A lot of considerations go into choosing who to procure materials crucial to your business from. There’s price, there’s logistics, there’s sustainability. Chief procurement officers all over are rethinking their supply chains in attempts to avoid the kinds of headaches the COVID pandemic brought. If you haven’t explored adding diverse suppliers to your process, you really should. It’s not as difficult as you might think, given how many categories of diverse supplier there are. A diverse supplier can be anything from minority-owned to women-owned to LGBTQ+-owned to simply a small business. Sending business their way obviously helps them out, but it benefits the businesses working with them and the overall economy as well. Here’s how.
Diverse suppliers aren’t the mega-corporations that have dominated the industry for years or even decades. That means they’ve had to get creative to scratch out their share of the market. Since they’ve been on the outside looking in, new ideas have been their lifeblood. They have come up with new products and services that stand out and truly usher in a new way of doing things that’s often more efficient. No one wants to be caught flat-footed as the industry passes them by. Diverse suppliers offer unique perspectives on problem-solving that traditional firms might not have because they haven’t been forced to come up with them. Increased competition leads to increased innovation. There’s a reason the big players seek to buy the little guys that come up with big ideas. It’s because they’re onto something.
Return on Investment
Because of all that innovation, companies that work with diverse suppliers tend to see higher ROI and market share compared to companies that don’t. The Hackett Group’s 2017 Supplier Diversity Study found that companies allocating 20% or more of their supply chain spending to diverse suppliers attributed 10-15% of their sales to supplier diversity programs. Companies that allocated less than 20% of spend to diverse suppliers got less than 5% of their sales from their supplier diversity programs. “Supplier diversity is evolving from a check-the-box corporate social responsibility requirement to a strategic enabler providing access to innovative products and increased market share in new and developing communities,” Hackett Group research director Laura Gibbons said. “Top-performing organizations are taking advantage of this opportunity, and applying the tenets of social diversity to new areas such as supplier partnering, reputation management, and global expansion with exceptional results.”
Increasingly, consumers factor in the values companies stand for when deciding who to buy from. If their values align, some are even willing to pay a premium for that. This is especially true among Millennials and Gen Z, nearly a third of whom are willing to pay extra for products that meet their values. There are about 140 million of them, and they’ll only continue to make up more of the consumer market as they age, so it’s a wise idea to get on their good side. “Millennials and Gen Z are becoming a force to be reckoned with as they continue to represent a larger share of the consumer demographic. Companies that don’t have sustainability as part of their core value proposition need to act now to protect against future reputational impacts and loss of market share,” said Shikha Jain, author of the Simon-Kucher & Partners 2021 Global Sustainability Study. “We’ve been on this journey for a while, but the clock is ticking and failure to think through the implications could have long-term consequences for traditional firms.”
Suppliers have other customers, of course, and vast networks. When you start procuring from diverse suppliers, it opens these networks to you. More business for these suppliers generates positive economic impact for various communities. With minority-owned business enterprise sales growing at twice the national average, these markets are lucrative. Given current demographic trends, the U.S. population will be majority minority by 2045, so these markets are where most consumers will come from in the next couple of decades. Walmart is a member of the Billion Dollar Roundtable, a group of companies that have spent at least $1 billion with minority- and women-owned suppliers. Through its Women’s Economic Empowerment initiative, Walmart spends hundreds of millions of dollars with women-owned suppliers annually. “Women are our primary customers. Women are the primary decision makers of purchases in our stores. When you invest in women, they put their earnings back into the community,” Jenny Grieser, the former senior director of the initiative, told Supply Chain Dive. “It’s the right thing to do, but it’s also the smart thing to do.”