Why Diverse Suppliers Hold the Key to Business Resilience

Most people are familiar with the concept of workplace diversity – that companies should provide equal employment opportunities for all, regardless of gender, race, disability or sexuality. Perhaps less familiar is supplier diversity, where larger companies ensure equal opportunities for companies owned and managed by women, ethnic minorities, LGBT, Veterans, or disabled people to supply goods and services.

“These programs have been around for a long time,” says Pamela Sajnani, Supplier Diversity Officer at TMG. “It’s just been flying under the radar as a way to create economic opportunities for historically disadvantaged groups, and now has come to greater light as a result of the current environment.”

Sourcing from diverse suppliers (defined as at least 51% owned, operated and controlled by a minority, woman, LGBTQ+, veteran, service-disabled veteran, person with a disability, indigenous person, or as defined by the local country) is a social imperative that’s also good for the top and bottom line. It is a business imperative: buying decisions are often swayed when businesses can demonstrate and articulate their diverse sourcing policies. Increasing spend with diverse suppliers creates value and shows your company is serious on social commitments to its broader ecosystem: customers, investors, regulators, communities, employees, suppliers, industries and competitors. Moving from monitoring spend to measuring impact is critical to sustained supplier diversity success.

But an added benefit is often left out of the equation: diverse sourcing can contribute to building more resilient supply chains. And if the current pandemic has taught supply chain leaders anything, it’s the importance of supply chain resiliency.

What are the advantages in continuing to use incumbent suppliers? They may be reliably low-cost. They’re familiar. They require little new effort to engage with. But are they agile? Are they fit for a future that is more unpredictable and unstable than ever before? Are they ready to embrace change to the extent that your organization may want to — or be forced to? Are your longest-standing suppliers also your riskiest?

Exploring new diverse suppliers could help your supply chain be more agile too. Their product or service may be more innovative — as your supply chain strategy changes, you may find diverse suppliers are more open to proofs of concept. Another advantage is that diverse suppliers tend to be more localized to your manufacturing and distribution sites, which in turn has a ripple effect of helping local businesses buy the goods and services they need to sustain their own operations.

Closer-to-home diverse suppliers also could be nimbler in helping meet on-demand requirements as global supply chains crack under pressure. And they may be better placed to respond to market trends and help you be more innovative too — their fresher view and brighter outlook could equate to being more willing and able to try new approaches than your incumbent suppliers.

A survey of 1,000 companies in 15 countries conducted in 2019 by management consultants at McKinsey found that companies with more women on their executive boards were 25% more likely to financially outperform their less diverse peers. For companies with more ethnically diverse boards this likelihood was 36%.

McKinsey says this is because diverse businesses have access to a larger pool of talented people who possess more of the attributes associated with good leadership and decision-making. Diverse teams are also better at anticipating shifts in consumer demand for new products and services, potentially generating a competitive edge.

These strengths make diverse businesses more resilient and adaptable, says McKinsey; qualities that are needed now more than ever as companies try to navigate a way through the current pandemic. It urges firms not to pull back from diversity programs as they manage the impact of the ongoing pandemic on their businesses.

Diverse suppliers often cost less while delivering an equal or superior product or service, and spreading bets often equates to lower risk. Organizations can also integrate supplier diversity into broader ESG goals – it effectively becomes another lever and generator of value – as supporting diverse businesses helps them grow, feeds wealth and opportunity into their communities, and gives them access to a broader ecosystem, all of which are reportable and good news for investors and stakeholders.

No organization can afford to ignore or lag behind this peaking wave. Supplier diversity is a business imperative; long gone are the days when we look at this as simply right thing to do. As supply chain disruption is the new normal, supplier diversity is one key strategy to help you weather the next major disruption.