The window is open for real gains in supplier diversity

At many companies, supplier diversity programs are meeting corporate goals that require sourcing from such organizations as minority-owned, woman-owned, LGBT-owned, small, and other historically underutilized businesses. Now that procurement has the ear of the CEO, it's time to take these programs to new levels.

In the CSCMP's Supply Chain Quarterly article "Why Working with Minority Suppliers Still Matters," Joset Wright-Lacy, president of the National Minority Supplier Development Council, makes a sound case for supplier diversity. She writes that supplier diversity benefits not only participating buyers and minority-owned businesses but also the overall economy.

Procurement has been instrumental to the success of many such programs over the years. Early on, procurement leaders helped their companies comply with government regulations requiring the inclusion of diverse suppliers. Procurement's role has also included hiring supplier-diversity managers and setting up programs that tracked their company's progress toward meeting corporate diversity goals. Procurement professionals at many companies also added steps for including minority-owned businesses in processes for selecting suppliers. They worked with the suppliers to develop their capabilities; for example, by training them on processes such as completing requests for proposal (RFPs).

The results of these programs are noteworthy. New research by The Hackett Group shows 76 percent of diverse suppliers are meeting procurement's expectations for cost, delivery, quality, and service metrics, with nearly one-quarter of them consistently exceeding those requirements. But the 2016 Supplier Diversity Study also shows that diversity programs seem to be stalling.

I recently spoke to Laura Gibbons, research director with The Hackett Group's Procurement Executive Advisory Program and an author of the study. According to Gibbons, most companies have programs with only a narrow scope, such as meeting government regulations. However, as the report points out, leading companies have expanded their efforts to include developing supplier partnerships, mentoring local suppliers, collaborating with suppliers on product innovation, and sharing their experiences with other companies, says the report. When procurement leaders venture beyond the basics and work closely with diverse suppliers, both parties benefit, Gibbons said. She shared an anecdote of a cheese processor partnering with a minority-owned supplier that makes gluten-free tortillas, opening a new market and increasing sales for both."

"Diverse suppliers are being innovative to differentiate themselves," Gibbons said. "Buyers need to take advantage of that."

Innovation through diversity

CEOs today are looking to procurement for more than managing cost and delivering quality products on time. They recognize procurement has insights into markets and supplier capabilities. They want procurement to contribute ideas that will boost company profits and competitiveness. Diverse suppliers can be an untapped resource in this regard.

There are some hurdles. The Hackett Group points out that some procurement leaders don't have the necessary support from their CEOs to put more into supplier diversity programs. Others have programs they could expand to other regions of the world but have not done so. Most have not figured out how to show the return on investment of suppliers' new ideas and how they contribute to company revenue.

Based on my experience with procurement, I believe these are obstacles that can be overcome. Hackett's Gibbons suggests procurement leaders start small, perhaps by coming up with a case study that shows how working with diverse suppliers can yield new ideas for products or processes, and then sharing it with the CEO and also through social media with colleagues.

Additionally, procurement leaders should use their seat at the table to pass on diverse supplier wins to the CEO and chief financial officer. In meetings with members of cross-functional teams that design new products and with business-unit leaders, they should talk up the capabilities of diverse suppliers and the contributions they make to the company. Using their position to get support to take supplier diversity to a new level will make a difference to everyone involved, demonstrating that supplier diversity will continue to matter.