Author: Rod Robinson, ConnXus CEO & Founder
I find myself getting increasingly frustrated when someone asks me, “What motivates a company to want to increase diversity in their supplier base?” The last time someone asked me that (about a week ago), I absolutely wanted to scream. However, I decided to channel my frustration more constructively into this short and simple post to explain the motivation from my perspective.
The good news is that everyone seems to understand the importance and benefits of diversity at the board level, among employees and customers. However, many still struggle with why supplier diversity is even more important. The key driver of corporate diversity is to facilitate a better understanding of customers and markets. This understanding often comes with access to new markets that may not otherwise be available.
Corporations’ suppliers are often positioned to provide a much greater degree of market insight and understanding than board members, top management or line employees. Here are some key benefits that come from supplier relationships that organizations typically will not get, internally, from employees or board members:
- Access to new markets – Suppliers serve multiple customers within and across industries. They have a backstage pass that enables them to see where there are gaps in the market or segments that are being underserved.
- Built-in Focus Groups – Suppliers employ tens, hundreds and even thousands of people. These people represent sources of market insight which enable organizations to test new products and concepts in a forgiving environment. One of our largest customers host annual supplier summits where new concepts are introduced and valuable feedback is gained from a diverse network of suppliers.
- Innovations – Suppliers are often current or potential customers. These suppliers are touching and providing product inputs (direct and indirect) throughout the development process. Whether it’s specific ingredients, packaging, marketing, distribution or processes suppliers are positioned to understand what works, what doesn’t and what’s missing. This leads to new innovations or process improvements that deliver significant value in the form of product enhancements, cost savings and increased revenue.
- Talent Source – Depending on the category, suppliers are often an extension of an organizations team particularly in professional services such as accounting, consulting and legal. They often bring specific expertise on-demand. In many cases, these relationships result in individuals being hired into full-time leadership roles within the organization.
- Economic Impact – Sourcing goods and services from small, diverse suppliers (providers of over two-thirds of net new jobs) in markets across the country create opportunities for economic growth that benefits the entire ecosystem. For example, there is significant value in a Fortune 500 company knowing that the $30 million they spend with 60 diverse suppliers within a major Midwestern city supports 4,400 jobs at an average wage rate that is 150% above subsistence level.
Once you overlay the demographic shift taking place in the US, it is pretty simple to see why supplier diversity is so vital. As illustrated below, minorities (Asians, Blacks and Hispanics) as a % of the total US population is growing rapidly and currently comprises nearly 40% of the population. That figure will exceed 50% by 2065.
Most businesses want to maximize share. As the population grows more diverse, maximizing share will mean attracting an increasingly diverse and complex consumer population. It is important for any organization to surround itself with a diverse team that extends from employee to supplier as this greater level of complexity will require context, cultural competence and relevant insights. This is why a holistic, 360 degree diversity strategy is becoming ever more important. So, the next time someone asks me that question, I will refer them to this post.
Question for supplier diversity champions: How do you respond when asked “What motivates your organization to have a more diverse supply chain?”