Executive Briefings

Supplier Diversity Is Making Headlines, Not Progress

Diversity is one of the hottest buzz words in the supply chain world today. But, are supplier diversity programs a fad or a truly integral part of companies' supplier management strategies?

The answer is still unclear. According to a recent report from ISM, there is a disconnect between progress made on the diversity front and what's appearing in the headlines. Despite reports of new commitments from companies to diversify their supply chains, only 44 percent of companies consistently hit supplier diversity spend targets. The report also revealed that even fewer companies have connected supplier diversity to driving business growth.

At its core, initiatives such as those pertaining to supplier diversity require that procurement and supply management teams have deeper visibility into their supply chains. Increased visibility into the makeup of the supply base - including identifying which suppliers are women-, minority- or veteran-owned - presents opportunities to shift the diversity ratio in the short and long term. And, it helps establish a baseline against current supplier diversity spend and set parameters to monitor progress against its goals.

Companies need to start from the bottom and work their way up - without an understanding of how diverse (or non-diverse) the supply base is, it will be a struggle to connect supplier diversity to larger business goals.

Removing the Obstacles to Diversity

Supplier diversity is still a relatively young initiative with the focus on adhering to mandates rather than business growth or differentiation. Many companies are still trying to establish strong frameworks for their diversity programs - as well as a way to measure the tangible value that they can deliver, but there are obstacles to overcome.

The ISM report exposed four key areas hindering supplier diversity programs:

1. Lack of an internal diversity champion: Without champions who understand the value, diversity has a hard time moving up the corporate agenda. Like any new corporate initiative, supplier diversity needs strong leaders at the helm to ensure that the tools and resources needed to achieve goals are available and that progressive metrics are set to avoid complacency.

2. Access to diverse suppliers: Of the respondents, 71.8 percent reported that it is difficult to find quality diverse suppliers in particular commodities. This is a leading contributor to missed diversity spend targets. Without easy access to certified vendors, procurement will turn to other sources.

3. A lack of accountability: According to the ISM report, only 27 percent of companies publish supplier diversity metrics. Most companies are required to comply with federal mandates, but internal goals for supplier diversity may be more aggressive. However, mandates are still the primary driver for supplier diversity, so missing internal metrics aren't always seen as big losses.

4. Poor internal communication of benefits: Less than 16 percent of survey respondents train their sales teams on how to make supplier diversity a selling point. Procurement may be a driver for diversity across the entire enterprise, but without integration into sales and marketing, prospects won't understand that your business reflects their values and customers.

Setting the Bar High

There are, of course, exceptions to the rule. Some companies are pushing diversity initiatives further to improve profitability and cultivate better relationships with existing customers.

PSEG (Public Service Electric and Gas) provides gas and electric service to one of the most diverse areas of the country - and the Fortune 500 company is utilizing supplier diversity to create a sourcing program to reflect its customers.

Through enhanced visibility into the supply chain, PSEG identified an additional $8m in diversity spend, helping to reduce costs, provide better service to customers and develop new products and services.  In addition to advancing the company's goals, PSEG promotes supplier diversity as a means to create more jobs and stimulate the economy.

PSEG's success debunks common misconceptions.  Historically, small businesses and women- or minority-owned businesses have been labeled risky, inexperienced and non-innovative, when very often the opposite is true; they are typically more flexible, faster to implement changes, and provide a lower cost structure.

Creating a Game Plan for Supplier Diversity

A basic framework for supplier diversity should ensure that procurement teams can locate qualified diverse suppliers, including the use of company-mandated diverse suppliers - and accurately report them. This lays the foundation for companies to move forward in creating partnerships across their organizations to understand how diversity is - or is not - impacting the business strategy. If it's not, there is an opportunity for the procurement team to take the lead in establishing relationships with the marketing and sales teams to ensure that diverse suppliers know their business is valued.

Supplier diversity has a more macroeconomic goal: to create a more inclusive and sustainable word economy. A goal for supplier diversity is simple - elevate the supplier diversity discussion and shine a light on an area that can have tremendous impact on business.

Source: D&B Supply Management Solutions


Keywords: Supplier Relationship Management, Sourcing & Procurement Solutions, Technology, HR & Labor Management, Business Strategy Alignment, Supply Chain Analysis & Consulting, Global Supply Chain Management, Women-Owned, Minority-Owned, Veteran-Owned, Diversity Champion

The answer is still unclear. According to a recent report from ISM, there is a disconnect between progress made on the diversity front and what's appearing in the headlines. Despite reports of new commitments from companies to diversify their supply chains, only 44 percent of companies consistently hit supplier diversity spend targets. The report also revealed that even fewer companies have connected supplier diversity to driving business growth.

At its core, initiatives such as those pertaining to supplier diversity require that procurement and supply management teams have deeper visibility into their supply chains. Increased visibility into the makeup of the supply base - including identifying which suppliers are women-, minority- or veteran-owned - presents opportunities to shift the diversity ratio in the short and long term. And, it helps establish a baseline against current supplier diversity spend and set parameters to monitor progress against its goals.

Companies need to start from the bottom and work their way up - without an understanding of how diverse (or non-diverse) the supply base is, it will be a struggle to connect supplier diversity to larger business goals.

Removing the Obstacles to Diversity

Supplier diversity is still a relatively young initiative with the focus on adhering to mandates rather than business growth or differentiation. Many companies are still trying to establish strong frameworks for their diversity programs - as well as a way to measure the tangible value that they can deliver, but there are obstacles to overcome.

The ISM report exposed four key areas hindering supplier diversity programs:

1. Lack of an internal diversity champion: Without champions who understand the value, diversity has a hard time moving up the corporate agenda. Like any new corporate initiative, supplier diversity needs strong leaders at the helm to ensure that the tools and resources needed to achieve goals are available and that progressive metrics are set to avoid complacency.

2. Access to diverse suppliers: Of the respondents, 71.8 percent reported that it is difficult to find quality diverse suppliers in particular commodities. This is a leading contributor to missed diversity spend targets. Without easy access to certified vendors, procurement will turn to other sources.

3. A lack of accountability: According to the ISM report, only 27 percent of companies publish supplier diversity metrics. Most companies are required to comply with federal mandates, but internal goals for supplier diversity may be more aggressive. However, mandates are still the primary driver for supplier diversity, so missing internal metrics aren't always seen as big losses.

4. Poor internal communication of benefits: Less than 16 percent of survey respondents train their sales teams on how to make supplier diversity a selling point. Procurement may be a driver for diversity across the entire enterprise, but without integration into sales and marketing, prospects won't understand that your business reflects their values and customers.

Setting the Bar High

There are, of course, exceptions to the rule. Some companies are pushing diversity initiatives further to improve profitability and cultivate better relationships with existing customers.

PSEG (Public Service Electric and Gas) provides gas and electric service to one of the most diverse areas of the country - and the Fortune 500 company is utilizing supplier diversity to create a sourcing program to reflect its customers.

Through enhanced visibility into the supply chain, PSEG identified an additional $8m in diversity spend, helping to reduce costs, provide better service to customers and develop new products and services.  In addition to advancing the company's goals, PSEG promotes supplier diversity as a means to create more jobs and stimulate the economy.

PSEG's success debunks common misconceptions.  Historically, small businesses and women- or minority-owned businesses have been labeled risky, inexperienced and non-innovative, when very often the opposite is true; they are typically more flexible, faster to implement changes, and provide a lower cost structure.

Creating a Game Plan for Supplier Diversity

A basic framework for supplier diversity should ensure that procurement teams can locate qualified diverse suppliers, including the use of company-mandated diverse suppliers - and accurately report them. This lays the foundation for companies to move forward in creating partnerships across their organizations to understand how diversity is - or is not - impacting the business strategy. If it's not, there is an opportunity for the procurement team to take the lead in establishing relationships with the marketing and sales teams to ensure that diverse suppliers know their business is valued.

Supplier diversity has a more macroeconomic goal: to create a more inclusive and sustainable word economy. A goal for supplier diversity is simple - elevate the supplier diversity discussion and shine a light on an area that can have tremendous impact on business.

Source: D&B Supply Management Solutions


Keywords: Supplier Relationship Management, Sourcing & Procurement Solutions, Technology, HR & Labor Management, Business Strategy Alignment, Supply Chain Analysis & Consulting, Global Supply Chain Management, Women-Owned, Minority-Owned, Veteran-Owned, Diversity Champion