Why Supplier Diversity Is a Top Goal for Procurement in 2021

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2020 is a year that CPOs, procurement teams, and supply chain professionals will likely talk about for a long time. Amid a global pandemic, supply chains for almost every industry were disrupted, laying bare many of the procurement challenges and opportunities organizations must face to move forward and grow this year.

One movement that was already gaining traction long before the pandemic was supplier diversity—that is, launching proactive supplier programs that encourage partnerships with suppliers that are at least 51% owned and operated by a historically underrepresented group. This could include suppliers owned and operated by minorities, women, veterans, LGBTQ people, and other groups.

Procurement teams that had already initiated a supplier diversity program were better positioned to stay resilient and flexible in the face of disruption in 2020. Here are the key reasons organizations will pursue supplier diversity in 2021 and beyond.

Meeting Higher Ethical Standards

Most organizations have been pursuing diversity and inclusion (D&I) internally. This is due in part to social justice movements and the public's increasing awareness of a lack of diversity within companies, especially in leadership positions.

Some progress has been made on this front. For example, according to CNBC, all S&P 500 companies had at least one woman on the board in 2020. Of the 432 new independent directors introduced to S&P 500 boards in 2020, 59% were women and minority men.

But organizations must look to every part of the business to drive D&I initiatives—even externally, to their partners, contractors, and suppliers. Consumers are becoming much more discerning of what companies they purchase from, and businesses will likely be more selective in the future, only working with partners who meet their diversity standards. Securing a diverse supplier base is now an ethical imperative for organizations, just like creating a diverse workforce.

Realizing Business Benefits

There are also business benefits to pursuing a diverse supplier base. Diversity programs can improve your company's brand standing, especially among consumers.

According to Harvard Business Review, A 2019 study conducted for Coca-Cola on its supplier diversity program found that "individuals who were aware of Coca-Cola's supplier diversity initiatives were 45% more likely to perceive the brand as valuing diversity, 25% were more likely to think favorably about the brand, and 49% were more likely to use Coca-Cola products."

Widening your pool of suppliers can also promote competition within your supplier base. This has the potential to improve relationships with your suppliers and drive down costs.

Unfortunately, diversity challenges often face challenges due to lack of buy-in, especially when there is an underlying cost for pursuing them and managing change within the organization. But the above examples suggest that supplier diversity is now a business imperative as much as it is an ethical one.

Procurement functions around the world are beginning to realize these benefits, and organizations that minimize or forgo supplier diversity programs put themselves at a disadvantage.

Achieving Supply Chain Resilience and Flexibility

Finally, achieving supplier diversity can make the organization more agile and flexible in the face of disruption, and therefore more resilient. Partnering with a diverse supplier base opens the opportunity for more innovation, and different perspectives are often necessary to overcome challenges in specific regions.

But maintaining a diverse supplier base also reduces the risk of struggling to meet demands because of disruption in a single region. According to Reuters, "COVID-19 has highlighted the risks of procurement strategies that focus on managing costs by packaging together contracts to get the benefit of scale and sourcing from low-cost regions such as China. This consolidation of supply chains has left many companies vulnerable to disruption, whereas a more local and diverse network of suppliers would have offered greater resilience."

Smaller, more diverse suppliers may also be more innovative and flexible than larger corporations. They may even be able to adapt to unique needs and circumstances. And by partnering with a diverse supplier base across regions, the organization has more opportunities to innovate, manage disruption, and maintain its sources of products and services.

According to Michigan State University, which offers students post-graduate certificate programs in procurement, "By working to keep up with larger business demands and a growing minority market, diverse suppliers provide the unique opportunity to produce new products and solutions to overcome competition. Their typically smaller size can provide the advantage of being able to adapt more quickly to market changes and business fluctuations. This all makes diversely-owned businesses prime candidates for strategic relationships with larger companies."

The ProcureCon Indirect Virtual Summit and Expo

Supplier diversity is sure to be a hot topic at the ProcureCon Indirect Virtual Summit and Expo, happening online from May 18th to May 20th. Register now to see powerful keynote presentations by Fortune 500 companies and insider tips you won't find elsewhere.

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