Best Practices: Supplier Diversity
4 November 2021
Why is Supplier Diversity a Best Practice?
As a procurement professional, how can you demonstrate a commitment to equity and fairness and promote your local economy? Promote supplier diversity! Not only can diversity in your supplier pool create those benefits, but it also allows your organization to comply with existing regulations and prompt behavioral changes in large, seemingly immovable, contractors.
As Darin Matthews states in Mercell’s “Best Practices: Supplier Diversity” webinar, supplier diversity, “…can promote and bolster the local economy. It will contribute to your local tax base when you do business with a local supplier, it also provides local jobs – their employees will work locally. And also when those employees receive a paycheck, that provides an opportunity for discretionary spending within your community, so it is really a trickle-down effect.”
65% of new jobs since 1996 have been created by small businesses and 50% of the working population (120 million individuals) work in a small business. In the United States alone, 28 million small businesses operate day-to-day while only 50% of small business start-ups last at least 5 years. These small businesses are experienced, certified, bonded, and insured, so why are so many failing? In reality, supporting small businesses is often falsely equated with costing your agency more money. However, small and diverse businesses actually increase competition and lower costs.
“If you cast a broader net and you invite more suppliers including small and diverse suppliers, you can actually increase your competition on your project and that puts downward pressure on price.”
Darin Matthews
Strategies for Promoting Equity and Inclusion
In fact, many regulatory agencies in the U.S. have already recognized the benefits of employing diverse businesses and have put into place actions that encourage (or require) agencies to look towards small, women-owned, minority-owned, and veteran-owned businesses, to name a few categories.
- Package projects appropriately
- Review bonding and insurance requirements
- Consider the use of goals (aspirational, mandatory)
- Be clear of your expectations in the solicitation
- Provide training to small and diverse businesses
- Provide training to internal customers
- Participate in business community events
- Solicit feedback from diverse businesses and associations
”When you create more small businesses, you create small entrepreneurship. Out of that comes self-determination and employment.”
JESSE JACKSON
Supplier Diversity in Other Literature
In the Journal of Supply Chain Management (2020), authors Li and Blount decided to conduct a study on how buyer’s attitudes across the United States and United Kingdom correlated to and impacted supplier diversity. The two collected their data qualitatively through surveying 277 buyers at large purchasing organizations . The goal of the study was to analyze factors that impact the willingness to procure goods and services from ethnic minority businesses. The study reveals that in both the United States and the United Kingdom, positive social capital such as innovative ideas, reciprocal relationships, and useful insight has a clear relationship with their expenditures with ethnic minority businesses. This finding highlights the importance of doing more than just meeting a quota for ethnic minority businesses. It is about fostering long lasting reciprocal relationships and seeing the value in ethnic minority businesses.
In “ISM World 2021: Doubling Down on Supplier Diversity,” Sue Doerfler summarizes how companies in 2021 have steadily made an upward increase in their supplier diversity. She notes in the procurement world, the notion of meeting all aspects of an agency’s social responsibility is a buzzing topic and of utmost importance. The diversity spend is no longer just a conversation. There is a distinct move to foster relationships with diverse suppliers and ensure they always have a seat at the table. There is a clear increase in companies releasing reports on their spending metrics, participating in conferences that voice the needs of minority and woman owned businesses, and fostering deeper relationships with these suppliers. A consideration that must be noted alongside the positive increase in supplier diversity, is that regardless of the desire to diversify spend, there is no guarantee that these changes will come all at once. however, it is the continual effort and motivation that must never be overlooked.
Summary
In summary, small and diverse businesses play a key role in our economy. Diverse business enterprises are qualified and experienced, and your agency wields the power to “set the bar” for supplier diversity. At the end of the day, partnering with diverse suppliers is just good business.
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