Why Diversifying Your Supply Chain is a Commercial Imperative

How can partnering with non-traditional suppliers unlock supply chain diversity benefits for your business?

Supply chain diversity refers to actively seeking and promoting a range of suppliers, vendors and partners that represent diverse backgrounds, perspectives and characteristics. This may include underrepresented groups such as minority-owned enterprises (MBEs), women-owned enterprises (WBEs), small-business enterprises (SBEs), as well as those based in different regions or countries. It can be further dissected into two components:  

1. Suppliers implementing appropriate diversity and inclusion (D&I) initiatives in place to create equitable business environments; and,
2. Buyers diversifying their supplier base and supply chain, creating a level playing field for suppliers to compete based on the quality of their products and services. 

Why does supply chain diversity matter?

There are both push and pull factors for suppliers wishing to improve their diversity score as well as for buyers looking to diversify their supplier base. To start with, social justice movements over the past decades around anti-racism and gender equality have resulted in businesses facing stronger scrutiny from investors, stakeholders and customers on their diversity programmes, policy commitments and key performance indicators. From a supplier’s perspective, as diversity constitutes part of the ‘Social’ pillar of ESG and buyers increasingly integrate ESG considerations into their procurement strategies, diversity commitments become an important selection criterion and a key competitive advantage to stay ahead of the game. From a buyer’s perspective, having a diverse supplier base can improve a company’s reputation by showcasing its commitment to social responsibility, which in turn leads to better talent retention, increased customer loyalty and trust from investors. 

Apart from external pushes for supply chain diversity, there are also internal drivers. Firstly, supply chain diversity provides cost-saving opportunities where businesses can leverage competitive pricing to negotiate a better price and choose the most cost-effective option. Secondly, supplier diversity can reduce risks and improve supply chain resilience. Rather than relying on a single supplier, having a diversified supplier base across different regions allows businesses to be better at meeting on-demand requirements and mitigating supply chain disruptions arising from natural disasters and geopolitical instabilities, ensuring a steady supply of critical goods and services. Last but not least, supply chain diversity can act as a substantial value generator. Despite being overlooked, supply chain diversity has a proven record of improving business financial performance. According to research by Catalyst, inclusive organisations are twice as likely to meet or even exceed their financial targets.  

Supply chain diversity can also provide intangible values in supporting business agility, ideation and creativity. This is because a diverse supplier pool provides access to innovative products, thinking and ideas that can improve production and efficiency, helping businesses develop a competitive advantage and outperform their industry peers. Having a better representation of women and ethnic minorities within the organisation, especially among key leadership roles, also helps to challenge legacy-focused mindsets and prevent group-thinking, helping organisations be more adaptive to innovative changes and keep pace with the fast-changing regulatory and industry landscape. 

What are the challenges and how do you start building your supply chain diversity?

Despite having huge potential benefits, supply chain diversity can be challenging when there are a limited number of diverse suppliers in the market. Many industries still struggle with limited representation within their supplier pools. Moreover, the lack of transparency and data availability to track supplier performance may constrain businesses from trying SBEs and MBEs, who are often perceived as having limited capacities and economies of scale. Lastly, there is a huge disparity of progress on diversity among large, publicly-held organisations and smaller, privately-held organisations. Unlike large, publicly-held organisations, smaller organisations face less stringent regulations and public scrutiny. They are more likely to underestimate the benefits of supplier diversity and misperceive it as being more costly than staying with incumbent suppliers. Even if perceptual changes are enacted, they often lack clear goals and inclusive leadership to initiate and enforce organisational change.  

Here are some simple steps to start your plan: 

Step 1: Conduct a self-assessment.

• As a supplier, map out your position in a maturity model, identify areas of strengths and weaknesses, and key pain points to tailor your approach. 

• As a buyer, map out your suppliers and extended supply chain; and understand the range of sourcing processes across these external parties. 

Step 2: Define goals and measurable targets.

• As a supplier, understand what actions and metrics will drive organisational alignment across all levels on D&I. 
• As a buyer, map out and deep-dive into your current supply chain to identify areas for improvement and what can be done. 

Step 3: Develop a roadmap to refine policies and enact initiatives.

As a supplier, design formal and structural process change through: 

1. Learning: hosting D&I interview panels and establishing academic partnerships
2. Recruitment: review your talent strategy, enact DEI support schemes such as diversity programmes and networks. Ensure process transparency and encourage minority groups to pursue supply chain careers.
3. Employee engagement and leadership training: host unconscious bias and allyship training to promote cultural and perceptual changes.

As a buyer, diversify your supplier base and set-up D&I standards for incumbent suppliers. 

1. In the short-term: adjust your procurement requirements, RFP and payment terms to be more SME-friendly; request incumbent suppliers to meet particular D&I standards and disclose relevant information.
2. In the long-term: diversify your procurement channel and leverage the business opportunity of product and service innovation to deliver supplier diversity goals. Establish supplier diversity programs to actively support supplier development, mentorship and certifications.

A successful example to look at would be UPS Supplier Diversity Tier 2 program. UPS requests suppliers who are not diverse themselves to participate in the scheme, who then need to extend UPS’s ‘commitments to work with small and diverse businesses by having robust supplier diversity initiatives of their own’. The results are regularly reported and accessible to UPS customers.  

Step 4: Monitor and measure progress

• As a supplier, regularly track and measure the impact of diversity efforts and continuously refine the diversity programme and initiatives in place. 
• As a buyer, regularly review the supplier base to identify areas of strength and improvements. Map out critical risks and develop mitigation plan. 

GET IN TOUCH WITH OUR TEAM TODAY

If you would like to speak to an expert in this area, please reach out to our Managing Partner, Allison Ford-Langstaff Allison.ford-langstaff@4cassociates.com. There is nothing we like better than a chat on Sustainability and how to create prosperity for all.