Supplier Diversity: What, Why and How

Not so long ago, businesses did not see much value in implementing a supplier diversity program. They doubted if there was any real benefit associated with the program.

Not surprisingly, the program often remained on the sidelines.

Things have changed quickly in recent times.

Growing awareness of social issues and increasing pressure from customers and governments have once again put a spotlight on this program.

What is Supplier Diversity?

Often, supplier diversity is understood as working with a variety of different types of suppliers.

However, this isn’t what it really means.

A recent Harvard Business Review article defines a diverse supplier as one that is at least 51% owned and operated by an individual or group that is part of a traditionally underrepresented or underserved demographic. Small business enterprises, minority-owned enterprises and woman-owned enterprises are common examples.

A company’s definition of supplier diversity can, however, be different in different countries. It can be based on gender, race, sexual orientation, disability or veteran status and an underserved community group.

Why Should You Build a Supplier Diversity Program?

Many organizations have implemented a supplier diversity program to do social good and provide opportunities to various minority groups. Additionally, having such a program also makes business sense in the current environment.

Here is why supplier diversity is vital for businesses today:

1. Enhances Organizational Reputation and Brand Value

“A supplier DEI program demonstrates that a firm is committed to encouraging and supporting societal diversity,” says Daryl Watkins, senior director-consulting at GEP. Customers are increasingly demanding and are becoming more aware of social issues. They now demand that companies take a firm, visible stand on these issues.

2. Helps Attract and Retain Talent

A supplier diversity program enhances a company’s image for jobseekers. Just like customers, potential employees are also demanding firm commitment to social issues. Not only are they seeking to work with good firms, but they are also looking to ensure that those firms are aware of — and rightly address — social issues.

3. Serves as a Source of Innovation

Diverse suppliers have long been recognized as a source of innovation. Watkins says: “Diverse suppliers in the services space often bring unique approaches and perspectives to various mature industries and can be a valuable voice when exploring new market opportunities. Adding such firms to your roster of preferred partners can bring a fresh outlook and approach.”

4. Lower Cost and Higher Value

A supplier diversity program can also contribute to cost management and value creation. MRO and facilities managers, for example, can work with local minority-owned businesses that are less costly than larger firms.

Also Read: How to Create Business Value with an Effective Supplier DEI Program

What are the Key Models for Supplier Engagement?

There are a few important working models that businesses can use to successfully begin a supplier diversity program.

1. Direct Engagement

The client engages directly with a certified diverse supplier. The firm has direct visibility and control over the supplier and can easily monitor its performance.

2. Subcontracting

In this model, the client engages with a supplier who directly subcontracts part of the work to a diverse supplier. The direct supplier mentions the diverse suppliers engaged in the master contract.

3. Strategic Alliance

In this model, two or more diverse suppliers form a partnership and provide services to a client under a single contract.

4. Mentorship Program

A firm engages with diverse suppliers mentored by an established supplier. The established supplier provides training to diverse suppliers to improve their services.

How Can You Start Off on a Supplier Diversity Program?

Many companies plan to introduce a supplier diversity program but aren’t sure where to begin.

“The first step is to define a clear policy,” says Watkins. The policy should align with the overall business strategy and outline the key objectives of the program.

All stakeholders — internal and external — must understand why supplier diversity is needed, what it’s going to look like and what its social and business impact is going to be.

It is also important that the ownership of a supplier diversity program does not rest with the procurement function alone. Instead, it should be spread across the organization. Business unit heads must track and periodically report the set metrics.

Listen to the GEP Podcast on Building Supplier Diversity