity goals. For example, they may need to pick one in five suppliers from the diverse category. They may also need to have a fixed number of diverse suppliers during a financial year.

How to Monitor Progress

While many enterprises today have a supplier diversity program in place, they lack an effective monitoring mechanism to check progress. For example, they do not have up-to-date data to determine the number of diverse suppliers associated with different categories.

Regular monitoring is as important as launching a supplier diversity program. In this endeavor, procurement should collect and analyze data related to several aspects of the program.

For example, procurement can use key metrics such as the number of contracts awarded to diverse suppliers in a year and the portion of overall spend with diverse suppliers. A rise in the average wages of a diverse group can also be a performance indicator.

Finally, procurement can expand the supplier diversity program down the supply chain by working closely with tier 1 suppliers and encouraging them to have contracts with a diverse range of providers. This will further extend the program across the supply chain network and make a greater impact on society.