Analyst Insight: In 2023, organizations should incorporate socio-economic and other environmental, social and governance (ESG) initiatives into their overall business strategies. One way to accomplish this is to undertake a supplier-diversification effort, and set benchmarks to ensure that suppliers and vendors can meet certain requirements and standards.
To be successful, corporate supplier-diversity initiatives should be aligned with the higher business strategy. This allows companies to focus their supplier spending goals on areas that drive revenue growth, while simultaneously having a positive socio-economic impact on their local operating markets.
Most companies take a tactical, bottom-up approach to targeting spend categories in line with short-term diversity objectives. This tendency reflects that reality that most supplier-diversity programs begin started as a reaction to a customer or market demand. Instead, companies should be taking a more proactive approach that’s aligned with overall corporate objectives. These organizations view their suppliers as potential customers, capable of providing unique insights that lead to product innovations and access to new market opportunities. Visionary companies understand that the most diverse and inclusive supply chains are about more than just compliance, but are true sources of competitive advantage.
Following are some common practices adopted by best-in-class companies.
Market-driven goal setting. While many companies struggle with establishing diverse spending goals, best-in-class organizations consider specific internal and external factors that underscore the importance of supplier diversity. These include customer requirements, industry regulations, market demographics and targeted customer segments. For example, a company learns that it generates 20% of its revenue from diverse customer segments, but spends only 3% of procurement dollars with diverse suppliers. In this case, 20% would be the benchmark for establishing the initial supplier-diversity spend goal.
Emphasis on strategic relationships. Best-in-class companies focus on establishing relationships with top-performing diverse suppliers across key categories. They often include IT marketing and promotion; professional services, such as accounting, consulting and legal; real estate and facilities, and staffing. As the supplier consolidation trend continues, leading organizations can lean into diverse suppliers that can develop and fulfill needs across a broader range of categories.
Diverse supplier advisory councils. Best-in-class companies consider their suppliers to be an extension of the organization, as current or potential customers who are uniquely qualified to provide valuable market insights. As a reflection of that approach, they’ll establish advisory councils consisting of some of their top diverse suppliers across representative categories. This not only enables them to capture “the voice of the supplier,” but also serves as a built-in customer focus group from which to gather insights that aid in product and process enhancements.
Outlook: As companies continue to realize the tremendous impact of supplier diversity and inclusive procurement programs on overall ESG efforts, expect to see corporate executives assessing supplier diversity and environmental sustainability initiatives together under the ESG umbrella. Crucial to their success is incorporating those efforts into the overall business strategy, instead of maintaining them as sidebar initiatives. From a procurement perspective, this combined view of encompassing sustainability and supplier diversity forms the basis for responsible sourcing.
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