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Unlocking Potential: The great benefits of Supplier Diversity

Business | February 09, 2023 | By Roshan Siddharth Ramanee Unlocking Potential The great benefits of Supplier Diversity

We live in a world that is free. The pinnacle of this example is how we have a free market economy. The economy operates under the principles of supply and demand, where businesses compete for consumer patronage with “diverse” offerings of various goods and services priced competitively and attractively. This competition encourages businesses to scale their efforts to make their offerings unique and valuable, so that they can attract customers and stand out from their competitors. The greater the diversity of products and services available to consumers, the better the market. 

Additionally, this gives consumers the ability to choose which products and services they purchase. It allows them to “vote” or ascend support with their choice of product for the businesses and offerings that align with their personal preferences and values. As a result, the free market economy promotes diversity and choice by fostering an environment where businesses must be innovative while consumers have the power to drive market outcomes. For this to transcend current limitations and become completely true to its definition of what a “free market” entails, diversity should go beyond consumer choice and must become a manufacturing decision and operational cornerstone. And for that supplier diversity must become an embedded business strategy in the procurement process and not just a CSR initiative. 


Promoting Inclusivity and Fairness

Supplier diversity is critical to procurement because it promotes inclusiveness and fairness in the selection of suppliers for goods and services. It also helps to ensure that businesses from diverse communities have equal opportunities. Diversity in the supplier base provides a wider range of suppliers to choose from, fostering competition and driving innovation. Additionally, supplier diversity can also bring new perspectives and ideas, leading to improved products, services and business processes, and can enhance the reputation of the procuring organization.


Diverse Suppliers, Diverse Advantages

Having a diverse supplier base can bring several advantages, including:

    1. Increased Competition: A wider range of suppliers means increased competition, leading to better pricing, quality, and innovation.
    2. New Perspectives: Diverse suppliers can bring unique perspectives, ideas, and solutions, which can lead to improved products, services, and business processes.
    3. Market Access: Working with suppliers from diverse communities can provide access to         new markets and help build relationships with diverse customer segments.
    4. Risk Mitigation: Diversifying the supplier base can reduce the risk of dependence on a single supplier, helping to ensure business continuity in the event of disruptions.
    5. Reputation Enhancement: Companies that are committed to supplier diversity are often viewed positively by stakeholders, including customers, employees, and investors.


Perhaps the most significant benefit of having a supplier diversity program is an increase in market share. Companies that earmark 20% and more of their spending for diverse suppliers report that 10-15% of their annual sales come from these programs. Meanwhile, companies that allocate less than 20% of their spending to diverse companies credit less than 5% of their sales to their supplier diversity program. The more a company increases its diversity spending, the more its market share grows. 

On a related note, increased diversity in the supply chain allows a company to expand more easily into markets with diverse demographics. The growing number of minority people in the U.S. means that minority buyers will increase purchasing by 70% between 2000 and 2045, according to the Department of Commerce, so these are large markets to tap into.


Real World Impact

Dun & Bradstreet research tells us that minority-owned businesses in the USA between 2013-2014 contributed jobs for millions of people. The exact contributions are 2.2 million people employed by minority owned businesses, 7.9 million employed in women-owned businesses and 2.4 million jobs from LGBT-owned businesses.

Data from the the National Minority Supplier Development Council (NMSDC) 2018/2019 yearly report state these astonishing projections: 

Between 2000-2045, 3.3 million minority business owners will grow 

    • 17% annually
    • 24% annually in sales 
    • 70% of total purchasing power


It is beyond doubt that supplier diversity uplifts local communities, in the areas where businesses are located, via job creation, increased wages, and tax revenue. For example: Campbell’s Soup has called Camden in New Jersey home for over 150 years. And as part of their supplier diversity programme, they have pledged to increase their procurement spend with New Jersey-based small and diverse suppliers by 25%, by 2025. Expanding the supplier base opens a world of sourcing opportunities that promote competition, improve product quality, bring new solutions, and drive innovation. And this can have a significant impact on several areas, including:


    1. Economic Impact: By increasing opportunities for small and minority-owned businesses, supplier diversity can help to drive economic growth and create jobs in diverse communities.
    2. Business Performance: Companies with a diverse supplier base can benefit from increased competition, innovation, and improved products and services.
    3. Employee Satisfaction: A workplace that values and promotes diversity can lead to increased employee morale, engagement, and retention.
    4. Community Relations: By working with suppliers from diverse communities, companies can build positive relationships and enhance their reputation.
    5. Legal Compliance: In some regions, laws and regulations may require companies to demonstrate a commitment to supplier diversity, and failure to comply can result in financial penalties or damage to reputation.
    6. Social Impact: Supplier diversity can help to reduce discrimination and promote equality, leading to a more inclusive society.


Going Beyond CSR

It is about time that Supplier Diversity moves beyond being a CSR initiative. For the buyer, research shows that diversity leads to improved problem solving, innovation and connecting with the values of the customer. And according to findings from The Hackett Group, 76% of all diverse suppliers met buyers’ expectations and another 23% exceeded them.Such data proves further that such initiatives bring forth business profits and boosts a locally sustainable economy that will then return the favor. Global giants like IBM and Coca Cola are actively pushing to be diverse on the ground and not just for PR. At a macro scale, supplier diversity has the potential to drive economic growth, improve business performance, enhance employee satisfaction, build community relations, ensure legal compliance, and promote social impact. 

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