Companies that spend more with diverse suppliers are making greater procurement savings than their peers, according to research.
A report by consultancy Bain & Company said those firms in the top quartile of spending with diverse suppliers saw an average of 0.7 percentage points more savings from total procurement spend.
David Schannon, who co-leads Bain’s Procurement practice in the Americas, said: “This data confirms our long-held hypothesis about the business value of diverse supply chains.
“When companies stop thinking of diversifying their supply base as a standalone initiative and start to recognise the benefits of investing in underrepresented groups, we see meaningful business improvements.”
The report, which analysed the procurement spend of more than 350 companies across global industries with data provided by Coupa, said spend with diverse suppliers increased by an average of 54% between 2017 and 2020.
Bain said leaders in supplier diversity tended to have more efficient procurement processes overall, with the top quartile having higher rates of pre-approved spending (+10%), greater use of electronic purchase orders (+52%), faster requisition to order processing times (+18%), and faster invoice approvals (+46%) compared to peers.
Radhika Batra, partner in Bain’s Performance Improvement practice, said: “It’s high time we put to bed the myth that diversifying a company’s supply chain means sacrificing business results.
“The data conveys quite the opposite. A well-managed ecosystem of diverse suppliers, including businesses owned by women and people of colour, can be a strategic differentiator for companies, generating meaningful returns.”
The report identified four key obstacles that companies need to overcome to boost spend with diverse suppliers:
1. Thinking of diversity as a standalone initiative.
Many leadership teams limit efforts to a series of short-term strategic sourcing events. This approach won’t address the long-term engagement required to develop a sustainable pipeline of diverse suppliers.
2. Aligning the organisation from the board to the business unit.
Boards may make commitments to diversity but should not overlook changes to day-to-day decisions that are necessary for implementation. Business units need a mandate to channel procurement spend to unknown suppliers and a clear sense of how diversity goals stack up against other priorities.
3. Assuming success will happen without resources.
One of the key reasons diversity initiatives struggle is organisations underinvest in the capabilities required to support new or developing suppliers, including onboarding, risk mitigation and mentoring.
4. Focusing only on tier one suppliers.
A narrow focus on tier one restricts ability to grow a diverse supplier ecosystem and could render targets unsustainable. It also reduces the potential benefits of working with a diverse supplier group, including collaboration, innovation, and access to new markets, customers and services.
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