5 Advantages of a Diverse Supplier Base
Some of the world’s largest companies, such as Walmart, Accenture, and Johnson & Johnson, are in on one of procurement’s best-kept secrets: supplier diversity. Supplier diversity is a proactive business program encouraging the process of sourcing supplies from minority-owned, women-owned, veteran-owned, LGBT-owned, service-disabled veteran-owned, historically underutilized businesses, and SBA-defined small business vendors.
Supplier diversity is a best practice that should be instilled in every organization. Not only does it benefit the community around you, but it also provides a distinct competitive advantage for businesses.
In a report titled “ROI-related Supplier Diversity”, the Hackett Group found companies who participate in a long-term supplier diversity program can generate a 133% greater ROI than those firms who look no further than the suppliers they traditionally rely upon. The report claims supplier diversity programs also drive an additional $3.6 million to an organization’s bottom line for every $1 million spent in procurement operating costs.
Beyond ROI, the Hackett Group concluded that procurement organizations who work with a diverse supplier base also had lower overall operating costs and spent 20% less on their buying operations. This success all occurred while employing half the number of people in their procurement department.
We dive deeper into the world of supplier diversity and give you five reasons why you should be taking advantage of procurement’s best-kept secret:
If you continually use the same suppliers without branching out into new, diverse markets, you risk stymieing the creative benefits you should be receiving. We should encourage new small and medium-sized businesses because they bring along the added innovation advantages, differentiating themselves from their competitors. Small businesses, unlike their larger counterparts, are more agile and can create and innovate quickly. Buyers should capitalize on this opportunity because if they continue to use their larger, more traditional suppliers, they are not going to experience the depth and breadth of innovation that naturally occurs when you have a diverse supply base.
Provides multiple procurement channels for goods and services
Procuring a large database of suppliers from which to source opens up the opportunity to create scenarios that involve multiple suppliers for one sourcing event. This allows you (the buyer) to promote and engage several suppliers while simultaneously reducing the overall cost of the product/service. Additionally, multiple channels also allow you to analyze the prices, location, and range of goods of several suppliers and choose the one that works best for them. A final benefit to having multiple channels is the volume of opportunities created by forging new relationships with suppliers’ alliances.
Drives up competition, driving down prices
When sourcing the products you need, there are many factors you take into consideration when choosing a supplier. Whatever factors they may be – price, location, service levels, deliverable date, etc. – suppliers are looking to give you the best deal they can to win your business. This drives competition between suppliers, which reduces your direct and indirect spend.
Displays your company’s interest in and commitment to the economic growth of your community
Contracting with local small-medium sized enterprises (SMEs) or minority business enterprises (MBEs) has a profound effect on your surrounding community. By contracting with these suppliers, you’re helping increase spend and consumption while promoting job creation on the local level. Engaging with local suppliers enhances and bolsters the communities you live and work in, and in the end, isn’t that what matters most?
Allows access to a whole different network
Organizations implementing supplier diversity programs are more likely to penetrate new markets and gain new customers. As you reach out to more and more suppliers, you will become privy to each of their business networks and certification networks. For example, the National Veteran-Owned Business Association (NaVOBA) certifies veteran-owned businesses. NaVOBA likely has an event list they attend for networking purposes. By attending those events, you will gain access to new suppliers and relationships in the space.
Supplier diversity is a business practice that is instrumental in improving your bottom-line, and as we’ve reviewed above, it will benefit your business in more ways than impacting spend. Discover how you can strengthen your supplier diversity programs and bring these five advantages to your business with Supplier Management.