Supplier diversity has been an important topic on the corporate agenda for most of the past five decades. Formal supplier diversity programs
began in the 1960s in response to government programs that were designed to expand economic opportunities for minority-owned businesses. Today, “diverse suppliers” encompass several additional types of business organizations, including:
- Woman-owned business enterprises
- Veteran-owned businesses
- Service-disabled veteran-owned businesses
- Disabled-owned businesses
- Small business enterprises
- Historically Underutilized Business Zone (or HUBZone) businesses
- LGBT-owned businesses
Business leaders have become more focused on supplier diversity during the past few years largely because of changing customer expectations. Research indicates that today’s consumers – especially younger consumers – are more aware of the “social practices” of the companies they do business with and are increasingly demanding that companies have good corporate social responsibility records in order to win their business.
The State of Supplier Diversity
A recent study by CVM Solutions provides several important insights about the current state of supplier diversity programs. The 2018 State of Supplier Diversity Report – Supplier Diversity Programs was based on a survey of supplier diversity professionals that produced 124 qualified responses. Survey respondents were drawn from companies in 18 industries/sectors and represented companies ranging in size from fewer than 1,000 employees to more than 20,000 employees.
When survey participants were asked to identify the primary drivers of their supplier diversity programs, the most frequently selected factors were:
- Corporate social responsibility (72.3% of respondents)
- Alignment with corporate culture and workforce inclusiveness (65.8%)
- Customer requirements (55.5%)
The CVM research also found that spending with diverse suppliers is significant
. About 47% of the survey respondents reported that 10% or more of their Tier 1 supplier spend is with diverse suppliers. Equally important, more than two-thirds of respondents whose companies have fewer than 1,000 employees said that at least 10% of their Tier 1 spend is with diverse suppliers.
CVM also found that the perceived effectiveness of supplier diversity programs is increasing. In the 2018 study, 32% of the survey respondents rated their programs as very effective. That was up from 25% in the 2017 version of the survey. Another 40% of respondents in the 2018 survey said their programs are somewhat effective. So in 2018, nearly three-fourths of the respondents in the CVM research were generally satisfied with their supplier diversity efforts.
A View from the Front Lines
I recently spoke with Lamont Robinson, the founder and CEO of Robinson LaRueCo Consulting (RLC)
to get a perspective from someone who works in the supplier diversity space on a daily basis. RLC helps companies increase diversity in their supply chains by developing and implementing effective and sustainable supplier diversity programs. Lamont Robinson has been a leader in the supplier diversity arena for the past 14 years and was the 2010 recipient of the Corris Boyd Leadership and Diversity award from the Federation of American Hospitals.
Mr. Robinson told me that the impetus for increasing supplier diversity has evolved over the past 50 years. In the late 1960s and 1970s, the primary motivation for improving supplier diversity was compliance with governmental programs that emerged from the U.S. civil rights movement. Later, some enterprises were motivated to launch supplier diversity programs because increasing diversity was viewed as “the right thing to do.”
Today, Mr. Robinson argues, supplier diversity has become a business imperative. Business leaders increasingly recognize that effective supplier diversity programs can have a significant impact on top-line and bottom-line business performance. As a result, many companies are now linking their supplier diversity efforts to their overall business strategy.
According to Mr. Robinson, the business case for a supplier diversity program should be based on an evaluation of six related factors, which he calls the “Six C’s” of supplier diversity:
1. Community – An effective supplier diversity program will be embedded in the communities the business serves, which means that the program should reflect the social interests of the community.
2. Customers – Research indicates that consumers – particularly millennials – now expect the companies they do business with to act in ways that are socially responsible. Therefore, business leaders must consider current and emerging customer expectations when designing supplier diversity programs.
3. Competition – Every business operates in an environment where the actions of competitors can affect company performance. So, business leaders must stay aware of what their competitors are doing to improve supplier diversity.
4. Compliance – This is a basic but still important factor because federal and state diversity spend mandates continue to pressure some companies to implement supplier diversity programs. The key for companies is to have processes and technologies that enable them to classify diverse suppliers and track spending with those suppliers.
5. Customization – One frequently undervalued benefit of supplier diversity is that diverse suppliers can be an important source of innovation for larger enterprises. In many cases, small firms have greater flexibility to innovate, and companies can gain the benefits of this innovation by working with small suppliers.
6. Costs – Reducing costs will always be an important priority in most companies, and until recently, managing a large number of small suppliers would add costs to the procurement process. Today, however, digital procurement technologies can enable companies to work with small suppliers without significantly increasing indirect procurement costs. As a result, supplier diversity goals and cost savings goals are no longer necessarily incompatible.
As far as the future is concerned, Mr. Robinson believes that supplier diversity will come to be seen as an important source of revenue, not just as a cost center. He also expects supplier diversity efforts to continue to expand on a global basis.