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Proactive procurement and supplier diversity

22 August 2016

 

We are fortunate enough to live in a society where bright entrepreneurs of all ages, genders and backgrounds have opportunities to get started in business. Indeed, governments around the world are addressing the gender gap in entrepreneurship, and more women than ever have access to the funds they need to share their big ideas with the world.

 

That’s not where the story ends, though. Women-owned businesses earn less than 1% of the money large corporations spend on vendors, and women worldwide still have only 60% of the economic opportunities that men do.

 

If we are to see true entrepreneurial equality, we need to address a deeper problem - business procurement.

 

Attitudes toward procurement run deep, particularly among established companies. Your company may even have a set procurement protocol, with specific considerations geared toward receiving the best possible return on investment. After all, that’s what sourcing the right suppliers is all about. Adding gender diversity to such a list of requirements is seen by many business people as a charitable gesture at best, and a sacrifice at worst.

 

However, having women-owned-businesses represented amongst your company’s suppliers may benefit your business in more ways than you’d imagine, offering a wider business network and an increased ROI. Not to mention the positive effects on a wider scale - if women and men were to participate equally as entrepreneurs, we could see a rise of $1.5 trillion to the global GDP.

What is supplier diversity?

 

Supplier diversity refers to the act of sourcing products and services from a range of diverse suppliers, including minority and women-owned businesses. This creates sustainable supply chains, while also playing a part in the greater movement toward commerce that reflects the demographics of the community it serves.

 

When referring to diverse suppliers, organisations use the benchmark of 51% - that means that a supplier company needs to be 51% owned by women, ethnic minority groups, or other minorities. By giving such businesses the opportunity the flourish, corporations are readjusting the harmful balance that has long been ingrained in many supply chains.

 

Achieving supplier diversity as a corporation means consciously examining and changing your supply chain, to ensure inclusivity. While a company may have relied on the same suppliers for many years, it is always a good idea to avoid complacency and regularly review past decisions in line with what’s currently on offer.

 

If inclusivity becomes a factor in this decision-making process, we’re one step closer to an equally represented corporate culture.

How can supplier diversity benefit the business world?

 

The business world is in a constant state of flux, in which unprecedented economic challenges can knock even the most established businesses off their feet. This makes it more crucial than ever for businesses to support one another across the board, and building links with a diverse range of businesses allows companies of all sizes to capitalise on the perspectives and skills of a wider group of experts - not to mention gain a greater insight into how these challenges affect different markets.

 

Supporting a diverse range of suppliers and services is key to servicing emerging markets, with greater buying power than ever. Forbes contributor Bridget Brennan estimates that women drive 70-80% of global consumer purchasing, either through their own buying power or their influence over the decisions of others. By including women-owned businesses in procurement decisions, companies can allow this significant market to be represented and reflected in the companies that service and advertise to them.

 

Supplier diversity is also crucial to job creation. In the USA alone, nearly 50% of the workforce is employed by small businesses. What’s more, 7 million of the 10.9 million jobs added back to the US economy after the worst recession in recent history were created by small enterprises and startups, rather than by large corporations. By letting go some of the larger suppliers that we have come to rely on through habit and replacing them with a diverse range of smaller businesses, we can contribute to creating jobs from the ground up, ensuring a more stable economy and more employment opportunities for the generations to come.

How can supplier diversity benefit my company?

 

Believe it or not, a commitment to diversity is more than just good publicity. It’s good business! Research by the Hackett Group has shown significant financial benefits to engaging with a diverse supplier base. Companies with a strong focus on supplier diversity received 133% more return on procurement-based investment than businesses who had no such focus.

 

This increase in ROI comes down to a few things. For a start, casting procurement nets wider will drive competition between suppliers, resulting in higher quality products and services at lower prices. Similarly, introducing a well-designed supplier diversity program will increase efficiency in procurement operations, requiring companies to pour less time and money into the procurement process itself.

 

Improving your procurement processes can also bring long-term benefits through a wider and richer networking base. Working with diverse suppliers gives companies a new range of ideas and opinions to work with, opening them up to new opportunities and linking them to new target markets.

 

Let’s not forget that reliance on a small supply chain made up of large suppliers can pose a significant risk - if your company is dependent on a small handful of corporations, then you stand to lose out as much as they do should anything go wrong within their own infrastructure. On the other hand, a larger, diversified supply chain makes it less likely that you’ll be directly hit by the challenges that affect your suppliers.

How can I support supplier diversity?

 

If the facts are speaking for themselves, now’s the time to employ a supplier diversity program in your own company. By making your new proactive procurement processes known throughout the company, you can ensure that everybody’s on board and that diversity and equality become more intrinsic to your company culture than ever.

 

Consider kick-starting your supplier diversity program by partnering with an organization that promotes and certifies diverse suppliers, such as  Organizations that promote and certify diverse suppliers, such as the Women’s Business Enterprise National Council (WBENC).  Such organizations can help you to identify and network with potential suppliers, and guide you on your way to making your commitment a reality. You may also have the opportunity to market your own business through these organizations and their events, including matchmaking events to meet with a top-quality range of new suppliers.

 

Don’t forget to take a close look at the suppliers already under your belt. It’s wise to request that your large and strategic prime suppliers provide a full report on their own suppliers, including diverse businesses and the amount being spent on them. This Tier 2 reporting can help you stay at the top of a positive supply chain, rather than buying into companies who don’t follow your ethos further down the chain. While many women-owned businesses are still working their way up to being able to service top corporations, they can contribute goods and services on a lower tier. By supporting companies that support women-owned businesses in turn, you can help them grow into Tier 1 suppliers in their own rights.

 

If you’re ready to go a step further, you can support a promising small business by taking it under your wing and assisting with experience, education, funding and equipment. Over time, your investment will grow your chosen supplier into a strong contributor, who will be invaluable to your organisation for years to come.

 

One way to make a positive difference this year is to support WEConnect International’s #Buy16in16 challenge. WEConnect challenges all buyers and businesses to purchase at least 16 products or services from women-owned businesses before the end of the year. You can share your procurement successes on Twitter using #Buy16in16, as well as seeing top tips for responsible and diverse procurement on the WEConnect Twitter channel.

Conclusion

 

Rather than seeing a commitment to supplier diversity as a limitation on your business, it’s time to embrace the many ways in which equal procurement can enrich and enliven your corporation, giving rise to new viewpoints, new markets, and a bright new future for businesses of all sizes. Just ask the 85% of CEOs surveyed by blur, who confidently stated that their efforts to diversify procurement has enhanced performance. Let’s not limit ourselves to just a handful of well-known corporations. Let’s dig deeper and capitalise on the rich world of skills and opinions that lie underneath!


How has investing in diverse procurement affected your company? Let us know via our LinkedIn community. Learn more about the #Buy16in16 campaign with our article on the initiative.

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