More and more businesses are consciously seeking to add diverse suppliers. In a nutshell, companies are forging intentional partnerships with smaller businesses owned by underrepresented groups.
These businesses are owned by women, minorities, people with disabilities, veterans, members of the LGBTQ community or another of the 16 diversity groups recognized by the federal government. A 2021 survey by The Hackett Group found global companies dedicate 7.2% of their spend to diverse-owned businesses. The group forecasts a 50% increase in corporate diversity spending goals by 2025.
It’s with good reason that more and more businesses are looking beyond corporate behemoths for supply chain partners. Not only is it socially responsible, but diversification offers tangible benefits. Simply put, a more diverse supply chain provides more sourcing agility.
Pandemic-related Supply Challenges
The COVID-19 pandemic is a prime example of why agility is vital to preventing supply disruptions.
According to a Harvard Business Review Analytic Services report, 95% of business executives say they experienced pandemic-related disruptions to their company’s sourcing and supplier management process.
As a solution, many procurement leaders looked to smaller, diverse providers for urgent supplies they couldn’t get elsewhere. Unfortunately, large vendors tend to operate like freight trains. They’re hard to stop or steer. But smaller, local businesses can be more flexible and offer unique solutions, especially in times of uncertainty.
During the COVID-19 pandemic, Cenmed, a woman-and-minority-owned business, served in this way. New York City opened a bid looking for new partners to make COVID-19 test kits. Cenmed received the contract to fill 3 million 10ml centrifuge tubes containing PBS (phosphate buffered saline). Cenmed delivered the order on schedule by the middle of September 2020, helping ensure vital testing kits were available at the height of the pandemic.
Innovation and Competition
Diversity also sparks competition among suppliers. Smaller, diverse businesses can often provide more cost-efficient pricing, forcing larger vendors to follow suit. That’s not an assumption. A 2019 study by McKinsey found that diverse vendors outperform other businesses by 36%. What’s more, the Hackett Group reports that diverse vendors meet or exceed buyer expectations.
But diverse suppliers also bring a new perspective to the supply chain. Businesses that partner with diverse vendors experience new ways of doing business and perspectives they may not have considered when working primarily with large suppliers with a set way of doing business.
Along with lowering costs and spurring innovation, partnering with diverse suppliers builds trust with consumers. Hootology conducted a study of Coca-Cola’s diversity initiatives. It found 25% of people surveyed felt favorably about the brand and nearly 50% were likely to consume its products.
Clearly, a brand’s commitment to diversity, equity and inclusion efforts leads to better relationships with customers who want diverse businesses to succeed. But potential employees also want to work for companies that do more than give lip service to diversity and inclusion efforts. For example, Cone Communications found 64% of millennial job applicants will turn down an offer if the employer doesn’t have a corporate social responsibility policy.
Impact on Local Communities
As the link between businesses and suppliers, procurement teams can drive competitive advantage while enriching the communities they serve.
According to the U.S. Senate Committee on Small Businesses & Entrepreneurship, minority enterprises accounted for more than half the 2 million new businesses started in the United States over the past decade. And while there are more than 4 million minority-owned companies in the country, there is a good deal of inequity in terms of access to capital, contracting opportunities and other entrepreneurial development opportunities.
This disparity shows why it’s essential for companies of all sizes to seek out diverse suppliers. The practice leads to job creation, access to healthcare, education, housing and more for underserved communities.
Partnering with diverse suppliers goes beyond social good. There’s a clear return on investment for companies that make this a strategic goal. Efforts must extend beyond the diversity and inclusion department so the enterprise can benefit from financial rewards, easier employee recruitment and better preparation for future disruptions.
For more information on how Cenmed can help you diversify your supply chain, request a quote today.