Supplier diversity – getting to the heart of the business case

So in our last article on the topic, we explored the reasons why organisations might consider a supplier diversity approach.

Before I go any further, I should recommend my US colleague Thomas Kase on this topic. He has far more direct experience than me and has written some excellent articles, ranging from the theoretical to reporting on the US bodies who promote supplier diversity. Some are for our PRO and Plus subscribers, but start here if you’re interested.

Here’s Thomas in a PRO piece recently -

“To summarize, competitive advantage accrues to a firm doing something better than its rivals – and new entrants (read: entrepreneurs, smaller, diverse firms) can be more successful than larger, established companies. Look at our successful Silicon Valley firms – they were all mere figments of someone’s fertile mind not long ago. What if the creative business focus that brought about those companies could permeate the country – and in all corners of the map as well as an in all walks of life”?

As Thomas says, where does the real innovation come from in our business world?  Sometimes from the big firms, of course, but often it is small, young, left-field people and firms who make the big jumps. Apple, Microsoft, Google in the tech world, or James Dyson in a more mundane industrial context were all at one stage innovators from outside the big corporate world.

And there’s a real issue here for procurement folk. If our goal is (as it should be) to create competitive advantage for our organisations, in the private sector at least, then that is very hard to do buying simply from the same big firms, because most of our competitors buy from them too. We wrote a while back about how many of the standard procurement techniques can accidentally create uncompetitive markets (aggregation, consolidation, prime contractors), and that’s a linked issue.

When we’re all buying our IT, our facilities management services, packaging or even consulting projects from the same few big firms as our competitors, how exactly are we generating advantage?  Opening up our supply base to “different” firms at least gives us the chance to achieve different and perhaps better outcomes than the rest.

Now, if you buy into this idea, it puts supplier diversity into a different light compared to the other drivers we talked about in our last piece. If you are only doing it because your customer demands it, then that will drive certain behaviour. If it is just to keep the government happy, you will tick the diversity boxes through the simplest and least costly means possible, even if really it isn’t adding much to your organisation’s performance or the greater economic good.

Often that manifests itself through buyers finding a minority owned firm who can act as a prime contractor – a middle man / woman in effect – and channelling orders through them to the “real” suppliers. That will provide the apparent spend with the “minority” vendor (and I know some firms do this).

Or if you are pursuing diversity because your target consumers or customers are women, Poles, the gay community, or older people who respect the armed forces, then the right strategy is to focus your supplier diversity programme on the firms who tick those customer boxes.

But if you believe that there is something strategically fundamental about opening up your supply base to firms who might actually provide competitive advantage, then that requires a different set of actions and behaviours – we’ll come back to that in the next part of this series.

First Voice

  1. Alis Sindbjerg Hemmingsen:

    Companies that have implemented supplier diversity programs say the payoff has come in the form of stronger relationships with their supply base, new business opportunities and a more agile supply chain.

    I like this example:

    Johnson Controls who is a supplier to GM, and recognized a a supplier diversity leader, has gained business because of their supplier diversity approach. Cite from Industryweek, Chuck Harvey, the company’s vice president of diversity and public affairs:

    “GM was looking to increase the minority-produced content of its vehicles. Johnson Controls was competing with other companies on seat design, pricing and other typical bidding points. To differentiate itself, Johnson Controls approached GM armed with consumer research that Cadillac was a popular vehicle in some minority communities. Johnson Controls offered to form a joint venture with a minority-owned firm to help GM achieve its minority-produced content goals. The joint venture became known as Bridgewater Interiors LLC. Johnson Controls won the business from GM, and Bridgewater now conducts business with several other large automakers

    ”It was a great way for us to figure out how to do something that was important to our customers and to do it like nobody else had done it. We have a couple of joint ventures now similar to this”.

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