What is supplier diversity? – Supply Chain Game Changer™

With all of the societal issues surrounding race, racism and discrimination, it is important to understand how this affects the supply chain and what role the supply chain plays in this area.

In procurement in particular, there is a story associated with attempts to channel spending in diversity-owned companies. There have certainly been successes and failures, but the underlying intention of creating business opportunities for those who would not otherwise have the opportunity still makes sense.

In this article we would like to examine the history and status of supplier diversity. For some this is self-evident, but for too many others this is not understood or even known.

What exactly is supplier diversity?

Supplier diversity defined

According to Wikipedia, supplier diversity is defined as follows:

“A supplier diversity The program is a proactive business program that encourages the use of minority, women, veteran and LGBT-owned products [1]owned by disabled veterans, historically underutilized business and small business as defined by the Small Business Administration (SBA). [1] as suppliers.

It does not directly correlate with supply chain diversification, although utilizing more vendors can improve supply chain diversification. Supplier diversity programs recognize that sourcing products and services from previously underutilized suppliers helps sustain and incrementally transform a company’s supply chain, thereby quantitatively reflecting the demographics of the community in which it operates by transacting with diverse suppliers are recorded.”

CAMSC defines supplier diversity as:

“Supplier Diversity is a strategic business process aimed at catering to indigenous and minority owned businesses the same chance to become suppliers for large companies across Canada and the USA.

It is an initiative by companies to ensure they include suppliers from diverse backgrounds in their supply chain practices, while embracing the opportunity for competitive advantage and community engagement that comes from working more closely with a broader spectrum of indigenous and minority suppliers.”

Many different companies and organizations have adapted their definitions of supplier diversity, but the core elements are all the same. Basically, it’s about engaging vendors who might not otherwise get the same opportunities that are available to other, often larger, and majority demographic vendors.

story

Business Equality Magazine notes that “Supplier diversity has its roots in American civil rights legislation of the 1960s. Prior to the Civil Rights Act of 1964, a 1961 executive order by President John F. Kennedy amended a federal regulation to consider affirmative action for federal contracts.”

From that point on, more and more companies started their own supplier diversity programs.

A great video on this story is provided by the National Minority Supplier Development Council (NMSDC):

A history of supplier diversity

For my part, I first heard about supplier diversity as an initiative within the procurement function (or merchandise management) over 30 years ago. At the time it was referred to as MWBE (Minority or Women Owned Business Enterprises) and soon after became MWVBE (Minority, Women or Veteran Owned Business Enterprises).

I remember that we received lists of MWVBE suppliers from the parent company, most of which are based in the US. The stated goal was to look for all possibilities to include these suppliers in possible offers and to award this order to them if possible. If an MWVBE supplier made a bid on a commercial level, if they were competitive and could meet all the performance requirements, they should be awarded that contract.

I remember that the general reaction from the shopping community at the time was anything but aggressive.

Firstly, most of the suppliers we were informed about were not production material suppliers but rather non-production or indirect procurement spend or just MRO candidates. Our spend in this area was relatively small, which significantly reduced the opportunity.

Secondly, most of the suppliers were extremely small and it was difficult, to say the least, to find matches between what they provided and what we needed. Given the small amount of money they could potentially afford for the effort required to find these matches, the payback was overwhelming.

The third largest suppliers were not located close to our locations and were unable to meet the need for on-demand delivery.

Fourth, the Commodity Management Procurement Team was not measured in any way in this program. Their primary goal was cost savings, and to achieve those goals their efforts had to be focused on high spending areas. Lower spending opportunities received much less attention.

Finally, there just wasn’t enough concern, care, or focus on the importance of supplier diversity. Whatever excuses there were in terms of resources, leadership, measurements, suppliers or anything else, they were just excuses. There is no getting around the fact that it wasn’t considered important and didn’t receive significant attention.

All in all, I would say that our initial focus on supplier diversity failed.

Why some succeed and others fail

While many supplier diversity programs are successful, my experience of being in a failed program is not unique. Many diversity initiatives fail or at least fall short of their overall goals.

What are some of the key factors in the success and failure of programs?

  • Executive level support or sponsorship
  • Culture of accepting change or creating resistance
  • Visibility or database of different suppliers
  • Resources and commitment to find, develop, promote and maintain diverse supplier relationships
  • Reluctance to squeeze out established, undiversified suppliers
  • Robust metrics and accountability to drive diversity supplier spend
  • Return on investment, competitiveness and ability to meet expected conditions

Conclusion

Dealing with different suppliers offers many fantastic benefits for both the customers and the suppliers. But as with many programs or initiatives, this area can be very difficult to make progress unless it is embedded in a company’s core procurement process and culture.

There is no place for racism or discrimination in our society. Leading and participating in a successful supplier diversity program is a great way to nurture, develop and grow these great companies and the great people who are a part of these companies. You deserve to receive the opportunities that are the promise of any supplier diversity effort.

Originally published September 15, 2020.

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