Supplier diversity is a much talked about and much misunderstood concept in North America. In the United States in particular, suppliers to (big) public sector organizations need to either be diverse or themselves use suppliers that are diverse to meet necessary requirements to supply the (big) public sector organizations.
What does this mean? It means that the supplier must meet a definition of diversity to the public sector organization (government body, council, etc.). What is this definition? Typically, it must be “minority owned”, where minority is often defined as “women owned” or “non-caucasian owned”, or “veteran owned”, but some organizations, especially those in the private sector that have adopted their own diversity programs and definition of diversity, also include “LGBT-owned” or “disability owned” or other definitions that are not “white male caucasian owned”.
But why would you want a diverse supplier? Especially when such a supplier is, as the saying goes, smaller, more expensive, and less capable. Because while many diverse suppliers are smaller, and often look more expensive at a first glance than larger suppliers, they are not necessarily more expensive. The value of a supplier is more than the unit cost of each product or hour of services. It’s the value the supplier brings. Sometimes diverse suppliers bring innovation, cultural diversity, and increased productivity as employees work harder to embrace the new methods and cultural compatibility (because sometimes in a non-minority owned business, the factory has a large number of minority employees).
Plus, diversity can be a great boon to your PR organization. While the diversity movement was not well accepted in the beginning, now it is not only well accepted but appreciated by consumers who find that the companies who practice diversity both in their organization and their supply base are more responsible and deserve more of their dollars.
While the goal of a diversity program should never be cost savings, diversity can bring a lot of value to an organization. New suppliers, even smaller ones, can bring new technologies and new ideas. It can give you access to a new supply base that can reduce overall supply chain risk. Diverse suppliers might use newer methods and technologies that provide you with near real-time information on order status, project completion, or other data elements that you care about. They might be more willing to treat you as a customer of choice and work with you on joint innovation projects or give you first access to production runs or new capabilities. They might be more likely to themselves use diverse suppliers, allowing you to claim a supply chain with multi-tier diversity at home and abroad.
Diverse suppliers can also give your senior employees and management options for mentoring, as smaller diverse suppliers can often use the guidance as they grow into larger minority-owned suppliers to support your future business needs, access to a pre-qualified community of diverse suppliers, as they will already have checked out the diverse suppliers they use, and more PR, as they will be just as happy to issue a press release about your organization and their selection for a project as your PR team will be about releasing a press release about how great your organization is doing in diversity and how socially responsible it is.
But building an effective supplier diversity program that ensures that your organization will set, and hit, appropriate diversity targets in terms of spend and suppliers, and achieve the benefits diversity has to offer, is no easy feat. But that’s the subject of our next post.