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Harnessing Supplier Diversity for a More Inclusive Supply Chain

Supplier Diversity
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Diversity of people, resources and identity, breeds diversity of thinking & innovation.

Progressive & pioneering organizations have embraced this principle, and have started inculcating it in various parts of their operations.

Others, have done so, in response to rising demands for corporate responsibility.
One of the areas where diversity is emerging as an important factor, is supply chain management. A vital strategy for creating more inclusive and moral supply networks is supplier diversity.

The practice of deliberately seeking out and supporting businesses owned by minorities, women, veterans, LGBTQ+ people, and other underrepresented groups as suppliers is fostering supplier diversity. This practice gives these varied businesses equitable opportunities to take part in an organization’s procurement processes and contracts.

It is important to note, that this practice does not sideline the typical supplier shortlisting criteria such as cost, quality, etc.

The what, why, and how of efficiently leveraging supplier diversity are all covered in this blog. We’ll look at various types of diverse suppliers, the varied value they provide, and methods for incorporating diversity into the procurement process.

There is a strong business argument for diversity. Join us as we examine how businesses can foster inclusive supplier ecosystems that encourage community improvement and mutual growth.

What does supplier diversity entail?

Diversity in general, means variety of people in terms of race, color, gender, as well as the inclusion of veterans, differently abled, and LGBTQIA+ people.

Supplier diversity in the context of procurement, is the deliberate and proactive inclusion and support of businesses owned by minorities, women, veterans, LGBTQIA+ people, and other underrepresented groups in an organization’s supply chain and procurement processes.

It entails broadening sourcing pools to incorporate varied businesses operated by:

  1. Minorities – Racial/ethnic minority groups e.g. Black, Hispanic, Asian, Native American
  2. Women – Businesses with 51%+ woman ownership
  3. Veterans – Companies owned by former military members
  4. LGBTQIA+ – Suppliers with key members belonging to the LGBTQIA+ umbrella.
  5. People with disabilities – Businesses owned by those with physical or mental disabilities
  6. Small businesses – Locally owned SMBs

The objective is to offer these groups equal access to and opportunity for competing for and winning procurement contracts, hence fostering inclusion in supply ecosystems.

Supplier diversity supports business principles of social justice while also fostering innovation and risk reduction. It is a significant step in the direction of creating dependable, ethical supply chains.

Why supplier diversity matters

The business case for supplier diversity is multifaceted.

According to McKinsey, companies in the top quartile for ethnic/cultural diversity were 36% more likely to see above-average profitability. Organizations can acquire new insights and innovations while having a good social impact by utilizing a variety of providers.

Some key reasons supplier diversity has become a strategic priority include:

1. Economic Benefits: Studies indicate that greater diversity is associated with more successful financial outcomes. Multiple suppliers foster competition, which reduces costs and improves value. They encourage local community development by redistributing income. Smaller businesses, for example, have smaller overheads, enabling competition on price.

2. Social Justice: Real advancement toward equality and empowerment depends on providing marginalized populations with economic opportunities. In underserved places, supplier diversity encourages entrepreneurship.

3. Innovation & Competition: Better products, services, and processes result from the different vendors’ original viewpoints. According to Boston Consulting Group research, businesses with above-average diversity generated innovation revenues that were 19% higher.

4. Risk Mitigation: Spreading out sourcing across a larger supplier base insulates against disruptions. The supply chain is durable even if a few significant parties encounter problems.

5. Reputation and Brand Value: About 80% of customers anticipate that businesses will have diversity policies. Activist consumerism is an emerging trend especially with the shift in generations to Z, millennials, etc. Diversity in suppliers shows a dedication to inclusive supply networks and ethical supply chains, enhancing brand equity.

6. Compliance: Meeting supplier diversity criteria is becoming a legal and regulatory requirement in geographies all over the globe. Watchdog institutions and governmental bodies are ensuring that corporations meet these requirements, especially those of a certain size, financial strength, or repute.

Supplier diversity allows businesses to “do well by doing good” while also making good business sense. Diverse suppliers are valued by major businesses as engines of innovation, risk reduction, enhanced reputation, and general success.

Practices that foster supplier diversity

To cultivate inclusive sourcing, leading organizations implement strategies like:

1. Supplier Audits and Certifications: Authentic ownership, control, and regular oversight of an array of suppliers are confirmed by rigorous certification programs by members of underrepresented groups. Ownership status and competencies are confirmed via audits.

2. Usage Goals and Tracking: Useful targets include 3-5% of targeted spend use goals for diversified supplier spend. KPI-based robust tracking ensures goal-related responsibility across business units. Progressive organizations have started making such KPIs part of key personnel’s MBOs as well, ensuring they have a personal stake in ensuring diverse suppliers are onboarded.

3. Diverse Supplier Databases: Centralized databases of accredited diverse businesses make it simple to find and connect with new diverse partners. Through online portals, suppliers can self-register in the database.

4. Outreach Programs: Raising awareness involves actively taking part in conferences and networking occasions for varied entrepreneur groups such as minorities, women, LGBTQ+, and others. Trade organizations encourage outreach.

5. Internal Policies: Equal access to opportunities is guaranteed by official policies requiring diverse supplier participation in sourcing processes. Policies also direct program governance and utilization objectives.

6. Executive Sponsorship: The leadership needs to support the initiative. Having executive support and incorporating supplier diversity into corporate principles.

A holistic strategy combines supplier development, usage goals, executive alignment, certification, and data-driven tracking to cultivate an inclusive supply chain.

Introducing the AppXtend Supplier Diversity app

On our composable application platform, AppXtend, Zycus provides the Supplier Diversity App to help businesses realize the strategic potential of supplier diversity. This specifically designed tool offers extensive capabilities to efficiently manage, track, and promote diversity within your supplier base.

The Supplier Diversity App easily deploys and requires minimal configuration to work with all of your procurement technology. It is intended to expand into a command center that powers the entire diversified supplier lifecycle, from discovery to onboarding and expansion.

With custom automation, the Supplier Diversity App provides procurement teams with the tools they require to promote diversity and maximize value.

Supplier Diversity App’s features and benefits

The Supplier Diversity App provides powerful capabilities to drive supplier diversity including:

1. Detailed metrics on supplier diversity tracking, including utilization by category of diverse suppliers and performance.

2. Dashboards offering insight into the state of diversity programs across locations, business units, and products/services.

3. Self-registration portal where an array of diverse businesses can register and submit certification paperwork to join the eligible supplier database.

4. AI-powered searches make it simple to find approved, diverse suppliers who match sourcing standards in the database. Direct communication with suppliers can be established through the platform.

5. Automated inquiries to gather ownership information from suppliers during diversity certification.

6. Surveys to gather input from diverse suppliers on program satisfaction, challenges encountered, and improvements needed.

7. Tracking indirect diversified spend through prime suppliers using Tier 2 reporting capability.

The app enables organizations to obtain total visibility into program ROI in supplier diversity, streamline sourcing from diverse partners, and create world-class inclusion thanks to its end-to-end support for supplier diversity management.

Are you ready to make supplier diversity a central component of your procurement plan rather than a secondary venture? Contact Zycus today to discover more about augmenting your supply base for social advancement and mutual growth.

Related Read:

  1. 7 Critical Supply Chain Management Trends for 2023
  2. VUCA approach towards Supply Chain
  3. How to Effectively Mitigate Supply Chain Risk in the Manufacturing Sector
  4. Supply Chain Crisis Management- Part 1
  5. One Size Doesn’t Fit All: Why Supply Chains Need Micro-Segmentation?
  6. Role of Procurement in Supplier Value Chain for Business Advantage
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