How Supply Chain Diversity Gives Your Company a Competitive Advantage
Since March of this year, companies have been focused on maintaining operations and satisfying customer demand during the COVID-19 pandemic.
An Accenture report from April confirms what businesses already know that ”COVID-19 has severely disrupted supply chains on a global scale.” It has forced procurement to assess the ability of suppliers of all sizes to fulfill orders while still complying with internal and government regulations.
To mitigate any problems, procurement professionals have had to make short-term sourcing decisions. In some cases, that has benefitted smaller suppliers, which are often minority and women owned, as buyers have sought out local suppliers to avoid disruption. For other small businesses, the short-term sourcing decisions may short-change them because buyers will doubt their capability of supplying them with all the inventory needed.
Don’t let the pandemic negatively impact your diverse supply chain.
Although it’s hard to see the light at the end of this tunnel, the reality is that this crisis will eventually diminish and, when it does, you need to ensure that you have significant diversity in your supply chain…and not just because it looks good for your CSR positioning.
Back in 2017, a Spend Matters article cited The Hackett Group’s 2017 Supplier Diversity Study which found that companies regarded diversity in the supply chain as predominantly a way to improve the organization’s corporate image. Yet when asked how these diverse suppliers performed, The Hackett Group found that 99% of suppliers met or exceeded expectations, with 23% exceeding expectations. It also noted that companies that dedicate 20% or more of their spend to diverse suppliers can attribute as much as 15% of their annual sales to supplier diversity.
Obviously, developing a diverse supply chain does not mean these suppliers should face lesser scrutiny than others when it comes to compliance, both when it comes to company policy and government regulations. It is essential that procurement does its due diligence as it always will, but with an eye towards the business environment of the future, where both consumers, business owners and workers will become more and more diverse.
How supplier diversity can give your company a competitive edge.
Over the years, an increasing number of companies have developed their own corporate social responsibility programs, dealing with everything from decreasing waste and emissions to combatting forced labor to enhancing community activism to increasing business with minority and women-owned businesses. All of the goals are important, but for procurement, finding and working with diverse suppliers is where they focus their activities…and they should, because that move towards a more diverse supply chain can pay off in a number of ways.
Companies today have to compete for the best and brightest. It’s true that right now, with the current crisis, employers may have the upper hand when it comes to hiring; however, they still want to attract top talent and that top talent will be pulled from Millennials and Generation Z which are the most diverse generations in U.S. history…and two of the largest. Rather than just looking at the paycheck, these generations prefer to work for (and buy from) companies that practice and promote diversity…and that means in their supply base as well.
As noted above, younger generations will buy more from companies that have diversity in their supply chain. That diversity includes women-owned businesses. Walmart, in 2016, sourced close to $250 million internationally from women-owned businesses. That pays off in a number of ways. Not only are women-owned small businesses growing but those same women are consumers as well. Once you realize that women drive 70% 80% of consumer spending in the U.S., you can see how important it is and will be to appeal to this market. The growth of this market has been exponential: In 1972, there were 402,000 women-owned businesses with a combined revenue of $8.1 billion. In 2018, the numbers had exploded, with 12.3 million firms owned by women with a combined revenue of $1.8 trillion!
Appealing to changing demographics
The Census Bureau estimates that, between 1995 and 2050, minorities will account for nearly 90% of the total growth in the U.S. population making the U.S. a minority/majority population. This includes minorities born here as well as those who have immigrated to the U.S. Consider that by 2030, minority groups are projected to have a combined buying power of $3.9 trillion and that, as noted above, the population continues to skew younger, and you can see how important it is to appeal to these groups, both as customers and as employees.
Nothing has shown the need for agility, flexibility and innovation more than the current crisis which has made smaller suppliers more attractive to larger companies. Smaller suppliers can often move quickly to adapt to changes and fluctuations in the market. Larger companies that work with these suppliers often discover that the innovations developed by the suppliers can lead to greater improvements in their own products and services.
Finding diversity across all industries may not be that easy.
Even with the best intentions, organizations may find that certain products/services may not have a significant number of diverse suppliers from which to choose. In that situation, procurement has to think creatively and look at those areas where diversity is possible. As an example, the IT industry does not have a deep well of suppliers that are minority- and/or women-owned yet the policy is to have at least 20% of suppliers fit into the diversity bucket. To combat that challenge, procurement looks further into the supply chain and suppliers that lack with a greater emphasis on the delivery segment of the business where there is a much greater number of diverse suppliers.
The reality is that companies need to comprehend how important it is to develop a more robust diverse supply chain. They need to acknowledge that this initiative is about much more than public relations or branding; that the value of a good diversity program will create major benefits throughout the organization.