For many busy supply-chain and procurement leaders, supplier diversity falls near the bottom of the list when budget time rolls around. That’s partly because supplier diversity programs may seem more like a regulatory requirement or a corporate social responsibility than a genuine business opportunity.

This misguided perception is rooted in three facts about supplier diversity in the United States:

  1. The federal government is still the single largest customer for minority- and women-owned suppliers and vendors.
  2. State and local governments generally require that a certain amount or percentage of their budgets must be spent with minority- and women-owned businesses.
  3. Many corporations and other organizations – especially those with large government contracts – must also comply with similar requirements.

Given all the many government requirements and regulations every company must follow, there’s more to the story than simple compliance. Want to know the real reason why are more and more top corporations investing so heavily in supplier diversity? The answer is simple – a more diverse and inclusive supply chain is helping them to grow and expand.

Not Easy, But Worth the Effort

For public- and private-sector procurement managers, many of whom are also coping with budget cuts, meeting all these layers of diversity requirements can be challenging. To fulfill their fiscal and diversity obligations, managers need not only organizational buy-in, but also strong procurement processes that help support a more diverse supply chain.

But does a business case exist for establishing programs that actively recruit qualified minority- and women-owned suppliers? An increasing number of supply-chain thought leaders say yes. Manufacturers and other organizations with robust supplier diversity programs are benefitting from:

  • Stronger relationships with their supply base,
  • New business opportunities, and
  • A more agile supply chain.

Consider this statistic: The combined “buying power” of African American, Hispanic, and Asian American-owned businesses is now about $3 trillion dollars. With the multicultural population experiencing such amazing growth, it’s no wonder more and more businesses are embracing supplier diversity to stay competitive.

Good Times, Bad Times

Any procurement manager who has experienced a few business cycles understands that it can be tough to keep diversity in mind during periods of economic downturn or uncertainty. But it can be done. For example, a few years back Cargill had to cull back its select suppliers from 17 to 12 to improve efficiency. Because the giant manufacturer made it a strategic priority not to eliminate suppliers from traditionally underrepresented groups, no Black-, Latino- or women-owned businesses were cut in the process.

In fact, “Having diverse and inclusive perspectives and practices in our organization will be even more crucial in the face of unprecedented economic challenges,” says Pat Hemingway Hall, president and CEO of HCSC. “To be as innovative as possible, we must capitalize on the talents and skills of all of our employees. At the same time, we need to continue to anticipate and respond effectively to the needs of our increasingly diverse customer base who will be facing their own unique challenges during this difficult time.”

Diversity as a New Business Generator

Executives at Milwaukee-based Johnson Controls Inc. say they can directly trace more than $6 billion worth of business to its commitment to supplier diversity. A Tier 1 supplier to General Motors and other automakers for years, the company’s notable focus on diversity helped the company gain business from GM in the late 1990s.

To differentiate itself, Johnson Controls approached GM and offered to form a joint venture with a minority-owned firm to help GM meet its minority-produced content targets. Now known as Bridgewater Interiors LLC, this joint venture has expanded over the years to supply components to several other major carmakers.

Smaller Can Be Better

Like many other defense contractors to the federal government, Lockheed Martin must search for certified minority-owned or small businesses to provide a percentage of its content. The federal government’s definition of a minority-owned business includes small businesses and companies owned by veterans or service-disabled veteran.

This has proven to be a competitive advantage rather than a handicap, because smaller companies are often more agile and flexible than their larger competitors. “What these small businesses do is really bring innovation to our corporation in a much faster method to market than a real large corporation like Lockheed Martin,” said Nancy Deskins, Lockheed Martin’s director of corporate agreements and supplier diversity.

There is also huge untapped potential in reaching out to women-owned suppliers. While women control a tremendous amount of purchasing power worldwide, women-owned vendors typically represent less than 1% of sales to large multinationals.

Corporations interested in partnering with women-owned businesses can find potential leads through WEConnect International, a nonprofit organization that collaborates with various international agencies, including The World Bank Group and the U.S. State Department, to identify and certify women-owned businesses globally.

Still think you can’t afford to build a world-class supplier diversity program into your annual budget? It’s high time to rethink your priorities – and calculate the potential benefits of greater inclusion.