Did you make any New Year’s resolutions this January? Okay, how many of those commitments have already fallen by the wayside? Here are some important reasons you shouldn’t let implementing a diverse supply chain program become one of those “should have, could have, didn’t” items on this year’s to-do list.
While supplier diversity (SD) is just one element of modern supply chain planning, it’s becoming increasingly important to private companies, government agencies, and not-for-profits alike. “Supplier diversity” means a strong commitment to creating and maintaining a diverse supply chain that ensures the inclusion of diverse groups in their procurement plans, including women- and minority-owned businesses.
MORE THAN QUOTAS
It’s a mistake to think of supplier diversity as just a quota system or a social program designed to help selected social groups, while adding minimal value to your supply chain. In fact, a commitment to meaningful SD can give your organization a measurable competitive advantage in several ways:
- Greater return on investment (ROI). A major study by the Atlanta-based Hackett Group showed actual financial benefits from business relationships with diverse suppliers. Based on a study of 50 companies from both the service and manufacturing sectors, the research demonstrated that companies with a strong SD focus generated a 133% greater procurement ROI than the average comparable business, driving an additional $3.6 million to their company’s bottom line.
- Lower operating costs and higher profits. These same companies spent an average of 20% less on their buying operations, and reported procurement staffing levels less than half of similar companies without SD programs. The statistics also showed that companies who actively pursue a diverse supply chain are more profitable than companies who don’t.
- Other benefits. A strong commitment to supplier diversity can also:
- Promote innovation by introducing new products, services, and solutions
- Expand your range of procurement channels for goods and services
- Drive increased competition (on price and service) between current and potential vendors
- Open up new opportunities for business expansion by highlighting new consumer needs driven by shifting demographic trends
- Display your organization’s commitment to doing business in multicultural markets with rapidly growing consumer groups
REAPING THE REWARDS
Progressive-thinking companies are leading the way in a multicultural marketplace by finding creative new ways to incorporate supplier diversity into their business processes. Two of these have developed particularly strong relationships with minority business owners — and are enjoying the benefits.
- In 2007 alone, Wal-Mart spent more than $3.9 billion with nearly 2,000 minority-owned suppliers, using community outreach to help develop their network. As Hispanic businesses scale up, Wal-Mart is using them to meet customer needs. For example, Ruiz Foods, the largest Mexican frozen food company in the United States, is one of Wal-Mart’s largest domestic product suppliers.
- IBM was the first IT company to pass the $1-billion mark with minority suppliers, spending $2.3 billion with diverse companies in business services, facility management, travel, and technical subcontracting in 2007.
Many companies and organizations set out to implement a diverse supplier group with no real expectations of a tangible return on investment. They may even anticipate increased costs and a greater administrative burden.
The pleasant surprise is that a robust SD program doesn’t have to cost more … and can bring unexpected business benefits that help your bottom line.
STAY TUNED! In the next installment, we’ll explore some simple guidelines that can help you navigate today’s changing competitive landscape with the aid of supplier diversity.
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