Expanding your supplier base is increasingly critical as companies realize the importance of having a wide array of sourcing options on their books. And a well-rounded roster requires as much diversity as possible.
Including in your supply chain businesses that are majority-owned and operated by minorities, LGBTQ, veterans, people with disabilities, and women widens the potential supplier pool and promotes competition in the supply base. This, in turn, improves product quality and reduces costs. Your supply chain is more resilient and agile when it is diverse.
For years we’ve known that adding diversity to a supplier base helps businesses weather economic downturns, manage shortages, and bring new products to market more quickly. Now we’re seeing that supplier diversity is assisting businesses to recover from the COVID-19 pandemic because diverse enterprises tend to be more innovative and can help companies serve emerging and untapped markets.
And of course, there are community benefits from supplier diversity; providing opportunities for disadvantaged communities is crucial for the overall society, since the ultimate economic development resource is not capital or raw materials—it’s people.
But setting up a supplier-diversity program isn’t without challenges. There are plenty of pitfalls to avoid. Sometimes simply finding qualified suppliers and sustaining your program over time is the biggest challenge. A successful supplier-diversity program requires good planning, commitment, and buy-in from across the organization.
Here are eight crucial steps to ensure your diversity program is a success:
There is a host of reasons to make your supply chain more transparent—and greater diversity is one of them. A significant factor for any supplier diversity program’s success is removing the obstacles standing in the way of your diversity goals. By sharing the details of what products and services your organization needs, you can help minority suppliers identify how to engage with you. For instance, Shell Oil Company has an extensive resource center for small businesses to learn how to work with the petroleum giant.
It’s likely through the process of increasing supply-chain transparency that you will identify diverse suppliers that already exist in your supply chain and your current spend with those suppliers. Once identified, detail the diversity category and spend information for each supplier so that you have a better understanding of the current level of diversity among your suppliers.
Diversity programs aren’t homogenous. It’s essential to determine in which areas you hope to improve your diversity: Perhaps you’re looking for more women-owned businesses. Maybe you want to have more racial diversity in your supply chain. Once you’ve decided your diversity targets, create a policy statement defining these groups so that internal stakeholders and buyers understand what to look for and how to evaluate new suppliers.
Commitment to supplier diversity needs to start at the very top of the organization. Every firm on Diversity Inc.’s Top Ten Companies for Supplier Diversity has a CEO who personally signed off on goals and metrics. Once the CEO has bought in, you need to appoint a senior manager to lead the program. This person should have control over corporate purchasing. It also helps to find diversity champions throughout the organization to raise awareness and identify opportunities for achieving diversity targets. Above all, educate your employees and colleagues on the benefits and business imperative of increasing supplier diversity.
Like any business strategy, supplier diversity only becomes a reality when it’s ingrained in the organization’s day-to-day systems. Make sure your procurement function has supplier diversity integrated when it comes to placing orders and tracking data. The more comprehensive your metrics, the better. Suppose your organization hasn’t already done so. In that case, digitization and automation not only improves the overall procurement function, it also makes supplier diversity more manageable by helping you track and analyze spend per supplier and supplier category.
Helping diverse suppliers meet your selection criteria is a tide that lifts all boats. A good supplier training program provides actionable steps to help suppliers successfully win your business. They not only help prospects build capacity, gain access to capital, and become more “contract ready” for your organization, but they also provide you with early access to innovative and growing firms. For instance, Oracle offers a web-based educational program to help diverse business owners navigate its supplier diversity qualification process. Similarly, Macy’s department store chain offers workshops and educational resources that support minority and women-owned business initiatives.
Supplier diversity goals should be integrated into your organization’s sourcing strategy, encouraging buyers to be proactive in engaging diverse suppliers and ensuring the screening process is fair and consistent. Beyond process integration, procurement professionals can leverage their business networks and utilize specialist organizations like the Women’s Business Enterprise National Council, the National Minority Supplier Development Council, and the U.S. Hispanic Chamber of Commerce to find certified suppliers.
Whatever forms and contracts you require suppliers to complete as part of the onboarding process, make sure they also fill out a business classification form that includes diversity. Decide what diversity categories and certifications your program wants to use—either self-classification or a classification standard like Intel’s—and have new suppliers provide any third-party diversity certifications they’ve earned. The point is to capture as much data as you can to document and monitor your program.
Once you establish your program, you must continually monitor and improve it over time. Annual audits help you verify that activities and results align with policies and plans. Feedback from both internal stakeholders and outside suppliers is vital to ensure everyone up and down the supply chain meets expectations. Highlighting program success stories is a way to maintain momentum and pride in the organization. Many organizations use a dedicated space on their website to draw attention to diverse firms with which they do business.
A conscious effort to improve diversity in your organization’s supply chain will create not only a more robust supplier base for your company, but it will also help fuel growth and strengthen the overall economy.