An increasing number of companies today are embracing supplier diversity programs, with the aim of buying more goods and services from historically underrepresented suppliers. From a risk-management perspective, however, such efforts shouldn’t be limited to top-spend suppliers. According to the 2021 BCI Supply Chain Resilience Report, 59% of disruption in the supply chain comes from smaller contractors and subcontractors. 

A survey by Gartner and the Association for Supply Chain Management found that size does matter: 44% of supply chain organizations with more than $5 billion in revenue had formal diversity, equity and inclusion (DEI) targets. The number dropped to 25% for large companies with $1 billion to $5 billion in revenue, 31% for medium companies down to $100 million, and just 10% for those with less than $100 million in revenue.

Small business leaders are now making efforts to add diversity as a measure for selecting contractors and multiple tiers of subcontractors. The pandemic taught them that fewer vendors could mean more significant risks during a crisis, so they’re seeking flexibility and competitive advantage with supplier diversity programs.

The latest data from the U.S. Chamber of Commerce Small Business Index lists supply chain issues as the second-biggest concern for small business owners this year. About 60% of these owners said they have shifted to using more local suppliers. 

These findings echo a  Diversity in EHS  survey by Avetta that surveyed nearly 500 environment, health and safety leaders from small, mid-sized and large companies across a broad range of industries. Some the key findings: 

• 80% of respondents have a broad idea of diversity, but supervisors and contractors have a limited view. 
• 47% of the companies have programs to stop discrimination and promote equality. 
• 37% consider diversity with Tier 1 suppliers.

The survey found that only 26% of executives consider diversity in hiring, and 84% do not monitor discrimination with Tier 2 suppliers.

Diversity can help a company’s bottom line. A Nielsen survey found that 73% of millennials — and 66% of all consumers — were more likely to buy brands supporting social issues they care about. McKinsey researchers said 72% of respondents reported buying more environmentally friendly products than five years ago, while 81% said they expected to buy even more over the next five years.

The more businesses invest in diverse suppliers, the more money flows into the suppliers’ communities. For example, Microsoft found that for every $1 million it spends with diversified suppliers, 75% is retained by the local community and more than 17 jobs are created, building goodwill for the brand and stability for its sourcing communities.

The Hackett Group’s Supplier Diversity Study found that companies that dedicate 20% or more of their spending to diverse suppliers can attribute as much as 15% of their annual sales to supplier diversity programs. Depending on annual sales numbers, previous studies have put the return on investment of a supplier diversity program as high as 133%. 

In a time of labor shortages, diversity goals can also attract top talent to the company. The ASCM study reports that Gen Z job candidates — those born between 1997 and 2021 — are keenly interested in whether a business is committed to equality in the workforce.  

Following is a roadmap for embracing diversity and risk management among suppliers and subcontractors: 

Ensure a supply chain risk management (SCRM) framework is in place with PERC: 

• Plan controls and communications for assessing and monitoring risk; 
• Execute tasks associated with risk monitoring, adjustment and communication; 
• Review the effect effectiveness of planned work controls, and 
• Control organization learning and adjust for the next planning cycle.

Use PERC to bring subcontracted suppliers into your framework. Management of a complex ecosystem requires vigorous engagement to ensure that proper processes are in place.

Work with a partner with the people, process and technology needed to solve ongoing risks throughout your supply chain. Awareness of risk levels and visibility of subcontractors yield multiple benefits, including:   

• Creating visibility into the unique risks throughout your supply chain;
• Enabling you to understand the controls and how they work in your company for specific risk categories, and  
• Generating performance improvements with all contractors and maintaining acceptable levels of transparency, performance and improvement. 

Learn from others. Access to data, insights and knowledge should span regions, industries and disciplines. Diversity is an issue for companies large and small, and must be taken seriously by contractors and subcontractors in every tier. The results of having a plan in place will be higher profits, the ability to attract and retain the best employees, and increased sustainability throughout your supply chain. 

Katie Martin is the lead sustainability and ESG principal at Avetta.