More than just charity
We often hear of companies participating in supplier diversity programs, and the standard reasons for their participation. Some companies say that it is a testament to their commitment as a socially responsible organization while others say that it is their contribution to society. We also see some companies implementing supplier diversity initiatives to meet customer mandates, to leverage governmental initiatives, or to comply with federal supplier requirements.
The truth is, many companies that practice supplier diversity feel that they are making a sacrifice just to contribute to society, or are merely doing these non-mainstream businesses a favor. However, if they take a closer look, they will find that there are significant benefits to supplier diversity – not only for suppliers and their supply chains, but also for their business.
Greater return on investments
An article from The Wall Street Journal mentioned a research by the Hackett Group that showed actual financial benefits in business relationships with diverse suppliers. The Atlanta-based company demonstrated that companies focusing “heavily on supplier diversity” generated a 133% greater return on procurement investments than the typical business.
Researchers from the Hackett Group discovered that these organizations – a majority of which are world-class – often had lower operating costs. These companies spent an average of 20% less on their buying operations, and the number of their procurement staff is less than half of their peers who do not have supplier diversity programs in place.
Working with a diverse group of suppliers such as women- or minority-owned businesses was often initiated by companies out of goodwill, without the expectations of positive financial impact. Furthermore, supplier diversity programs were thought to increase costs and administrative workload. However, the findings by the Hackett Group strongly suggest that this is no longer the case. In fact, the growth of minority-owned businesses has more than doubled over the past decade.
Gwendolyn Whitfield’s article on supplier diversity as a competitive advantage showed that there are over 2 million minority firms in the US that have been generating $205 billion in sales annually, from as early as 2008. Between 1997 and 2002, approximately 50% of growth by all American firms came from minority businesses alone. Minority-owned businesses are now a healthy pool of economic resource. Their spending power in the year 2000 was over $6.5 billion, with non-diversity companies accounting for nearly 80% of that purchasing power. With the growth of minority-owned businesses, however, minority purchasing power alone is projected to surpass $2 trillion by the end of 2015.
Access to a whole different network
In an interview with My Purchasing Center, Nancy Huff – Sourcing Solutions Manager at business processing, technology, and procurement service provider Xchanging – spoke of many tangible benefits that come with a supplier diversity program. She said, “Supplier diversity is no longer a business catch phrase; it is a fundamental element of supply chain management. It’s promising to see that many small and large organizations have recognized the benefits of implementing supplier diversity programs and are implementing them voluntarily and willingly.”
The most interesting point Nancy made in her interview was about “first-mover advantage”. She explained that companies that take the time to properly implement a supplier diversity program are in a better position to penetrate new market segments and gain new customers. This is because different suppliers operate in different business networks. Additionally, companies can benefit from supplier certification bodies. For example, the Women’s Business Enterprise National Council (WBENC), WeConnect and Women Presidents Organization (WPO) are organizations that certify women-owned businesses. These certification bodies often hold events for networking and nurturing business opportunities. And for companies that are looking for supplier diversity, organizations such as WBENC can offer them access to the supplier database.
Connect better with customer base
Xchanging’s Nancy Huff also noted that being part of a supplier diversity program has a great impact when connecting with customers. Companies with a diverse customer base send out a strong message about their brand when they also choose to have diversity in their pool of suppliers. Companies that target women or a particular minority group will find it especially advantageous to work with women- or minority-owned businesses.
Ultimately, these business relationships facilitate free enterprise. Companies that work with companies of a supplier diversity status inevitably find themselves contracting with smaller businesses. And because these smaller businesses typically have close ties with their local communities, these local communities’ businesses, as a whole, will benefit in terms of an expanded customer base and a surge in job creation. This promotes economic growth all around.
Supplier diversity is not without its challenges, the biggest of which is the tendency for these diverse suppliers to be smaller-sized companies. It is a struggle for them to produce the same output at the same cost as larger, non-diverse suppliers. This is one major factor that discourages companies from practicing supplier diversity.
However, we cannot ignore the fact that women- and minority-owned businesses have seen larger growth compared to other businesses. Their spending power have also increased substantially over the last decade.
Supplier diversity programs are no longer seen as mere acts of charity. Backed by a substantial amount of support, women- and minority-owned enterprises are showing their true business prowess. The next step is for companies to shift their perception and see that supplier diversity can indeed positively impact their business.
Contributed by Kelli Saunders.
About Kelli Saunders
Kelli Saunders started Morai Logistics Inc,in 2010 as an agent for Mode Transportation, a leading third-party logistics company. Offering a full range of logistics services, the company provides domestic, cross-border (Mexico, US, Canada), and international logistics. Kelli has received numerous awards for her expertise in strategic sales and as a small business owner, including Salesperson of the Year for four consecutive years (Mark VII, Exel, Mode; 2000-2004). She was also honored with WeConnect Canada’s Doing Business International Award for Morai Logistics in 2012.