The homogeneous customer bases that companies once sold to, no longer exist. Every market is now a diverse market with multiple segments. What better way to gain customer insight than to purchase and collaborate with the markets that buy from you? Establishing an open, team-like dialogue between buyer and supplier can result in supply base diversification and can create growth, expose cost-saving opportunities, and stimulate innovation. To be successful, supply chain diversification must be championed by top management and communicated throughout the organization and to each individual involved in the sourcing process.
What is Supplier Diversity?
Supplier Diversity refers to actions taken toward engaging traditionally under-utilized suppliers in both new and existing sourcing efforts. Generally, diverse suppliers include those qualified as small businesses or businesses owned by minorities, women, and veterans. Many large OEMs have their own specifications for what types of certifications are acceptable. As is common among automotive OEMs, Ford, General Motors, and Toyota each specify exactly which organizations and certifications they will recognize. Supplier Diversity can be beneficial at all sourcing levels of the supply chain; from OEMs to Tier III and IV suppliers.
Implementing and Maintaining Supplier Diversity Initiatives Can Be a Challenge
There are misconceptions around how companies achieve supplier diversity and why they make such an effort to do so. Largely, the misunderstanding is that supplier diversity operates on a quota system that encourages sourcing professionals to choose suppliers based on non-financial reasons or characteristics. However, the reality is that companies dedicate countless resources to expanding supplier diversity because it does in fact give them a significant competitive advantage.
Further, it is often thought that using a small business or diverse supplier will, in addition to the extra time and effort required, lead to a decrease in quality, capacity, or delivery that will negatively impact the business. In our experience the opposite is true, companies can co-create significant value be increasing spend with diversity suppliers.
1) Why Should My Company Focus on Supplier Diversity and Increase Diversity Spend?
Supplier diversity provides a unique competitive advantage for OEMs and other upstream suppliers. Sourcing from the same diverse customer base that you are selling to has a unique advantage. Many communities enjoy sourcing locally-produced goods from smaller businesses with local ties, creating and retaining additional revenue within the localized economy.
A diverse supply base can also stimulate opportunities for innovation and reinforce high-quality relationships between buyers and suppliers. Because diverse suppliers often have their own organizational cultures and processes, they may come to the table with different perspectives, offer unique insights, and foster communication while avoiding groupthink.
2) How do I Increase Diversity Spend Without Sacrificing Anything Else?
It is a myth that smaller or more diverse suppliers can’t keep up with quality, delivery, and service the way that larger companies can. When vetting a diverse supplier, ensure that all of your existing standards are met and that the proposed supplier is capable of supporting you as a customer. When choosing to partner with a diverse supplier it is encouraged that you form a mentoring program where supplier and customer work closely on a wide range of business initiatives to ensure the success of both organizations. Through mentoring programs many companies assist their suppliers through process implementation and education, as well as improving customer delivery and quality standards.
A few indicators that are widely used to measure supplier health and viability throughout day-to-day relationships are: OSHA compliance, response time to inquiries, changes in supplier payment trends, and quality control. It is important that if any of the indicators above begin to trend negatively that all parties collaborate and work together to mitigate any potential issues before they become costlier. Such collaboration is key in improving processes and creating cost savings over the long run.
3) Where Should I look to find Diverse Companies?
To identify diverse suppliers, it is critical to first define, from your organization’s perspective, what a diverse supplier is. As stated previously, diverse suppliers typically include small businesses and minority-owned, female-owned, and veteran-owned businesses. There are many resources that can be used to seek out diverse suppliers, including the National Minority Supplier Diversity Council and its local affiliates, local government offices, and the United States Small Business Administration.
Organizations providing verification of diverse status:
Supplier diversity efforts are growing in almost every industry from consumer electronics to medical devices. Although it is easy to find a page on almost every major company’s website about supplier diversity initiatives, not everyone has the same goal. Many companies still consider supplier diversity only a small part of corporate social responsibility. Organizations who look beyond the mere social good of engaging diverse suppliers will reap the largest benefit through decreased supplier risk, improved financial performance and strong, cohesive supply base relationships.