Importance of Supplier Diversity in Choosing New Suppliers

Gaurav Baheti
Sep 13, 2021·5 min

Importance of Supplier Diversity in Choosing New Suppliers

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What is supplier diversity?

The economic apartheid has so long crippled our roots and has forced everyone to pave the way for an equitable approach that does not benefit only the rich.

One such program is supplier diversity, wherein suppliers for various products or services are chosen from underrepresented or underserved groups, and at least 51% of the business is owned and operated by women, minority groups (religious or racial minorities, LGBTQs, Veterans, people with disabilities), or small business enterprises (SBEs), etc.

Following a significant uprise in many parts of the world due to inequitable access to resources and opportunities, governments across the world brought in special laws and legislations to incentivize government vendors who follow the supplier diversity standards.

General Motors was one of the first private players to respond to this call for a fair and just system; then, the movement got support from many big corporations like IBM, Target, etc.

Supplier Diversity allows opening the market to a myriad of benefactors who are willing to do good for the society while knowing that they are not compromising on the profits or quality part, which is an important aspect to run the business.

Most of the time, supplier diversity turns out to be a boon when implemented in its original sense without the influence and reference of internal employees, purely based on skills and dedication.

For example, there can be a scenario wherein a CPO of a Fortune 500 company or a bunch of its employees influences the decision behind shortlisting the vendor partner for undisclosed monetary gains or mint a new company in the name of spouses or relatives based on the requirements or act as an agent for the businesses of their family or friends.

In such a case, without proper verification related to compliances, govt records, products, and services, the decision is made, and it hampers the innate idea behind supplier diversity in a ripple-effect fashion.

Supplier diversity, if done correctly, tends to render the following benefits:-

  • Better price options - since most vendors do not have huge operating costs involved and competition drives the price trajectory downwards.
  • Better quality - as the company gets to choose from many more regions of the world; hence they might get better quality and services, which their always go-to vendor might be unable to provide.
  • Flexibility & agility - the system in case of supplier diversity incentivizes or backs only the top-performer and is always on the hunt for better. With supplier diversity, a colossal task can get divided into multiple tasks and get allocated to different entities for parallel operations. Even if an organization fails to deliver, they can get replaced easily; whereas, when it comes to just a bunch of the suppliers, the company might face an issue if there is an issue at the vendor-end.
  • More jobs - suppliers increase opens an avenue to create and sustain more jobs for people coming from economically backward areas who have a desire to prove themselves in the fast-changing landscape of the world. Plenty of surveys suggest that the supplier diversity program contributes billions of dollars to a country’s economy and helps put food on the table for millions of underprivileged beings. Certified Minority-Owned Enterprises (MBEs) in the US alone, has an annual economic output of more than $400 billion while sustaining roughly 2.5 million jobs and tax payments of more than $50 billion to local, state, and federal authorities.
  • Marketing benefits -whether we consider this or not while making an important business decision, whichever company is regularly engaged in the welfare of the society receives wholehearted approval from the community at the earliest. Many companies have reported a steep rise in their revenues once the word got around that they are involved in the supplier diversity programs.
  • Innovative economy - scarcity of anything drives innovation; in this scenario, it is trust and opportunities for the diverse suppliers. In the voyage to prove themselves on a global scale while facing a huge cash crunch, these suppliers tend to under-commit and overdeliver in multiple instances and offer a great value proposition to their clients.

Several organizations have chimed in this discussion to be some of the earliest adopters and are witnessing a huge potential and demand in this space; it helps in bolstering their efforts to satisfy the clients or move swiftly towards their goals and vision.

Some of the private players are listed below, who, of course scrupulously check the vendor’s authenticity, punctuality, creativity, skills, vision, services, compliances, and many other factors before shortlisting one:-

Coca Cola - Around $1 billion annually has been set aside for diverse suppliers for the following reasons - training workshops, onboarding, purchase, assistance till the final delivery, creating a better support system, and retention with several initiatives such as STEP, Supplier-development institute with Georgia State University, and many other programs helping a supplier to kickstart and smoothly run their business.

**UPS **- The company spends annually $2.6 Billion to do business with 6000 or more diverse suppliers. It has also partnered with multiple governments and non-government agencies working tirelessly in the minority, women, and racial justice sphere.

Parting Thoughts

Whether you view the supplier diversity program as an initiative to build a better economy or to push the envelope of the discourse a bit further, it is a revolution that has only strengthened in fifty years or so and is usually associated with almost all of the socialist movements, including but not limited to, Black Lives Matter, ANTIFA, Right to Information movement, Indian anti-corruption movement, the Peace movement, Quit India movement, etc.

Alas, some organizations albeit huge in size but small in thoughts, still indulge themselves in unfair practices and tend to cater to a specific set of vendors only; In the most literal sense, they are putting themselves under the sword of oblivion and irrelevance once the movement picks up pace again.

We, at Procol are always committed to supplier diversity and regularly collaborate with vendors from disadvantaged communities to build a better, fair, and just world.

Supplier Diversity
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