Supplier diversity increasingly important, but hurdles remain: report

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Dive Brief:

  • Companies have stepped up their efforts to work with more minority and women-owned businesses, with 53% of North American respondents in a Jaggaer-Tealbook survey saying supplier diversity is a “high priority.”
  • Still, many still report roadblocks in setting up supplier diversity programs. The survey, which polled 90 companies around the world in April 2021, found a third of businesses had “difficulty identifying diverse suppliers that also meet procurement criteria.” Another 27% said there is a “lack of supplier diversity data and insights.”
  • Those that have taken steps to increase supplier diversity report seeing upsides within the company and outside of it. Two-thirds of North American businesses polled said the biggest benefit has been “positive reputational impacts,” with more than 40% also saying there’s been increased “supplier innovation” and greater “supply base competition.”

Dive Insight:

A global call to action following the murder of George Floyd last summer has driven more companies to commit to working with more minority-owned suppliers.

Roughly 70% of North American businesses in the Jaggaer-Tealbook survey agreed that the Black Lives Matter movement and calls for racial equity have “heightened internal pressure to boost our supplier diversity initiatives.” Fifty-six percent of European companies agreed with that same statement, though only 16% said supplier diversity programs were a “high priority.”

Spending on diverse suppliers increased an average of 54% between 2017 and 2020, according to research from Bain & Company and Coupa. And large companies are taking even more steps to double down on their commitments. Target announced that it would spend $2 billion with Black-owned businesses by 2025, while Intel plans to spend $2 billion annually with diverse suppliers by 2030.

But diversifying the supply chain can be more difficult for those just starting out, or for smaller-sized companies that may not have the resources to seek out and vet new suppliers.

“There’s lots of misconceptions that if you do this, you’re gonna sacrifice either cost or quality,” said Harry Haney, who has held various supply chain roles during a 30-year career at Kraft Foods and is the former head of Loyola University Chicago’s Supply Chain and Sustainability Center. “That doesn’t have to be true.”

Beyond working with accredited organizations like the National Minority Supplier Development Council, companies can use third-party software providers such as Supplier.io or Tealbook, Haney said. They also should take steps to tap their existing supplier network.

“Just publicizing that you want to do this will help draw some new talent,” said Haney, who was not associated with the Jaggaer-Tealbook survey.

Still, major challenges remain. For one, relying solely on accreditation organizations could miss out on a huge pool of potential partners, said Tom Derry, CEO of the Institute for Supply Management. Many minority-owned suppliers are smaller-sized businesses who may not want to invest the capital needed to be accredited by organizations like the NMSDC.

The size of these suppliers also means they can’t always keep up with the demands of major companies.

“If you’re a Fortune 500 relying on suppliers to get things on time in the place, you simply cannot afford to work with those who aren’t meeting their end of the deal,” said Derry.

It’s why many companies have taken steps to invest in their suppliers, and provide them both capital and knowledge to scale up. Part of Target’s expanded supplier diversity program, for example, includes a new team “dedicated to providing vendors with ongoing support and assisting them in growing and successfully scaling their businesses in mass retail,” the company said in April.

Those investments could be worth it, particularly as global supply chain disruptions have companies already reevaluating their supplier relationships. In an ISM survey of over 460 supply management professionals yet to be released, 58% said their diverse supplier program provided actual or potential suppliers “during this pandemic.”

“The events of last year did increase awareness among companies to invest more in communities, but there are clearly business imperatives that are very much at play,” said Derry. “Bringing in someone new brings a new perspective. Big companies especially saw that innovation as a big benefit.”

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