The Hidden Power of Supplier Diversity
Authored by Elaine Carter
October 29, 2022 3 Minute Read
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A diverse supply chain provides valuable benefits for companies and communities. These include stronger supply chains through multiple procurement channels for goods and services, innovation, competitive advantage and socio-economic impact.
The Multiplier EffectIncreasing company spending with diverse and disadvantaged companies produces a multiplier effect where the economic gain realized exceeds the initial spend. For example, Tier 2 Diversity Subcontracting creates jobs and community wealth. When an organization engages a small, diverse supplier, the entire supply chain benefits, from jobs created to support the business and other vendors, to community support that results in growth and opportunities to other diverse companies.
According to the U.S. Small Business Administration, the U.S. had eight million minority-owned companies as of 2018. The National Minority Supplier Diversity Council reports that “certified Minority Business Enterprises generate $400 billion in economic output. This leads to the creation or preservation of 2.2 million jobs and $49 billion in annual revenue for local, state, and federal tax authorities. These numbers are steadily increasing.”¹
Client Story: Hiring employees from underrepresented communities bolsters student success
CBRE executed an agreement with diverse supplier Paperworks to provide janitorial consumables nationwide for various CBRE clients. This engagement allowed Paperworks to grow and hire new employees from underrepresented communities to support the additional business.
Paperworks prioritizes good corporate citizenship and strives to strengthen the communities in which they live and work. The assignment allowed Paperworks to implement educational and technological initiatives to bolster student success and community involvement.
Challenges of Diverse Suppliers:
- They may require guidance to qualify and align with your business strategies.
- Finding diverse suppliers in specific categories that can meet your requirements can be difficult; leveraging your supplier diversity subject-matter experts and technology platforms can overcome this challenge.
- Many businesses face pressure to reduce costs, which may mean choosing the lower bid rather than the smaller diverse business.
- Small suppliers may need onboarding expertise, infrastructure and capital to support a large company.
- Some smaller companies require mentorship to better align with client goals, tools and processes.
- Bring on companies that you think you will be able to work with. No business wants to spend time and resources onboarding a supplier that never receives any work.
- Flexibility and quality development are key with smaller companies. In some instances, a diverse supplier may not be able to scale their business immediately. Focus on developing your supplier to position for future growth.
According to the Michigan Minority Supplier Development Council and Supplier.io Inc., “It will take minority-owned businesses 333 years to achieve revenue equity with white-owned businesses in the United States at the current rate growth. The U.S. population is 40% minority, but revenues earned by minority businesses are only 9.4% of the total earned by private U.S. firms.”²
Adding diversity into sourcing services ensures flexibility and agility amid market disruptions. This in turn lowers risk and increases opportunities to create a well-rounded business and inclusive environment for all.
2. Source: MBN Texas Minority and Multicultural Business News DFW MSDC driving minority business economic equity with 1%-plus plan (mbntexas.biz) Volume 2 2022