What do the Ford Motor Company, JP Morgan Chase, and Accenture, and Dell have in common? Aside from being wildly successful brands, they all have robust supplier diversity programs. And all companies, big or small – should too.

Diversity initiatives help businesses form alliances with ambitious and driven individuals who’ve been forged in the flame of adversity. With such strength by your side, your business is bound to do well, and, of course, this creates a better business environment. As author Jacqueline Woodson says, “diversity is about all of us and about us having to figure out how to walk through this world together.”

But the benefits of diversity aren’t just philosophical, they’re also highly practical. Take it from investor and founder Arlan Hamilton, who says, “if you haven’t hired a team of people who are of color, female, and/or LGBT to actively turn over every stone, to scope out every nook and cranny, to pop out of every bush, to find every qualified underrepresented founder in this country, you’re going to miss out on a lot of money when the rest of the investment world gets it.”

How does all this relate to a corporation’s supplier base? How is this connected to a company’s diversity initiatives? Let’s find out.

What Is Supplier Diversity?

When an organization consistently includes small, diverse-owned businesses in their procurement pipeline, it’s called supplier diversity. This is done to address supply costs versus supplier competition and innovate products through creating new goods, ideas, and services. It refers to a conscious strategy created to achieve a more diverse supplier base. This practice highlights the importance of including vendors such as minority-owned business enterprises, women-owned businesses enterprises, veteran-owned businesses, LGBT-owned businesses, and businesses owned by those with disabilities.

How Can You Ensure Supplier Diversity?

You can ensure your supply chain is diverse by establishing a performance baseline that notes the number of diverse suppliers in your portfolio, as well as how much you’re spending with those suppliers. Then make sure your plan is aligned with your corporate goals. Next, you must identify and contract multiple diverse suppliers. Then create certain targets based on other successful programs, so you know you’re executing the industry’s best practices.

An advanced technique is to analyze and mandate tier 2 spending. This is the supplier diversity efforts of all the suppliers present in your portfolio of vendors. Tier 1 would be your direct suppliers, whether diverse or not, and Tier 2 are your suppliers’ suppliers. Track their diverse spending with fourth-party entities and create goals for them to meet. Another initiative is supplier development, which benefits both your diversity spending and your company’s bottom line. Finally, ensure you have a trustworthy system that tracks, maintains and reports all the data that you generate through these activities.

Benefits of Ensuring Supplier Diversity

1.      Meaningfully Dovetail into Your Diversity Initiatives

Every company has its own set of diversity initiatives so that it can give back to the community. Create contracts with your local SMEs. These minority businesses have a profound effect on your community. By working with them, you’re increasing ad spend, consumption, and creating jobs on a local level. You’re also enhancing the communities that you live and work in. This is the most rewarding factor from the implementation of supplier diversity initiatives.

2.      Promotes Innovation

If you constantly use the same suppliers, you’ll get stuck in a rut. Diversifying your suppliers increases the creative benefits you receive. Encourage new small and medium-sized businesses, as they’re the harbingers of new thoughts and ideas. They invest more time and money in differentiating themselves from their competition through innovation than larger companies do. They’re more agile. They can create and innovate quickly. Buyers can capitalize on this by allying with them to experience the best of innovation out there. Keep in mind that simply picking a few or handful of large diverse suppliers to transact all your committed diverse spend and shutting out the large number of small-and-midsize diverse suppliers is a hollow victory to claim.

3.      Gives You Access to A New Network

Companies that implement supplier diversity programs can often penetrate new markets and gain new customers. As you connect with more suppliers representing communities you haven’t previously engaged with, you’ll become a part of diverse business networks and certification networks. How? One example is that many suppliers and groups keep lists for networking. They also hold events where different businesses can network. By attending these events, you’ll gain access to new suppliers and create new relationships.

4.      Provides Many Procurement Options

One thing the pandemic taught us is that having a backup plan is necessary. Having a supplier diversity initiative helps do that. It lets you reach out to multiple suppliers should the need arise. This de-risks your supply chain as you have the option of engaging with several suppliers at a time. You can do this while also decreasing the overall cost of the product/service. Multiple channels let you study prices, locations, range of goods, and more. You can choose which work the best for you. This lets you create new relationships with suppliers as well.

5.      Drive-Up Competition, Drive Down Prices

When you’re sourcing your products, you must take into consideration many factors. These include price, service levels, location, delivery dates, and more. Suppliers are looking to give you a good deal so that they can win your business. As the competition grows between suppliers, you benefit from better terms. You can then reduce your direct and indirect spend.

A Note: How to Consciously Diversify Your Supplier Base

Essentially, programs like these are to give back to society and empower those who deserve it as well as to enable powerful business outcomes. To create effective supplier diversity initiatives, you must ensure you’re reaching out to those businesses that truly align with both your personal and corporate values. Then only can your supply chain be representative of your thought system. It’s also essential to have certain targets in place so that your program is time-bound and measurable. That done, your supply chain will be diverse, and you’ll reap all the benefits that come with that.