What is Supplier Diversity and Why Do We Need It?

Diversity and Inclusion is about more than creating a workforce that represents a wide range of communities and experiences. It also extends to partnering with groups who have been historically, socially and economically underrepresented. In this article, we’re exploring what supplier diversity means and why it’s of value to organisations.

The origins of supplier diversity

Supplier diversity was born in the 1960s out of the US Black Power Movement, a political and social movement advocating for safety, self-sufficiency and equality for all people of Black and African descent. Black Power activists became the founders of ethnic minority- owned businesses, including bookstores, schools, medical clinics and farms.

Over time the scope expanded, to include businesses being created by five major underrepresented groups:

Diverse-owned businesses are at least 51% owned, managed and controlled by people from these underrepresented groups.

And today, supplier diversity is about proactively ensuring that all relevant potential suppliers have the fair and equal chance to compete for purchasing opportunities within an organisation’s supply chain, which includes partnering with diverse-owned businesses.

The value of diverse-owned businesses

Minority-owned businesses contribute at least £74 billion each year to the UK economy and women-owned businesses contribute £105 billion. Those figures are already significant in their own right, but if women started and scaled a business at the same rate as men, an additional £250 billion could be contributed to the economy. While there’s limited action from the government on supplier diversity, in the last few years there has been a significant increase in organisations’ interest and awareness about the subject. Not only do these companies want to do the right thing, but they also understand the many benefits that supplier diversity will bring to their organisation.

For example, contracting diverse suppliers will help to increase supplier competition, which in turn will create more opportunities to find the right supplier for your needs at the best price, generating higher return on investment. Diverse businesses are entrepreneurial, and you’ll reap the rewards from their innovative solutions. In addition, supplier diversity helps to support the local economy, by representing the communities where your business operates and locations you hire in. This commitment will also enhance your brand, with consumers increasingly caring about spending money with sustainable companies, and employees being attracted to organisations who value the people they work with.

The most forward-thinking organisations who are truly embracing diversity across the breadth of their businesses are seeing improvements in their profitability and profits, and leaping ahead of the competition.

What to consider when getting started with supplier diversity

Like with any new initiative, it can work best to start small. Think about projects or expenses that have a lower spend, which may not even be centrally tracked for supplier diversity, like the occasions when you reward your team with gifts. This is a great opportunity to introduce supplier diversity on a low risk and small scale, giving a diverse-owned business a foot in the door and the opportunity to understand how your business works, while also allowing you to test them out and see what value they can deliver. You could even consider setting up a mentoring or support programme to give them the best chance of success.

Historically there’s been a lack of clarity around how smaller, diverse-owned businesses can pitch for a contract. There may be scope to improve accessibility and make the procurement process more transparent within your organisation, so that it’s easier for diverse-owned businesses to put themselves forward for consideration as part of the tender process.

Keep in mind that supplier diversity is often led by “champions” who are driving this agenda outside of their normal role. To have a greater impact, their voices need to be amplified and shared across the business, not just confined to procurement, so that everyone can understand and engage with the importance of having a diverse supply base.

While diverse-owned businesses are primarily SMEs, that’s not to say they don’t have the means to partner with large organisations. In fact, diverse suppliers are often entrepreneurial, so you’ll reap the rewards from their innovative solutions which larger suppliers may not be agile enough to adopt.

Starting points to put into action

Before implementing change, you first need to understand your existing supplier landscape. Find out whether a supplier diversity programme already exists in your business, if it doesn’t, complete an audit to assess how diverse your supplier base currently is. Where does the company currently make its investments?

Introducing new initiatives will be a lot easier if you have support from within, so bring together Procurement, D&I and the Senior Leadership Team to share the business case and benefits of having supplier diversity, then communicate why this matters with employees.

You can also share the responsibility with your existing suppliers; convey why they should be on board with supplier diversity too.

From there, create accountability for your actions – consider publicising annual spending on diverse-owned businesses and commitments for the future, or create quotas whereby at least one diverse supplier is included in each bid process.

These are just a few ways in which you can get started. To find out how we can help you create a diverse supply chain, contact us today.

This article was originally published in the 12th Edition of the Human Age newspaper – get your copy here.