Supplier Diversity Sourcing – What Makes a Diverse Supplier?

When it comes to supporting diversity, procurement is in a unique position to influence meaningful change. Beyond the positive social and economic impact, increasing supplier diversity also delivers notable benefits to organizations that make it a priority. We’ll help you discover what makes a diverse supplier, the benefits of supplier diversity, and tips for developing a more diverse supplier base.

What Is Supplier Diversity?

Take it from us; supplier diversity isn’t a trend. It’s a fundamental part of a successful procurement strategy. So, what is it exactly?

Supplier diversity, also called vendor diversity or inclusive procurement, is the practice of sourcing products and services from organizations owned and operated by members of historically underrepresented populations.

Generally, minority-owned, women-owned, veteran-owned, and LGBTQ-owned businesses are considered diverse suppliers. In addition, some organizations also include small businesses and companies owned by persons with disabilities in their vendor diversity programs.

There are many reasons why your organization should view supplier diversity as a necessity, one of which is that it’s simply the right thing to do. But beyond its morality, supplier diversity brings significant value to the table, including numerous benefits that even help the bottom line.

3 Benefits of Improving Supplier Diversity

The Harvard Business Review conducted in-depth research, including interviews with companies and diversity organizations and analyses of media coverage and company reports. According to them, “Research affirms the commercial and social benefits of such programs and makes the case for companies to revisit their efforts and, if necessary, commit themselves to taking them seriously.”

We will further explore three of these benefits below.

1. Economic Impact

A common reason businesses raise for resisting selecting more diverse suppliers is the fear of increased cost. However, research published by the Hackett Group shows the benefits of having more diverse suppliers outweigh the cost. The Hackett Group study indicates that for every $1 million in supplier diversity procurement costs, an average of $3.6 million is added to the bottom line. This article from the Wall Street Journal further supports the fact that supplier diversity pays off.

So, in addition to increasing your organization’s revenue with every dollar spent, you also support local economies and growing businesses. Doing so improves the economy at large, but it also makes a more stable supply chain for your organization.

2. Improve Reputation

Embracing diverse suppliers, and like-minded suppliers who prioritize diversity, broadens your target market and supports a positive, inclusive brand image. As consumers demand more diversity and transparency, they expect companies to promote their efforts – and they are more likely to buy from brands that do. Additionally, diversity impacts how consumers view the products and services of an organization.

In addition to supporting supply chain diversity, many companies are taking their efforts even further as they pursue ESG investing. As the demand for transparency increases, organizations that don’t support diversity in all aspects of their business from hiring and supplier selection risk exposure. Embracing diverse suppliers at the sourcing level is an excellent practice to implement diversity at the very foundation of an organization’s practices.

3. Encourage Innovation

Working closely with diverse suppliers offers a new perspective and encourages collaborative innovation. Diverse suppliers also tend to be smaller and better connected with their customers and market.

Additionally, supplier diversity drives healthy competition. Think about it: When large, traditional organizations only compete against one another, pricing is often well established. However, when smaller organizations are intentionally included in sourcing processes, it shakes things up. Often, this inspires more competitive pricing and customized proposals.

How Procurement Can Support Supplier Diversity

Although there are many ways procurement can support supplier diversity, listed below are what we consider to be a few of the key game-changers:

Benchmark current spend with diverse suppliers and set goals for improvement

Create and publish a supplier diversity policy, including a commitment to percentage of spend that will be dedicated to diverse suppliers

Include supplier diversity in your RFPs using RFP management software

Report progress to bring visibility to your initiatives and results

Interested in learning more about how to incorporate supplier diversity into your RFP and sourcing process? Let’s connect. Reach out and join us to start influencing change.