Why Diverse And Inclusive Supply Chains Are Needed And Three Tips To Make It Happen
Senior Vice President at Insight Sourcing Group leading the Supplier Diversity & Responsible Sourcing Consulting Practice.
During my nearly 25 years in procurement, I have witnessed firsthand the value of more diverse and inclusive corporate supply chains. My experience includes stints as a global management consultant, a corporate procurement executive and a procurement software entrepreneur.
Along this journey, I learned that diverse and inclusive supply chains are more competitive, able to unlock innovation, provide access to new markets and deliver socioeconomic impact in local operating markets.
During my tenure as chief procurement officer (CPO) of a billion-dollar telecommunications company, we were always searching for new, unique diverse suppliers that would enable us to enhance our offerings and provide healthy competition for incumbent suppliers.
I learned that casting a wider net enabled us to build a supplier portfolio that included a broader range of supplier segments. This ultimately allowed us to increase spend with diverse suppliers, drive higher procurement cost savings and optimize overall supply chain value.
Innovation is defined as the creation, development and implementation of a new product, process or service with the aim of improving efficiency, effectiveness or competitive advantage. I have been involved in several instances where a new product, process or service was implemented by a top-notch supplier that happened to be diverse. However, my favorite story is about an emerging company that I discovered at a tradeshow.
This company produced modems that enabled internet service for our customers. After conducting some due diligence, I learned that — with some engineering tweaks — this modem could be compatible with our proprietary network at a significant reduction in cost. This innovative, diverse company was eventually invited to participate in a competitive supplier selection process and was awarded a multimillion-dollar contract that resulted in a significant increase in gross margins for our company.
Access To New Markets
Another lesson learned is that, in addition to increased supply chain competition, innovation and lower cost, diverse suppliers can also deliver access to new customer markets. One of my favorite examples is from a client engagement with a large business services firm where our team was developing a supplier diversity strategy, vision and roadmap.
In addition to delivering multimillion-dollar annual cost savings, coupled with a double-digit increase in diversity spend across numerous spend categories, the team uncovered a significant new revenue opportunity for the client via a partnership with a diverse supplier that provided access to a federal contract that required more capacity than the diverse supplier could provide alone. This is a great example of connecting the dots between the value of supplier diversity and market share growth.
According to the U.S. Small Business Administration report, 99.9% of U.S. businesses fall within the definition of small business and account for 65% of net new jobs generated over the last 20 years. Over 50% of those businesses are either minority- or woman-owned but only represent 7% of the estimated $30 trillion generated annually by all firms.
Over the years, I have been fortunate to experience the impact of intentional efforts to introduce small, innovative diverse suppliers to corporate supply chain opportunities around the world. These companies tend to hire diverse teams and reinvest in their local communities.
Supply Chain Diversity: A Strategic Imperative
Over the past 20 years, supply chain diversity has evolved from a compliance-driven initiative to a corporate strategic imperative for leading corporations, with a goal of driving economic impact within diverse communities.
For example, the Billion Dollar Roundtable (BDR) “was created in 2001 to recognize and celebrate corporations that have achieved spending of at least $1 billion annually with minority- and woman-owned suppliers.” This has become a badge of honor for corporations truly committed to economic inclusion.
Here are three ways you can accelerate supply chain diversity in your company:
1. Determine where your procurement dollars are going.
Developing a baseline understanding of where external procurement dollars are spent and with whom is essential to building a more diverse and inclusive supply chain.
For example, let’s say your organization spends $100 million annually across a handful of major categories, including real estate and facilities, marketing, IT (hardware and software) and professional services. You are now armed with the knowledge of where to focus diverse supplier inclusion efforts. During this process, you may discover opportunities to enhance existing diverse supplier relationships that drive increased profitability. There are data classification/enrichment technology and tools that aid the process of identifying suppliers by diversity status (minority, woman, etc.).
2. Identify diverse suppliers aligned with key spend categories.
Once you have an understanding of the major categories of spend, you can begin the process of broadening your pool of potential suppliers within each category.
In addition to querying people you know and trust about diverse suppliers they have worked with in the past, supplier diversity certification and advocacy organizations, such as the National Minority Supplier Development Council (NMSDC) and Women’s Business National Enterprise Council (WBENC), are great platforms for connecting with diverse suppliers. There are also services that focus on offering access to databases of vetted diverse suppliers.
3. Establish inclusive procurement policies.
Implement “The Rule of 1,” which requires the inclusion of at least one diverse supplier in competitive supplier selection/RFP (request for proposal) processes.
It is within the context of this commitment that I relate my own personal journey as a minority entrepreneur. I launched my procurement software startup 10 years ago with a handful of employees. After two years of relentless pursuit of success, we landed a contract with a major corporation. This contract enabled us to grow from four to 11 employees. By the time we were acquired last year, we had grown to 35 employees. Of those 35 employees, 50% were women and 40% were an ethnic minority.
This truly embodies the power of diverse supply chains. As you contemplate your corporate procurement strategy, be mindful of the value that supply chain diversity could deliver to your organization.
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