We are seeing a shift in companies’ drive to work with diverse suppliers. Gone are the days when the sole goal of diversity specialists in procurement departments was trying to hit a number, to be in compliance with a government requirement. Today’s push for supplier diversity is because it makes good business sense.
Many global companies are recognizing the growth opportunities presented by supplier diversity programs, such as increased market share among customers, strong share price and faster innovation cycles. In fact, according to the Hackett Group Supplier Diversity Report (2008), “World-class procurement organizations commit close to 30% more, or more than 13% of total spend, to diverse suppliers, versus 10% for typical companies.”
So what do those companies know that others don’t?
Their target markets and competitors have changed. To stay relevant in a constantly evolving landscape, they must change too, which not only includes how they market their services, but who they are buying from.
For example, women account for more than 70% of consumer purchasing decisions, but are nearly invisible in global supply chains. To stay relevant with buyers, companies need to reflect their customer base in their products and services.
New Jersey-based Fortune 500 PSEG (Public Service Electric and Gas) is one organization committed to ensuring all aspects of its business reflect its customer base. Working with diverse suppliers not only fills a compliance need, but instills confidence in customers and makes a difference in its standing with the local community.
The benefits of working with diverse suppliers—that are often smaller, entrepreneurial enterprises—can include:
• Strong customer focus
• Intense stakeholder loyalty
• Speed to market
• Lower operating costs
• Agility and customer responsiveness
By virtue of its size and corporate DNA, a small, diverse, entrepreneurial company has the ability to respond quickly to customer requirements, and to collaborate on design and message in ways that will more effectively reach that marketplace. As the demographics of markets evolve, branding messages can reflect both the diversity of the supply chain as well as the diversity of the workforce.
All is not perfect of course. The same underlying strengths of a small, diverse supplier (agility, speed, lower operating costs) also account for their weaknesses (opportunistic vs. strategic; smaller capital reserves; sufficient capacity) which must be taken into account during sourcing efforts. It is important that sourcing and negotiating efforts reflect these realities if a company is to take full advantage of these relationships by taking costs out and improving delivery time of products and services.
The process of managing supplier diversity programs is in its early stages and companies are still learning how to identify diverse suppliers best suited for their needs. As more companies master that first step to sustaining supplier diversity programs, the definition of success will shift. Success will no longer be solely finding the right supplier to meet compliance needs, but finding the right partners that fulfill a business need, contribute to the top and bottom lines and enhance the company’s standing in the market and with its audience.
Mike Krechevsky is principal consultant and founding member of D&B Supply Management Solutions. His current work focuses on sustained development and standards for the measurement of carbon footprints; detection of the use of prohibited materials in the supply chain; and human rights violations in the workplace.