Supplier diversity is often missing from diversity, equity, and inclusion strategies. Nevertheless, it remains an essential part of building a diverse and inclusive business ecosystem. Diversifying the businesses that supply goods & services to help run your organization offers an opportunity to achieve your DEI goals in new ways.
A diverse supplier is at least 51% owned and operated by an individual or group that is part of a traditionally underrepresented group. Minority-owned business enterprises (MBE) and women-owned business enterprises (WBEs) were the initial classifications in supplier diversity. Over time, the definition has expanded to include businesses owned by LGBTQ+, people with disabilities, and veterans.
With over 8 million minority-owned businesses, there are many social benefits of diverse suppliers. To date, MBEs have generated $400 billion in economic output creating or preserving 2.2 million jobs and $49 billion in annual revenue for local, state, and federal tax authorities. Diverse suppliers deliver broad societal benefits by generating economic opportunities for disadvantaged communities.
The commercial benefits of supplier diversity are also impressive. A supplier diversity program can inject diverse goods and services into the supply chain, increase vendor competition, enhance the quality of goods and services, and potentially drive down costs. Adding new, diverse suppliers to the supply chain promotes innovation by introducing new products, services, and solutions. Unlike their larger counterparts, small businesses are more agile and can create and innovate quickly to meet corporate and consumer needs. With the rapidly changing demographics in the United States, diverse suppliers also offer access to a new, expanding customer base.
In short, supplier diversity can help your organization achieve the following:
- Cost savings generated by diverse suppliers
- New revenue attributed to diverse suppliers
- Potentially improving your company’s agility and innovation
- Increased share/penetration in diverse markets
- Improved corporate image.
Many socially conscious major companies have played a role in addressing racial injustice through supplier diversity programs that promote an inclusive approach to procurement. General Motors was one of the first to establish a supplier diversity program in 1968, following the civil rights movement in the 1950s and 1960s. IBM joined the supplier diversity movement that same year, and several others have since followed suit. The global supplier program at UPS began in 1992 and now spends $2.6 billion annually, with around 6,000 small and diverse suppliers. Target spends over $1.4 billion on goods and services provided by diverse suppliers. Recently, HSBC Bank USA announced that it has joined a Walmart initiative to make access to working capital for diverse and minority suppliers affordable, transparent, and more equitable.
What You Can Do
With the benefits of supplier diversity programs evident, it is now time to consider increasing your partnership with diverse suppliers. If you’re ready to start or grow your supplier diversity program, take the following steps:
- Establish a performance baseline to identify your current and total goal number of diverse suppliers and spending
- Align the program with corporate goals
- Identify, qualify and contract diverse suppliers
- Benchmark against peer organizations to establish metrics for comparison
- Track Tier 2 supplier diversity spending – your suppliers’ suppliers – to measure the impact
- Help develop your suppliers grow their capabilities
- Document and communicate your data and goals.