Yesterday I posted a blog titled "Everything you want to know about supplier Diversity." You can read it here - Everything you want to Know about Supplier Diversity . That was a WHAT aspect of my three part series discussion - WHAT, WHY & HOW of Supplier Diversity.
Now the real question that procurement managers in an enterprise need to answer when there is a talk about implementing supplier diversity is “Why should we implement Supplier Diversity?” Is it just a fun stuff in CSR list – or does it make a perfect business sense?
Today let’s look at the key drivers behind the supplier diversity initiative and how one can not only justify but also build a business case around it to take organization along with you.
The basic premise here is - A supplier diversity program will partner your company with businesses that are owned and/or operated by women; African, Hispanic, Asian and Native Americans; gay and lesbian individuals; and veterans. It will also connect you with companies that may have been overlooked because of their size as well as those located in economically distressed areas.
Now all that is fine, but do these connections make a business sense for me? Do they make value addition in the overall supply chain? The answer is YES.
Since most diverse suppliers are also small businesses, companies find that diverse suppliers offer greater flexibility, more customer focus, and lower cost structures. The vast number of diverse suppliers and the fierce competition for business is also seen as a powerful driver for innovation.
A 2003 study by CHI Research determined that small businesses generate 13 to 14 times more patents per employee than large firms. Many companies use their supplier diversity programs as a means to tap into small businesses and the innovation that is occurring at these firms.
Additionally, companies that have strong supplier diversity programs appear to get more out of their procurement organizations than companies that do not. In a 2006 study by The Hackett Group, companies that focus heavily on supplier diversity generate 133% greater return on the cost of procurement compared to average companies.
According to findings of Minority Business Development Agency of US dept of commerce titled “AN OVERVIEW OF THE 2002 SURVEY OF BUSINESS OWNERS” -
In 2002, there were 4.1 million MBEs representing almost 18 percent of firms that could be classified according to the race, ethnicity, or gender of ownership. These firms earned gross receipts of $668 billon (8 percent of gross receipts attributable to classifiable firms) and employed 4.7 million workers (9 percent of workers employed by classifiable firms).
For a number of measures, MBEs showed strong growth in the 5 years between the surveys:
Large MBEs—MBEs with gross annual receipts greater than $500,000—showed particularly strong performance
First, due to the large number of new minority and women-owned businesses, companies will be more likely to work with diverse suppliers in the future than today. Companies with strong supplier diversity programs will be better able to identify and develop these young companies into valuable supply relationships.
Second, the growth of minorities as a customer segment presents the opportunity to market the use of a diverse supply base for retail companies. Many consumer products companies are already targeting minority segments by focusing on the company’s use of minority suppliers.
With the projected increase in population share the minority share of US economy is expected to grow as well. By 2045 minority purchasing power may reach $4.3 trillion as compared to 1.3 trillion in 2000 or as high as $6.1 trillion if income parity were eliminated by 2045. Furthermore the minority population may contribute 44 percent or as much as 70% of the total increase of purchasing power from 2000 to 2045.
Now the multi trillion dollar businesses makes perfect sense to start working on supplier diversity program of an enterprise and connect with these minority communities through your strong supplier diversity program. Companies with a diverse supplier base stands to gain access to multi cultural markets.
Thanks
Prashant Mendki