Many large companies are learning that embracing diversity in all aspects of business, including their supply chain, can unlock many competitive advantages. For leading companies in the consumer products and food and beverage industries, looking beyond the “usual suspects” (i.e., established, familiar suppliers) to source materials, ingredients, products, and services can be beneficial for businesses.
Corporate supplier-diversity programs encourage strategic business relationships with companies that are owned and operated by people from historically underrepresented or disadvantaged groups — such as racial or ethnic minorities, women, disabled persons, or the LGBTQ+ community. This often means doing more business with newer or smaller suppliers.
The Benefits of Supplier Diversity Programs
Looking beyond large, established companies can yield several business benefits, such as:
- Increasing competition for procurement contracts, which can reduce costs and increase quality and performance.
- Enhancing flexibility and resilience. Smaller or newer suppliers often can be more agile and responsive. Also, a wider supplier base tends to offer more options, which helps minimize supply chain disruptions.
- Sparking innovation through exposure to new products, processes, services, and solutions.
- Strengthening brands by doing the right thing: supporting historically marginalized groups in ways that are not just visible, but meaningful and potentially lasting.
- Growing workforce diversity. Demonstrating inclusiveness as a value and practice both outside and inside the company can help attract and retain a more diverse workforce.
Why Supplier-Diversity Programs Are Growing
The recent growth in supplier-diversity programs is partly in response to increased public awareness of social and economic inequity. Additionally, more companies are making progress toward corporate environmental and sustainability initiatives, and they’re discovering these supplier-engagement programs not only enhance supplier diversity but also spur business innovation.
Historically, success in manufacturing has always depended on keeping a sharp eye on an evolving market, and diversity is currently a strong driver of U.S. consumer market trends. A recent analysis of 2020 U.S. census data by The Brookings Institution observed, “All of the nation’s 2010-to-2020 growth is attributable to people of color — those identifying as Latino or Hispanic, Black, Asian American, Native Hawaiian or Pacific Islander, Native American, and as two or more races. Together, these groups now comprise more than 40% of the U.S. population.”
Ongoing, close relationships with a broader network of diverse suppliers can help companies better serve a more diverse customer base by fostering “customer intimacy.” As Customer Experience Strategist Sonia Thompson puts it: Customer intimacy is “your [company’s] unfair advantage.” She adds that it's essential for business leaders to put themselves in their customer's shoes, think about how they're changing, and asses how your brand can evolve with them.
In the last couple of years, several major brands have launched or expanded supplier-diversity programs. For example, in 2020, the Coca-Cola Company announced plans to increase spending with Black-owned enterprises across its supply chain by at least $500 million over the next five years. This doubled the company’s previous spend with Black-owned businesses. Similarly, in its 2021 Sustainability Impact Report, Smithfield Foods pledged to increase production facility spend with minority-owned businesses by 14% to achieve a more inclusive supply chain by 2025, adding that it welcomed its first minority-owned farmers to the program in 2021.
Proving the Benefits of Supplier Diversity
Credibility can be essential to the success of supplier-diversity programs. This means being able to demonstrate meaningful benefits — for the buyer, for suppliers and for the communities that diverse suppliers represent and serve.
A clear track record of positive, measurable results can help a company attract and retain the most promising diverse suppliers to their program. Also, by focusing on credibility, supplier-diversity programs may avoid the fierce market cynicism and backlash that can arise when companies appear to be engaging in tokenism.
Here are three ways that large companies can enhance the credibility — and thus the performance and benefits — of their supplier-diversity programs.
- Set benchmarks to track progress. Supplier-diversity programs can be designed to measure real economic and business impacts. Key annual metrics to report and compare might include: procurement spend with diverse suppliers (i.e., dollars and percentage per spend category, and total), number of diverse suppliers contracted, total head count of diverse suppliers (which will help track job growth), and total income across all diverse suppliers (to track their business growth).
- Provide support for certification. Many large buyers require their suppliers to be certified by third parties (such as the National Minority Supplier Development Council) as meeting diversity criteria. The process can be complex and time-consuming, making it daunting to smaller enterprises that are working hard to launch or stay in business. Buyers can guide or support suppliers through this process or offer a self-certification option.
- Partner for long-term business growth. Many companies routinely monitor the financial health of suppliers to mitigate supply chain risk. While this is usually done to filter out suppliers at greater risk of failure, this lens can also focus on opportunities to support diverse suppliers through their growing pains. Larger buyers can encourage healthy business growth by adapting contract and payment terms, mentoring leadership, and perhaps helping to finance new equipment, digital systems, facilities or training.
Communicating to the public — and especially to marginalized groups — how supplier-diversity programs help share the wealth can boost the confidence of existing and aspiring business owners. Seeing the real benefits and support that supplier-diversity programs can provide (such as more or better jobs in their community) may inspire people in marginalized demographics to think bigger about their business or their business idea. This can create a virtuous circle of business alliances. Suppliers, buyers, consumers and communities all have a direct stake in a better economic future, and credible supplier-diversity programs can help build that future.