Supplier Diversity – the next big thing in procurement or another fad?

Is supplier diversity becoming a major issue for the function and indeed for organisations generally? There seems to be some increased focus recently, although this isn’t new and there’s no guarantee that what we’ve noticed won’t turn out to be a false dawn.

But let’s start with first principles - what do we mean by supplier diversity?  Our definition would be something like this –

“Supplier  diversity is a concept or a business programme that encourages organisations to use a wide range of supplier types, including women and minority owned businesses, small, local and innovative firms, third sector, social enterprises and other types of organisation”.

And there does seem to be a growing interest in the topic. I linked up recently with Justin Lambert, who was UK procurement head at Merck – the huge Pharma firm – but has taken on a new role now as their Supplier Diversity Program Lead. That’s interesting in itself, to see a senior person wanting to take on that sort of role.

There is also the growing profile of organisations such as WE Connect, who promote women-owned businesses, and try to match up the requirements of their members on the buy side with their database of women owned supplying businesses. That’s not always easy of course, but they appear to be getting more large firms supporting their agenda.

Another major player is MSDUK, (Minority Supplier Development UK),  whose remit is pretty obvious from their name!  They are very active, and actually have a good interview with Lambert on their website here.

Then we have Business in the Community (BITC), chaired by The Prince of Wales, who address a whole range of areas where business can help to improve life generally. They’ve introduced an Access Pledge, which enables firms to commit to making their business fair, transparent and open, so that SMEs can “compete for their business on a level playing field”.

Does this all add up to a significant shift in procurement (and business ) priorities in terms of managing their supply chain? I’m not sure yet, but I suspect there is something meaningful here, and there does appear to be a shift of emphasis in the wind. That is enough for us to suggest that procurement leaders need to be aware of the issues, and consider whether they should be taking action in their own organisations.

There are some significant questions of course. We’ll be coming back to these as we plan to increase our coverage of this area over the next weeks and months. Here are a few to start with.

1. Why should organisations look at this agenda – is it “just” about being a good corporate citizen and feeling good, or are there real, solid business benefits in following a supplier diversity strategy?

2.  Is it best to focus on specific elements of supplier diversity – such as the minority or women owned agendas – or is it better to look at it as a holistic issue?

3. What actions can really make a difference as opposed to just paying lip service to the concepts or being seen to “do something” – and how would we measure success?

4. What should procurement people think about and implement in this area if they want to make a difference?

They seem to be some good initial questions to address – and we’d be grateful for comments and indeed ideas around other key topics that we should come back to.

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Voices (10)

  1. Harish Bhayani:

    Imagine a world without diversity. It can’t exist in any real sense. Diversity gives us life, society, advancement, ….

    If you agree that employee diversity is important, then supplier diversity is also important, because suppliers are simply another part of your labour pool.

    The trick is in having a clear understanding of the benefits, and the potential pitfalls and costs, and then creating a strategy which works for a particular organisation. Simple, but not easy!

    One of the most difficult elements is how diversity has become a subject which makes a lot of people anxious – the stick that Morgan refers to. Because we are often bombarded by the negative stuff, e.g. via the media or gossip, it tends to overwhelm out balance – we overlook the myriad times every day that diversity actually delivers for us all; we take it for granted.

    Another very significant challenge is unconscious bias – science tells us that we all tend to have biases against different social groups, to different degrees, without even realising it. And those biases can lead us to discriminate unfairly without even realising it.

    So, while buyers (or anyone else for that matter) may think they are totally objective and rational, they are not.

    They key? Start out with a clear strategy for how to engage with your key stakeholders on the subject and how to address these sorts of issues.

  2. RJ:

    Dan’s point is a good one. Many programmes I have seen (when working with US-based firms in particular), focus on targets and quotas for various diversity targets with little concern for whether the suppliers concerned exist or deliver value to the buyer.

    The difficulty for the internal user and end customer (or taxpayer when this is public sector procurement) is that many SMEs are simply not suited to the supply needs of large organisations. In addition, many SMEs would not want the hassle of dealing with some of these complex organisations who repeatedly pay late and change their requirements.

    However, I am currently working with an organisation that uses reasonably large numbers of specialist niche advisors, most of whom are one or two-man bands. This gives them a much cheaper and more focused resource that is giving far better value than the major consultancy players would offer. That being said, it’s still not an easy organisation to work with as an SME and setting up new suppliers for one-off requirements is in danger of becoming an industry in itself so there’s an element of swings and roundabouts I would say.

  3. Linda:

    Ah, but all things being equal, perhaps some weighting and consideration could be given to the diverse supplier, yes? No one is suggesting to pay more for diversity. However, at least in the US (and I suspect coming soon to you blokes across the pond) supplier diversity programs matter to the SALES team. The RFPs for prospective new clients ask about them and weigh results on whether your company has one or not. Furthermore, if your company sells to the government, there are contractual obligations (in the US) to support small and disadvantaged suppliers. So NOT having a supplier diversity program could mean the loss of existing revenue or not winning new revenue.

    I suppose then the real question is – do your CUSTOMERS care about it? If they do, then you should. You are their “Tier 2” – if they have a program, they’re going to want their suppliers to have a program. If you don’t have one, you may lose business.

    1. PlanBee:

      Please dont hold up the US approach to Supplier Diversity, it is a farce and misused by too many SME’s as an excuse for not needing to be as good as their competitors. Its also anti growth. We had suppliers that didnt want to win more business as it meant they would fall over the SME threshold. You cant win this one by legislation

  4. Mayank:

    It is important for procurement organisations to ensure that it looks at all available options and suppliers to get best value for every deal. If 1 out of 10 SME in the UK are ethnic minorities, it makes a strong business case to ensure they are included in the sourcing process. They represent a growing proportion of small and medium size businesses and by reaching out to them, purchasing organisations will have access to new ideas and solutions that will only make supply chain more competitive and add value to the bottom line.

  5. Julie:

    Dan, there is a very strong need for this. Without it, there is a danger that only the big players win every time – that is not good for the economy as small businesses would find it difficult to survive and entreprenurial spirit will be lost. It is the same argument when saying why do we need diversity and inclusion programmes in recruitment – some people might argue that there isn’t a need for focused programmes because surely we’re all working on a level playing field…?

  6. Dan:

    Just to play Devil’s Advocate (not saying this is my personal point of view), is there any need for this?

    Any procurement should be based on best value, whether that is price, quality, risks, innovation etc. Any supplier that needs preferential treatment to be taken on board must therefore not be offering best value – in which case should they be contracted with?

    Also, should there be this shift in focus – towards the supplier and away from what is being supplied?

    1. Mayank:

      Dan Supplier Diversity is not about giving preferential treatment but just like a diverse board room brings fresh and innovative business ideas to make business more competitive and dynamic, reaching out and engaging with diverse suppliers provides different ideas, solutions and competitiveness to any supply chain.

      I am playing a Devil advocate here -is consolidating supply chain always brings best value? I doubt it..

      1. Dan:

        Ah yes, but arguably you should be focussing on innovation, flexibility etc as part of your sourcing strategy anyway. Its never just a straight choice between diversity and consolidation.

        Focussing on diversity could be seen to be concentrating on the means to achieve the end result at the expense of that end result.

  7. Morgan Lobb:

    Supplier diversity is certainly not a fad and is indeed now a fast growing sector. Diversity in the UK is shifting from liability to asset. Many organisations have woken up to the commercial benefits diversity brings, you could be forgiven for thinking that many people feel beaten up by the “diversity stick”, but that has largely been due to a lack of understanding around why diversity is an important strategy. Businesses wish to sell their products and services indiscriminately to the widest possible audience, to truly achieve this they must embed diversity values across their business. Not getting diversity right costs businesses a lot of money, for example, the pink pound in the UK is worth circa £6 billion P.A. If you’re a Russian vodka company you’re unlikely to get a slice of this as the consumers will vote with their pounds..

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