Have you set supplier diversity goals yet? 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 your organization’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.