Hackett Research Proves Supplier Diversity is More Than Just About “Getting the Warm Fuzzies”

supplier diversity

Companies putting time and money into supplier diversity programs experience no loss in efficiency, according to new research from The Hackett Group.

Hackett’s 2017 Supplier Diversity Study found that nearly all diverse suppliers meet or exceed expectations and in fact bring additional benefits such as new revenue opportunities. These new findings dispute executive assumptions that pursuing supplier diversity initiatives will divert attention from other strategic activities.

Supplier diversity first began to gain traction in the United States in the 1960s, but until recently it was seen largely as a feel-good extracurricular activity for companies. The goal of supplier diversity programs is to encourage the use of minority-owned, women-owned, LGBT-owned or disabled-veteran-owned suppliers, as well as historically underutilized and small businesses. To qualify, suppliers usually have to prove at least 51% ownership by a diverse party.

The Hackett Group has found that companies’ ambition regarding supplier diversity objectives was decidedly narrow, limited to improving corporate image, supporting a diverse and socially responsible corporate culture and complying with regulatory requirements. Spend Matters has written about supplier diversity in the past (as well as a couple weeks ago). And in fact, Peter Smith, editor of Spend Matters UK/Europe, had made the case in 2014 that supplier diversity has “a lot more to do with competitive advantage than getting the warm fuzzies.”

Going Beyond “Warm Fuzzies”

While 70% of companies that participated in Hackett’s study on supplier diversity performance cited corporate image improvement as a “critically important” or “important” diversity program objective, 40% said that they aim to improve service and quality by tapping local sources of supply and 43% sought to gain “unique market insights from suppliers.”

Spend Matters has nothing against warm and fuzzy feelings. (Is that not why we went into procurement?) But supplier diversity programs can do so much more. Just take a look at the following stats from The Hackett Group:

  • An impressive 99% of diverse suppliers meet or exceed expectations, with nearly a quarter exceeding expectations.
  • Up to 10% of sales come with supplier diversity requirements, showing that such programs can contribute to revenue.
  • Companies that allocate 20% or more of their spend to diverse suppliers can attribute 10%–15% of their annual sales to supplier diversity programs.
  • Companies with world-class procurement organizations devote 33% more of their spend to diverse suppliers, compared with the average company.

Tried-and-True Tips

If your company is looking to take supplier diversity activities to the next level, take the following recommendations from The Hackett Group to heart. These tips come from organizations that have successfully implemented supplier diversity programs themselves.

  • Develop relationships with local suppliers and work with your suppliers on product innovations.
  • Share your experiences with supplier diversity programs with other companies. Participate in conferences and roundtable discussions.
  • Use social media wisely. Social media can be an excellent tool for developing brand awareness, retaining talent and attracting new talent.
  • Educate procurement executives and stakeholders on the value that supplier diversity can bring in order to maintain support for these programs.
  • Identify new suppliers by working with diversity organizations. For example, companies can find certified women-owned suppliers through the databases of the Women’s Business Enterprise National Council (WBENC) and WEConnect International.
  • Manage domestic and global diversity programs together in order to ensure consistency and alignment with overall strategy.

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