2020 brought us a time of reflection on many fronts, from how we eat to how we prioritize, how we think, how we get from point A to point B, to focusing on what matters. Diversity is one of the elements that came to the forefront in 2020 for many people and organizations.
As an immigrant and a minority woman, I never thought that we would be at this place in my lifetime where an open discussion of diversity occurs because I have seen how much of it was shunned systematically in the past.
So, what is diversity in the context of an enterprise? What does it mean to stakeholders who are employees, customers and organizations' partners? Many have boldly questioned their organizations, leaders and value systems to recognize that this critical dialogue is well overdue.
Brands are also painfully learning the term "stakeholder capitalism," which focuses on the enterprise's Environmental, Social and Governance (ESG) attentions. As a result, company leaders are working to figure out how to incorporate it into their business strategy and operations. This discussion will focus on diversity, which is the "Social" aspect of ESG.
Diversity requires improving inclusion, equity and belonging. For the inclusion aspect of diversity, enterprises have an opportunity to reflect in three distinct areas:
- The customer base that we serve and how we interact with them
- The employees we rely on to help us execute and improve what and how we do things
- Suppliers and partners on whom we rely for running our businesses
Having observed a few things over my career, I wanted to share some tips on how enterprise procurement teams and stakeholders can partner to improve supplier diversity in their organization. Importantly, I'd like to note that the customer base and employees rightfully warrant separate discussions because the dialogue on diversity has reiterated that how an organization treats its customers and employees matters. These groups aren't mutually exclusive, but for the sake of this article, we'll leave that for another conversation.
The dialogue on improving diversity initiatives among employees is no longer a back-burner issue. It is also leading to a discussion on increasing spend among diverse suppliers. As Procurement professionals, we make decisions based on metrics and KPIs. It has become clear that the stats for employee and supplier diversity have been underperforming.
On the people side of the equation, enterprises have enacted new organizations, expanded HR or similar functions to spin-off Diversity, Equity and Inclusion departments. These departments are tasked with improving employee diversity in hiring, promotions and retention, which they were already supposed to be doing over the past decade.
If the right accountabilities were in place with adequate monitoring and measuring as intended, it would not have necessitated such a revisit. It might have alleviated many of the events that took place in 2020. Considering the better late than never approach, hopefully, we can put in place the right metrics and measurements to rectify past transgressions.
The events of 2020 have also pushed Procurement teams to seek solutions to improve diversity. Organizations that have been actively working to improve their supplier diversity spend are vying for a seat at the Billion Dollar Roundtable. So, it brings to question why these enterprises are also rushing to enhance their supplier diversity, given they were already working toward it?
The answer is simple: there were no metrics or measurements tied to accountability. Although the Chief Procurement Officer was typically responsible for improving these metrics, no penalties existed for not reaching against other metrics such as achieving savings, which is the number one goal for the CPO and Procurement personnel.
Another interesting dynamic that conflicted with increasing supplier diversity has been this concept of "supplier rationalization," which essentially reduces the number of suppliers in the organization. This goal that many of the enterprise organization CPOs are held accountable to conflicts with achieving supplier diversity since many "diverse suppliers" are smaller, so you would need more suppliers to support specific areas.
This niche or smaller size leads to the notion that smaller or diverse suppliers cannot compete with larger vendors that can provide the savings necessary or perhaps wouldn't have the knowledge or resources to support large organizations. With more efforts required from both Procurement or business teams to engage with smaller suppliers, it has been approached half-heartedly to "check the box," leading to the normalization of the notion that diverse or small suppliers aren't good enough to operate in a larger enterprise.
Interestingly, even if the CPO had the responsibility and accountability for supplier diversity, budgets and buying decisions aren't held with the CPO, but rather with the business stakeholders for whom supplier diversity was never even in scope for accountability.
This lack of accountability resulted in diversity initiatives being out of sight and out of mind. It has been rare to see a business stakeholder pushing for inclusion and selecting a diverse supplier in their decisions. Procurement teams saw it as a push from the business when the stakeholder already had an established relationship and was interested in awarding business to the diverse supplier. Hence, their status became an additional selling point, even if their rates or costs were higher than other bidders.
This higher cost status caused angst by impacting Procurement's savings metrics, leading to conflicts with the business on the importance of savings vs. getting the job done. Organizations can achieve savings and quality through a well-meaning partnership between Procurement, business, and supplier teams.
Where Diverse Suppliers Excel
The fact remains that larger suppliers have more access and capital to win business at a lower price. We can easily see this on the consumer side from the Amazon and Walmart effect. A small shop retailer attempting to compete with Amazon and Walmart, for the most part, would be challenged in terms of providing better or comparable prices since they don't have the volume to get those prices from the supply chain. Thus, many smaller shops focus on quality, delivery, personalization, customer service and other premium services to help them stand out. This personalized approach is where a "diverse supplier" can excel for large enterprises.
So, when a CPO is held accountable and rewarded on a metric that reduces suppliers but increases savings, we will gravitate toward "pulling in the volume" to improve our savings metrics against which performance is typically measured.
As to why that is, I would invite you to read one of my previous articles on this topic around The Case for Changing the Chief Procurement Officer Role to gain additional insights.
Part 2 of this article will focus on tips for shaping the future of supplier diversity in the enterprise.