Originally Posted On: Inclusive Procurement Programs Pay Dividends (tracegains.com)
With an increase in data exchange and transparency, consumers everywhere can better examine a company’s supply chain. In an era where purchases increasingly reflect values of inclusivity, sustainability, and ethical procurement practices, all it takes is one incident shared on social media to tarnish a brand image. Businesses that want to compete must rise to meet the challenge.
For example, Coca-Cola spends more than $800 million annually on diverse suppliers.
As of 2019, retail giant Target spent $1.4 billion on goods and services from first-tier diverse suppliers while persuading its first-tier suppliers to buy more than $800,000 worth of products from second-tier diverse suppliers. The company also recently announced plans to spend more than $2 billion with Black-owned businesses by the end of 2025 due to a commitment to add products from more than 500 Black-owned businesses.
“We have a rich history of working with diverse businesses, but there’s more we can do to spark change across the retail industry, support the Black community, and ensure Black guests feel welcomed and represented,” Target Executive Vice President and Chief Growth Officer Christina Hennington explained.
Food, beverage, and dietary supplements manufacturers have been ramping up the adoption of supplier diversity programs, which are business initiatives that aim to buy from minority-, women-, veteran-, and LGBTQ-owned businesses. The U.S. Small Business Administration (SBA) defines diverse suppliers as companies that are at least 51% owned and operated by an individual or group that’s part of a traditionally underrepresented or underserved demographic. Categories include small-business enterprises (SBEs), minority-owned enterprises (MBEs), and women-owned enterprises (WBEs). Since its inception, “diversity” has grown to include companies owned by other minority groups as well.
Economic Benefits to Supplier Diversity
But it’s about more than taking a moral high ground. The pandemic exposed how vulnerable the global supply chain is. A more inclusive procurement strategy expands the supplier pool while encouraging competition, which results in better products and lower costs. And with a broader array of sourcing opportunities, inclusiveness makes for a more robust and agile supply chain.
“Diverse suppliers can turn on a dime and are now considered for contracts that they would not have been otherwise due to the imperative for flexibility. They have proven themselves to be agile in terms of responsiveness,” Torrez Thompson, Former Vice President of Global Supply Inclusion and Diversity at Coca-Cola, told Harvard Business Review.
Working with diverse suppliers means expanding the diversity of ideas, perspectives, and visions. This approach radically opens up innovation opportunities by creating a broader, more creative conversation. Research reveals diverse companies are 70% more likely to capture new markets than their monolithic counterparts. So it’s simply good business across the board.
Working with diverse suppliers increases a company’s potential customer base, adding new communities, including emerging and underserved markets. Better still, those new, diverse consumers are often more loyal.
A McKinsey & Co. survey found companies that better collaborate with suppliers achieve higher business growth, lower operating costs, and better profit margins than competitors who don’t.
Diverse suppliers can be a cornerstone of any organization’s success, helping companies ethically and efficiently source products and services while maintaining profits, growing customers, improving the economy, and encouraging innovation. With forward-thinking supply chain management and a focus on strategic sourcing, companies and the diverse vendors within their connected supply chains can increasingly benefit from joint business initiatives.
But there’s more to establishing a more inclusive supplier management program than connecting with a few diverse suppliers.
All too often, companies roll out diversity programs as a knee-jerk reaction to consumer sentiment but then embrace them in a meaningful way.
“To meaningfully accelerate movement toward greater economic equality, supplier diversity has to be more than a catchphrase; it has to have a seat at the table and play an active role in the procurement process,” Veronica Johnson, Supplier Diversity Specialist at Archer-Daniels-Midland (ADM), explained.
Accountability is another frequent obstacle to a successful inclusive procurement program. It can be tough to ensure vendors are genuine minority-owned enterprises, so transparency is critical. Companies can also install oversight boards to ensure accountability. Finally, Harvard Business Review reported that companies like UPS work with third parties to validate supplier certifications quarterly and “conduct audits of diversity spend and the economic impact of programs.”
It can also be a challenge to adequately gauge the impact of an investment in a minority supplier. It’s easy to assume the money will reach the intended community, but that can be a mistake. It’s one Gilead Sciences addressed by turning to location-based indicators.
“In one example, a minority-owned IT service company with which we contract established customer care centers in Chico, California, rather than turning to offshore solutions and added 140 additional jobs in the city. By systematically measuring these efforts, we believe we can prioritize our contracting resources and maximize the impact of our supplier inclusion program on underserved communities,” according to Brian Peters and Steven Wuerth from Gilead Sciences.
Finally, there are resources available for companies struggling to find diverse supplier options, including:
- The National Minority Supplier Development Council (NMSDC).
- The U.S. Small Business Administration (SBA).
- Other local government offices.
Finding Diverse Suppliers Just Got Easier
TraceGains Market Hub is a robust sourcing directory for ingredients, items, packaging, and service providers. When manufacturers need to source a new item, raw material, or ingredient, they can find it in Market Hub. Procurement teams can search by country of origin, location, halal, kosher, allergens, organic, and several other filters to quickly find what they need.
TraceGains has added two primary questions to our Supplier Questionnaire to support growing supplier diversity efforts, focused on whether a company is Minority-Owned or Woman-Owned, along with free text to provide supporting information. This added functionality will make it even easier for companies to find more diverse supplier options.
The new feature also allows suppliers to connect with manufacturing partners by building a complimentary online profile to become visible to 40% of the top 100 food and beverage companies that run TraceGains.
Join TraceGains host Mercedes Howard for a webinar on April 28th with Archer-Daniel-Mills, Supplier Inclusion Manager Veronica Johnson and Barilla Supplier Diversity Program Manager Angenetta Frison for a webinar, “Build a Better Business with a More Inclusive Supply Chain.”
The webinar will address:
- How strategic and ethical sourcing programs are essential for business success.
- Advice on how to structure and implement supplier diversity and inclusion programs.
- Ways to measure inclusive procurement and define company accountability.
- Advice on overcoming sourcing obstacles for new and established inclusion programs.
- Tools to help your procurement team easily connect with compliant minority and women-owned suppliers.