Supplier diversity has become an important factor in improving bottom-line results, such as decreased supply costs via supplier competition, and product innovation through the entrance of new products, services, and ideas.
What is Supplier Diversity?
In its most simplistic form, a supplier diversity program is a business program that injects diversity into the supply chain through the acquisition of goods and services from diverse business enterprises. Supplier diversity gives companies owned by women, minorities, LGBTQ people and veterans an opportunity to compete and showcase their abilities and to win business. Many diverse suppliers are also small to mid-size businesses, where your support can make a big impact.
Types of Diverse Suppliers
Diverse businesses are generally certified by various agencies, including the National Minority Supplier Development Council, Women’s Business Enterprise National Council (WBENC), the National Gay & Lesbian Chamber of Commerce and Vets First Certification Program, among others, as well as those of cities, states and other entities.
Most diversity certification programs require that the owner control at least 51% of the company and also provide interviews and office tours, as well as submit tax returns, lengthy forms and other documentation. These items are then carefully reviewed by the certifying agency, and if granted, the certifications must be renewed annually.
Most supplier diversity programs will contract only with certified businesses. The certification progress is lengthy, thorough and verifies that a diverse owner is actively involved in the day-to-day running of the business and is not just a figurehead.
Why are supplier diversity programs important?
Supplier diversity programs add economic value because they encourage the growth of diverse businesses, benefit the local community, the greater economy, and the purchasing company. Diverse businesses typically encounter societal barriers that challenge their startup and sustainability efforts, such as access to capital and networking opportunities. Effective diversity supplier strategies can alleviate these pain points.
Diverse owners view these programs not as a handout but, rather, as a hand up, a way to get their foot in the door for opportunities that might not otherwise come their way. These are entrepreneurial businesses that are simply asking for a chance to show – and deliver on – the goods and services they offer.
In the legal world, the Mansfield Rule, inspired by a winning idea at the 2016 Women in Law Hackathon, measures whether law firms have affirmatively considered at least 30 percent women, attorneys of color, LGBTQ+ and lawyers with disabilities for leadership and governance roles, equity partner promotions, formal client pitch opportunities and senior lateral positions.
Corporate supplier diversity
Companies with advanced supplier diversity programs are utilizing supplier diversity as a strategic sourcing tool to improve business efficiency and to obtain more competitive pricing for goods produced. Supplier diversity helps drive revenue while promoting broader economic activity.
Corporate diversity goals can be met not only by using diverse direct suppliers but also by encouraging their direct suppliers to use diverse suppliers. As an example, outside counsel for a corporation could assist in meeting the corporation’s diversity goal by using a woman-owned court reporting firm, what is called a “Tier 2 diverse supplier” under this scenario. This process allows the full beneficial effects of diversity spending to be realized more deeply throughout our economy.
The bottom-line benefits of a diverse corporate supply chain are straight forward:
- Creates new supplier sources
- Drives new product development
- Increases market share
- Drives competition on price and service levels between the company's existing and potential vendors.
- Generates supply-chain innovation
- Enhances positive brand exposure
- Promotes innovation through the entrance of new products, services, and solutions
- Provides multiple channels from which to procure goods and services
In addition to economic benefits, from a social responsibility standpoint, using diverse suppliers provides an avenue for helping to create a better, more equitable world.