Supply Chain Diversity: More Than Quotas
- by Rod Robinson
Did you make any New Year’s resolutions this January? How many of those commitments have already fallen by the wayside? Here are some important reasons you shouldn’t let implementing a diverse supply chain program become one of those “should have, could have, didn’t” items on this year’s to-do list.
While supplier diversity is just one element of modern supply chain planning, it’s becoming increasingly important to private companies, government agencies and nonprofits. Supplier diversity means building a strong commitment to creating and maintaining a supply chain that ensures the inclusion of diverse groups in procurement plans, including women- and minority-owned businesses.
More Than Quotas
It’s a mistake to think of supplier diversity as just a quota system or as a social program designed to help particular social groups—while adding minimal value to your supply chain. In fact, a commitment to meaningful supplier diversity can give your organization a measurable competitive advantage in several ways:
- Greater return on investment (ROI). A past study by the Atlanta-based Hackett Group showed financial benefits from business relationships with diverse suppliers. Based on a study of 50 companies from both the service and manufacturing sectors, the research demonstrated that companies with a strong supplier diversity focus generated a 133 percent greater procurement ROI than the average comparable business, generating an additional $3.6 million to their company’s bottom line.
- Lower operating costs and higher profits. These same companies spent an average of 20 percent less on their buying operations and reported procurement staffing levels less than half of staffing levels at similar companies without supplier diversity programs. The statistics also showed that companies that pursue a diverse supply chain are more profitable than companies that don’t.
- New business opportunities. A strong commitment to supplier diversity can also promote innovation by introducing new products, services and solutions; expand your range of procurement channels for goods and services; increase competition on price and service between current and potential vendors; open new opportunities for business expansion by highlighting new consumer needs driven by shifting demographic trends; and display your organization’s commitment to doing business in multicultural markets with rapidly growing consumer groups.
Reaping the Rewards
Progressive companies are leading the way in a multicultural marketplace by finding creative new ways to incorporate supplier diversity into their business processes. Two big examples are Wal-Mart and IBM. In 2007, Wal-Mart spent more than $3.9 billion with nearly 2,000 minority-owned suppliers, using community outreach to help develop its network. As Hispanic businesses scale up, Wal-Mart is using them to meet customer needs. For example, Ruiz Foods, the largest Mexican frozen food company in the U.S., is one of Wal-Mart’s largest domestic product suppliers. IBM was the first IT company to pass the $1billion mark with minority suppliers. In 2007, IBM spent $2.3 billion with diverse companies in business services, facility management, travel and technical subcontracting.
Many companies and organizations set out to implement a diverse supplier group with no real expectations of a tangible return on investment. They may even anticipate higher costs and a greater administrative burden.
The pleasant surprise is that a robust supplier diversity program doesn’t have to cost more and can bring unexpected business benefits that help your bottom line.
Editor’s note: The original version of this article appeared on Feb. 1, 2016, on the ConnXus Blog.