Implementing supplier diversity for better business
Around the world, publicly-listed enterprises, mid-sized companies, and public sector organizations are waking up to the benefits of expanding their relationships with a more diverse range of suppliers. They realize that diverse suppliers can help them understand and better represent their customers and society at large, which opens up huge opportunities.
Other areas of business have already moved in this direction. Marketers and advertisers would be (and have been) laughed out of town if their work only portrayed white people, or if women only appeared in kitchens. Although when it comes to diversifying their staff, advertising agencies still have a long way to go.
That said, your suppliers are not as visible to your customers as the public face you present via advertising and PR—but there are definitely strong reasons to diversify your supplier base. In an earlier blog, we explored this from an internal viewpoint. In this piece, we’ll consider the all-important outside-in view.
Making your company better
Let’s deal with the commercial benefits first. While they are not the most important, they answer the first question you are likely to hear from skeptics: “What’s in it for us?”
Studies speak for themselves
Cited by Harvard Business Review, a 2019 Hootology study for Coca-Cola found that the consumers who were aware of Coca-Cola’s supplier diversity initiatives were 45% more likely to perceive the brand as valuing diversity, 25% were more likely to think favorably about the brand, and 49% were more likely to consume Coca-Cola products.
According to the study, it’s estimated that these favorable perceptions would stimulate an additional 670,000 consumers using the company’s products more frequently. In short, diversifying your supplier base, and communicating it publically, will probably do just as much good for your brand reputation as an expensive advertising campaign.
The power of social media
There is serious power in social media since consumers tend to communicate good news on social activism with their peers. A report by the Hackett Group found that top-performing companies on global supplier diversity “use supplier diversity as a reputation-builder to help increase market share and retain talent, and rely on social media to develop customer and brand awareness”. The report also found that companies could experience an increase in sales of 10 percent, suggesting that the lack of a diversity program could result in lost revenue.
Reputations matter
Recent developments can only have reinforced this positive effect.
The upsurge in support for Black Lives Matter, and more generally for racial justice, brought diversity to the forefront of everyone’s minds—and not just in the United States. More consumers are aligning their purchase behavior with corporate diversity efforts.
However, brand and reputation are much bigger than boosting sales, so let’s turn to some of the non-commercial benefits, which are less tangible but nevertheless very real.
Big-name companies such as Johnson & Johnson not only communicate their annual spend in each of their diversity categories, but they also have embraced supplier diversity as central to their corporate mission. Toyota publishes a quarterly supplier diversity newsletter and has a dedicated supplier diversity Facebook page, among other initiatives. They all have supplier diversity as a part of their brand.
Making your industry better
Toyota emphasizes that they are not doing this simply to gain an advantage over competitors. In fact, they host events, such as the virtual supplier diversity trade show, alongside competitors. It’s worth remembering that for a major player in any industry, making your entire industry better can be as effective as making your company better.
In his seminal work, Competitive Advantage, Dr. Michael E. Porter devoted much attention to the ways in which cross-industry efforts can bring benefits such as sharing the cost of market development and reducing buyer risk, which benefits all competitors. Supplier diversification was not much of an issue when he was writing in 1985, but it certainly fits under this heading. We can all learn from one another, and nowhere is this more so than in environmental, social, and governance (ESG).
Impact your community
As well as enhancing your reputation, actions taken to support global supplier diversity will also expand your influence within communities and among the thought leaders and policymakers that have their interests at heart.
By working with industry groups within councils such as the Women’s Business Enterprise National Council, the National Minority Supplier Development Council, and the Hispanic Chamber of Commerce, you will be helping not only to make your industry better but also to make society at large better.
There are a number of ways companies can contribute. For example, consider sponsoring and supporting mentoring workshops and training programs that facilitate the growth and success of diverse suppliers. Underserved communities also often lack extensive business networks, so professional matchmaking and startup conferences enhance opportunities for capital investment and relationship building.
Making our economy better
Diverse and inclusive procurement also helps to expand the economy by bringing opportunities to historically underserved communities. As they get a bigger share of national GDP, their spending tends to increase to a disproportionately high degree compared with traditionally high-income and privileged sections of society.
In fact, according to the 2019 Annual Business Survey (ABS), covering the reference year 2018, approximately 18.3% (1.0 million) of all US businesses were minority-owned and about 19.9% (1.1 million) of all businesses were owned by women. Combined, these estimated 2.8 million businesses employed about 51.1 million people and had an annual payroll of approximately $2.6 trillion.
So let’s dispense with the idea that diverse businesses are marginal to the economy.
State and Federal agencies can see the advantages of pushing for greater supplier diversity both through incentives and the regulatory framework. By playing your part, you will be helping to create opportunities and to expand the economy. And with this, comes influence.
Prioritize global diversity
There is still far to go, but the progress has been incredible. The top practitioners of supplier diversity are now taking it to the next level and encouraging their Tier 1 suppliers to create their own global supplier diversity programs.
Of course, it is not always easy. The most commonly voiced objection is that it is difficult to identify diverse suppliers that also meet procurement goals. Overall, that should not and need not be the case. In fact, the Hackett Group report indicated that 99% of diverse suppliers meet or exceed expectations.
Nevertheless, without the necessary visibility, it may be difficult to get started, especially in some niche industries. That’s why it is vitally important to get access to rich supplier diversity data about specific industries, markets, and supply categories.
Unleash procurement possibilities with TealBook
TealBook provides diverse supplier data and more. TealBook’s supplier database includes over a half-million small and diverse supplier profiles that include information on the products and services they provide, their trust and risk data, their financials, and their diversity certificates, making it easy to find suppliers that meet your company’s diversity goals.
Contact our team to begin working towards better diversity within your supply chain today.
