Why Executives are Doubling Down on Supplier Diversity Initiatives
A cultural push for ESG (environmental, social and corporate governance) initiatives and the tech companies that support them have been paving the way for an even deeper and broader shift to a new economy. Customers are much more informed about how companies work and what they stand for — from energy use to safe working conditions and beyond — and this is shaping how companies operate.
Under the umbrella of ESG is diversity, equity and inclusion (DEI). DEI has become a board-level topic for many companies, especially supplier diversity, undoubtedly accelerated by consumers’ push for change. Many leading organizations in 2020 announced their financial commitments to boosting racial equity initiatives and publicly launched supplier diversity programs. These programs are geared toward utilizing minority-owned, women-owned, veteran-owned and certified small businesses as suppliers so that historically underrepresented communities gain economic opportunity.
While it’s true that supplier diversity is a reputation-builder and a tool for brand awareness, it’s not just a vanity metric. Of course, there will always be people who are disingenuous or performative in their diversity efforts, but informed decision makers are viewing supplier diversity through both an ethical and business lens. Here’s how.
1. Supplier diversity initiatives increase profitability
Research, time and time again, has shown that business results or sales revenue can actually hinge on supplier diversity. Supplier diversity being linked to profitability has become even more obvious throughout the last two years of shortages and supply chain disruptions. A diverse supplier base leads to a robust network and optimized contingency planning when supplier contracts fall through. In effect, supplier diversity doesn’t only serve the underrepresented, it also promotes a more competitive, resilient supply chain, and can by and large decide whether products get to consumers.
2. Supplier diversity programs retain talent
Business leaders also recognize that when supplier diversity is tied to the core of what a company does, it helps retain both customers and talent which has been crucial during a time of widespread labor shortages. This isn’t meant to be hackneyed marketing fodder. In 2021, a survey found that nearly 80% of 8,233 employees want to work for a company that values DEI. Many employees, especially those in procurement with the right resources, can uphold supplier diversity efforts in their day-to-day jobs leading to a deeper sense of purpose and job satisfaction.
3. Supplier diversity programs are impressively easy to launch
So, beyond the obvious business value, why are so many companies taking immediate steps to launch supplier diversity programs? There are, after all, plenty of other business problems to tackle. From our perspective, it’s today’s availability of cost-effective spend analytics technologies that make it very easy to catapult a supplier diversity program. Specifically, spend analytics technology provides a dynamic pulse on supplier spend, which can then be broken down for diversity insights. As Spend Matters analysts wrote:
“The first step with any diversity program should begin with understanding your spend and your current vendors. To accomplish this, you absolutely need to invest some time and resources in spend reporting. This is also known as spend analysis, although supplier diversity requirements may introduce certain nuances beyond standard spend visibility requirements (e.g., multi-tier reporting).”
It’s true that many spend analytics providers cannot alone drive supplier diversity efforts. After an organization gathers all of its spend data (made simple with a spend analytics tool) it often shares the spend data with a third-party firm in order to gather any diversity metrics. The third-party firm will sort through the data, match it against other official data sources and flag any certified SMWBE suppliers. However, getting expensive firms involved is no longer necessary, and we wouldn’t recommend it given that it only provides temporary insights. Organizations have to consider the long-term stability of their supplier diversity programs.
For example, many companies will conduct spend analysis and hone their supplier base to meet diversity goals. They may even work with a consultant to break down their diversity metrics by geography, spend category, pricing and other factors. Too often, however, they then experience unforeseen challenges such as delivery or capacity constraints by small businesses, cross-border regulatory issues, outdated or false self-certifications by business owners or a lack of visibility into supplier practices beyond tiers 1 and 2.
Companies should have a verified, granular and ongoing view into their contracted (and uncontracted) diverse suppliers, like they should with all their suppliers, otherwise, companies get trapped in a cycle of merely meeting diversity quotas and little else. Reaping the benefits of a supplier diversity program (and encapsulating its intentions) requires parameters that sustain a diverse, competitive supplier base.
At SpendHQ, we partnered with supplier.io to help our customers set those parameters. Our customers get easy-to-use dashboards and reporting features through which they can ongoingly deduce their diversity metrics based on their existing supplier base. They also have an option to get an insights feature from over a million suppliers with certifications validated by over 300 trusted agencies around the world.
Suppliers in the database stay up to date on their certifications and customers can optimize their supplier relationships. If your company is going to launch or improve a supplier diversity program, be equipped with spend analytics and supplier diversity technology so you can realize and report on the benefits in your next shareholder meeting. Employees get to ‘actually’ see their impact in numbers and feel empowered. Reporting tangible results is what gets the ball rolling (and rolling and rolling).