When a supply chain includes companies that are at least 51% owned and run by members of a historically underrepresented group—such as women-, minority-, and veteran-owned enterprises—it is referred to as having a diverse supplier base.
This concept is becoming more and more valuable, and many business executives are incorporating it into their corporate strategy. Why is supplier diversification so crucial? Let’s take a closer look at the effects of supplier variety.
In contrast to other diversity, equality, and inclusion (DEI) initiatives at a company, supplier diversity is frequently a role hidden away in the procurement department. Diversity in suppliers, however, might provide an advantage over rivals. Its efforts not only improve the communities that organisations aspire to serve, but they also yield observable business results.
Intentionally including and using companies run by people from different backgrounds—particularly those whose identities have historically been marginalised in the business world—is known as supplier diversity. Promoting and assisting companies run by women, minorities, LGBTQ+ persons, veterans, people with disabilities, and other groups is the main goal of this idea.
Supplier-diversity programs frequently aim to improve the inclusiveness and equity of the business environment. Organisations that value this make a concerted effort to work with a range of suppliers to boost economic empowerment, competitiveness, and innovation in several areas.
The present situation of diversity in suppliers
The 2023 Economic Influence Report from industry leader Supplier.io states that supplier diversity has a significant influence on communities that are served by businesses as well as suppliers and the organisations themselves. They discovered:
- Support was given to 326 businesses, which resulted in the development of 1.3 million jobs
- $1.28 million was invested in diversely owned small companies.
- The community benefited by $1.80 for every $1 invested.
Measuring the effectiveness of supplier diversity initiatives is also crucial. Organisations that prioritize openness will be able to observe the direct effects of their supply chain diversification efforts on communities. Both employee support and consumer expenditure have a reciprocal influence on the community they aim to serve. Consumers want to have positive feelings about the companies they choose to do business with.
During an interview, Monette Knapik, CVS Health’s Head of Supplier Diversity, acknowledged that supplier diversity is now facing certain challenges. “Budgets are set based on the best price and diverse suppliers are sometimes not the lowest-cost supplier.” According to her, there is a chance for supplier-diversity specialists to collaborate more with expanding small and medium-sized enterprises as they expand, supporting them through growth challenges.
Regarding the current positive forces supporting supplier diversity initiatives, Knapik points out that “diversified suppliers are more nimble, often easier to work with, and bring innovative products and solutions.” To demonstrate the value and guarantee that leadership is sustained over time, supplier-diversity leaders must become more visible within their companies.
Case studies from industry leaders
Similar to DEI, there isn’t a single supplier-diversity strategy that works for everyone. It all boils down to setting priorities with consistency and intention over time. For instance, Knapik monitors supplier diversity at CVS, where there are four essential success factors:
- Performance and process management: Businesses must track the money they spend with a variety of suppliers as well as the suppliers of their suppliers. The communities that the supply chain serves must be represented throughout. Measuring responses to RFPs is another aspect of it.
- Communication and program branding: It’s critical to give the company a general explanation of the reasons for their supplier-diversity initiatives. It all comes down to the bottom line, creating a unique selling proposition, and improving communication with staff members, particularly those in employee resource groups (ERGs). For accountability and visibility, media exposure in editorials and ads is crucial.
- Building relationships: Businesses are more resilient when they have solid alliances with peer and industry groups, participate actively in conferences promoting diversity and the industry, maintain portals for diverse suppliers, and exchange best practices.
- Education and development: Partnering with universities to provide executive learning for suppliers and historically Black colleges and universities (HBCUs), and providing merchandising education to help reach retail buyers.
Another company that intentionally promotes supplier variety is Etsy. The foundation of their dedication to DEI is their goal of “Keeping Commerce Human.” The organisation is dedicated to openness and accountability in accomplishing its objectives, and it understands that welcoming a variety of viewpoints enhances its business.
Their main focus is on increasing the diversity of the workforce; women and non-binary people make up half of the board, the executive team, and almost half of the workforce as a whole. Presently, 12.2% of workers are Black, Native American, and Latinx, with a substantial rise to 8.7% in leadership positions.
Beyond hiring, Etsy’s diversity programs concentrate on the full employee lifetime through mentorship and employee resource groups (ERGs). Etsy is dedicated to creating a diversified marketplace. More than half of the photos of the creative team that they use in their marketing emphasise diversity with black or brown skin tones.
The organisation regularly examines diversity imagery in all platforms and highlights Black and Latinx owned businesses. Along with forming a black-owned business Etsy team with merchants, they have over 2,400 members, placing them in the top 1% of active Etsy teams and offering a friendly environment.
Businesses that maintain a long-term commitment to supplier diversity see improved business outcomes. By strengthening their ties to the communities they want to serve, they can maintain their relevance in the marketplace and draw in a wide range of talent, giving them a competitive edge.
(Tashia Bernardus)