Is There Such Thing as Too Much Supplier Diversity?
- Supplier Management
- Supplier Network
Diversity within businesses, and especially supplier diversity, has perhaps never been a bigger topic than right now. Social and racial justice issues remain at the forefront of national and international conversations. There’s increased pressure to have your supplier base reflect the buyer base and the community the business exists in. COVID-19 continues to impact supply chains and supplier performance the world over, leading to a need for more reliable vendors.
As the spotlight shines on supplier diversity, some organizations are asking a logical question: is there such thing as too much supplier diversity? We’ve been asked this before, so we’re here to answer this important question.
What is Supplier Diversity
Before we delve into how much supplier diversity you need, let’s recap what exactly supplier diversity is. The term can be a little bit of an oversimplification because really it incorporates two separate topics: diversity and diversification.
At its core, supplier diversity is the practice of encouraging sourcing from minority-owned, women-owned, LGBTQIA-owned, veteran-owned, as well as small businesses. Basically, you’re making sure that a portion of your spend is going to business owners who have historically been omitted from local commerce.
Exactly who you include in your definition of diversity can vary. You might not include all of these classifications in your diversity program, or you might have additional groups that you include in the program. You have to consider what’s appropriate for your organization.
Diversification is less about exactly who your suppliers are, and instead more focused on the number of suppliers, and on spreading your spend across a large group of vendors. This is a general diversification in all categories, which might mean your suppliers are in different regions of the globe or impacted by different regulations. This helps curb the negative impacts of natural disasters, political shifts or other disruptions that can threaten your supply lines.
Diversification also often includes ethically sourced goods, environmentally friendly organizations or other sustainable sourcing practices. This similarly helps to avoid disruptions posed by changing political and social pressures around environmental responsibility.
The Importance of Supplier Diversity
Now that we’ve established a baseline definition, it’s important to understand the actual advantages of supplier diversity. In truth, there are numerous benefits that every organization should be aware of.
Supporting a Diverse Economy
First and foremost, increasing the diversity of your supplier base supports the owners of diverse businesses, which strengthens the economy and business community around you. That alone is important. But it also improves the corporate culture at your own organization. Buyers see a community that mirrors and welcomes them. Plus, your organization can more easily recruit a diverse group of employees, strengthening your team, too.
Innovating and Reducing Risk
From a pure business perspective, establishing relationships with smaller or newer suppliers can also help your business stay ahead of the curve. Smaller businesses tend to be more agile, adaptive and innovative when compared to larger global suppliers who might be more stuck in their ways or have corporate oversight.
Diversification also reduces the risk of overreliance on one or a few key suppliers. This is especially true if those suppliers have thousands or millions of other customers, and if some of those other customers are a higher priority to them. If something goes wrong on a global scale, you may not be high on their priority list. But with a smaller supplier, you may be higher up the chain.
When you’re considering just how much supplier diversity is right, you have to start by looking at your specific situation. Every organization is different, so it’s impossible to give exact numbers without more information.
Start by looking at your corporate needs and priorities. Do you already have company goals or core values around diversity, inclusion or social impact? If so, use those as starting guidelines. This makes it much easier to establish a business case for a formal diversity program in your sourcing function.
If your organization doesn’t already have established diversity goals, it’s on procurement to push for those priorities and policies. This is a great opportunity to establish procurement as a leader within the organization. By putting your department at the front and leading by example, you increase procurement’s influence in the organization.
Don’t Step on Your Own Toes
A word of caution: while there isn’t a clear threshold for “too much diversity” at a given organization, you have to be careful and deliberate about how you implement a diversity program.
Start by looking at your other strategies – things like category strategy, supplier management strategies and performance plans – to make sure that your diversity program can compliment them rather than distracting from them. You might have other priorities that are also beneficial beyond just cost savings – for example, purchasing from local suppliers and fueling the local economy might be important to you. So make sure that you aren’t harming that effort in an attempt to diversify. You want to make sure you’re clear about your priorities as a procurement team and on a larger organizational scale.
Don’t spread your team too thin by trying to do too much at once. Instead, make sure that you have clear priorities and goals. Being intentional with your diversity program, including anticipated outcomes, will help you be more successful and avoid internal conflict down the line. Oftentimes these conflicting goals are misinterpreted as focusing too heavily on diversity at the expense of other efforts. In reality, you have to be aware of and balance many different efforts within your group.
An Ongoing Effort
It’s important to realize that supplier diversity isn’t just something that you do once. It’s not a set it and forget it kind of project. Instead, you need to continually revisit the program to make sure it’s achieving its mission, not just driving bottom-line results.
Your supplier base always needs to be proactive and respond to changing markets and conditions. Your diversity program will naturally be a part of that. That might mean increasing supplier diversity during times of trouble or decreasing it in favor of larger, more global suppliers when needed. Be mindful of this and treat your diversity program like anything else in your organization – as an entity that needs revisions and adjustments as your business changes.
Ultimately, is there such a thing as too much diversity? That’s up to your team to decide. Start with a plan that makes sense for your organization and won’t completely upend your existing supply chain. Then you can gradually improve and optimize it.