Some of the world’s largest companies are in on one of procurement’s best-kept secrets: supplier diversity. Supplier diversity is a proactive business strategy encouraging the process of sourcing supplies from minority-owned, women-owned, veteran-owned, service disabled veteran-owned, historically underutilized businesses and SBA-defined small business vendors.
fHere are seven reasons why supplier diversity is a best practice that should be instilled in every organization.
- Generates bottom-line profit: Not only does it benefit the community around you, supplier diversity also provides a distinct competitive advantage for businesses. In a report titled “ROI-related Supplier Diversity,” the Hackett Group found companies who participate in a long-term supplier diversity program can generate a 133 percent greater ROI than those firms who look no further than the suppliers they traditionally rely upon. The report claims supplier diversity programs also drive an additional $3.6 million to an organization’s bottom line. Beyond ROI, the Hackett Group concluded that procurement organizations who work with a diverse supplier base also had lower overall operating costs.
- Promotes innovation: If you continually use the same suppliers without branching out into new, diverse markets, you risk stymieing the creative benefits you should be receiving. We should encourage new small and medium-sized businesses because they bring along the added innovation advantages, differentiating themselves from their competitors. Small businesses, unlike their larger counterparts, are more agile and can create and innovate quickly.
- Provides multiple procurement channels for goods and services: Adding diversity suppliers to a company’s supplier base adds value. This allows companies to promote and engage several suppliers while simultaneously reducing the overall cost of the product/service. Additionally, having more suppliers allows you to analyze cost, location, and service delivery and choose the supplier that works best for them. A final benefit to having multiple channels is the volume of opportunities created by forging new relationships with suppliers’ alliances.
- Drives up competition, driving down prices: When sourcing the services you need, there are many factors you take into consideration when choosing a supplier. Whatever factors they may be – price, location, service levels, etc. – suppliers are looking to give you the best overall deal they can to win your business. This drives competition between suppliers, which reduces your direct and indirect spend and improves quality.
- Displays your company’s interest in and commitment to the economic growth of your community: Contracting with local small-medium sized enterprises (SMEs) or minority business enterprises (MBEs) has a profound effect on your surrounding community. By contracting with these suppliers, you’re helping increase spend and consumption while promoting job creation on the local level. Engaging with local suppliers enhances and bolsters the communities you live and work in.
- Allows access to a whole different network: Organizations implementing supplier diversity programs are more likely to penetrate new markets and gain new customers. As you reach out to more suppliers, you will become privy to each of their business networks and certification networks.
- Aligns with demographic shifts in the United States: If you want to know what America will look like in a generation, look at its classrooms right now. In 2014, children of color became the new majority in America’s public schools. These children are America’s future and having a supplier diversity and inclusion plan both recognizes this and helps breed a culture where they can prosper, as well as your organization and our country.
Supplier diversity is a business practice that is instrumental in improving your bottom-line and, as we’ve reviewed above, it will benefit your business in more ways than impacting ROI. Discover how you can strengthen your supplier diversity programs in the area of staffing and workforce solutions and bring these 7 advantages to your business.
To learn more contact Linden Wolfe, PHR, CCWP at lwolfe@excelsiorstaffing.com or visit Excelsior MS3P – simple, scalable, smart
*Adapted from an article posted by Steve Lundin on September 1, 2015, on the Jaggaer website.