Supplier diversity does not cut efficiency or quality

28 February 2017

Companies putting time and money into supplier diversity programmes experience no loss in efficiency or quality, according to research.

The Hackett Group’s 2017 Supplier Diversity Study found that despite executive assumptions that pursuing diversity initiatives would divert attention from other strategic activities, nearly all diverse suppliers met or exceeded expectations, bringing additional benefits such as access to new markets.

The goal of supplier diversity programmes is to encourage the use of minority-owned, women-owned, LGDT-owned or disabled-owned suppliers, along with historically underused and smaller businesses.

Hackett said most firms involved in the global study had narrow and limited ambitions regarding their supplier diversity objectives, such as improving corporate image, upholding a socially responsible corporate culture and complying with regulatory requirements.

The study revealed 70% of companies cited corporate image improvement as a ‘critically important’ or ‘important’ objective, 40% said they aimed to improve service and quality by tapping local sources of supply and 43% sought to gain ‘unique market insights from suppliers’.

Hackett research director Laura Gibbons said the findings showed supplier diversity was slowly moving away from corporate responsibility towards a desire to harness its advantages.

“Supplier diversity is evolving from a check-the-box corporate social responsibility requirement to a strategic enabler providing access to innovative projects and increased market share in new and developing communities,” she said.

“Top performing organisations are taking advantage of this opportunity and applying the tenets of social diversity to new areas such as supplier partnering, reputation management and global expansion, with exceptional results.”

Hackett suggests companies should aim to expand beyond their traditional goals and recognise the value of gaining access to new markets and improving supplier partnerships by mentoring local suppliers, collaborating on product innovation and actively developing customer and brand awareness.

Gibbons warned that business leaders needed to push past initial obstacles and doubts to enjoy the benefits supplier diversity would give.

“It can be difficult to obtain the necessary support to invest in supplier diversity programmes,” she said.

“Business leaders often worry that dedicating resources to this will impact procurement saving or even quality, but our research clearly shows this is not true.

“Overall the risks to focusing on supplier diversity are quite low, and the potential upside is significant—in fact, up to 10% of sales come with supplier diversity requirements, suggesting that the lack of such a programme can even result in lost revenue.”

The research also found that more than 40% of all global companies with a US supplier diversity programme planned to expand it globally within the next two to three years.

Elizabeth Vazquez, CEO and co-founder of WEConnect International, which connects women-owned businesses with buyers, said: “Global corporations must be committed to utilising the world’s best suppliers.

“Smart companies will make a conscious effort to identify underutilised suppliers in every market that can bring value, including businesses owned by women, ethnic minorities, people with disabilities, member of the LGBT community and other groups.”

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