The wave of national protests against systemic racism in 2020 prompted leadership teams across the country to increase their engagement with businesses owned by Black people, women and other underrepresented groups. Now, close to one year after the wave of protests began, a growing number of executives are confirming that not only is diversifying their supplier base a good move for society, it is a good move for improving business performance as well.
A new report from Bain & Company, with data provided by Coupa, a provider of Business Spend Management solutions and capabilities, analyzes procurement spend of more than 350 companies across global industries. The analysis shows that spending on diverse suppliers rose an average of 54% between 2017 and 2020. Additionally, companies that are in the top quartile of spending on diverse suppliers see an average of 0.7 percentage points more savings off total procurement expenditures, compared to their peer group.
“This data confirms our long-held hypothesis about the business value of diverse supply chains,” said David Schannon, who co-leads Bain’s Procurement practice in the Americas. “When companies stop thinking of diversifying their supply base as a standalone initiative and start to recognize the benefits of investing in underrepresented groups, we see meaningful business improvements.”
UPS, Target, Pacific Gas and Electric, and other leaders have been building more diverse supplier pools for decades, a move that benefits their bottom lines. The report points to some tangible advantages of diverse supply chains, including a higher annual retention rate—to a tune of 20+ percentage points.
“When companies stop thinking of diversifying their supply base as a standalone initiative and start to recognize the benefits of investing in underrepresented groups, we see meaningful business improvements.”
Additionally, leaders in supplier diversity tend to have more efficient procurement processes overall. The top quartile of companies engaging with diverse suppliers have higher rates of preapproved spending (+10%), greater use of electronic purchase orders (+52%), faster requisition to order processing times (+18%) and faster invoice approvals (+46%) than their peers.
“It’s high time we put to bed the myth that diversifying a company’s supply chain means sacrificing business results,” said Radhika Batra, an expert partner in Bain’s Performance Improvement practice. “The data conveys quite the opposite. A well-managed ecosystem of diverse suppliers, including businesses owned by women and people of color, can be a strategic differentiator for companies, generating meaningful returns.”
Supplier Diversity: How to Overcome Obstacles and Gain a Competitive Advantage
Bain’s report identifies four key obstacles that companies need to overcome in order to boost spend with diverse suppliers and retain competitive advantage.
- Stop thinking of diversity as a standalone initiative. Many leadership teams eager to embrace supplier diversity limit their efforts to a series of short-term strategic sourcing events. This approach won’t address the long-term engagement required to develop a sustainable pipeline of diverse suppliers. For example, it typically takes 12-to-18 months to fully qualify a new supplier.
- Make sure the organization is aligned from the board to the business unit. Boards make strong commitments to increasing supplier diversity but may overlook vital changes in the day-to-day decisions that are critical to implementation. Business units need a mandate to channel procurement spending to a new set of unknown suppliers—and a clear sense of how diversity goals stack up against other competing priorities.
- Don’t assume success will happen without resources. One of the key reasons supplier diversity initiatives flounder is that organizations underinvest in the capabilities required to support new or developing suppliers, including onboarding, risk mitigation and mentoring.
- Expand goals beyond Tier 1 spending and suppliers. A narrow focus on Tier 1 spending restricts the ability to grow a diverse supplier ecosystem and may render company targets unsustainable. It also reduces the full potential benefits of working with a diverse supplier group, including collaboration and innovation as well as access to new markets, customers and services.
“In the past, decisions related to diversity, equity and inclusion were happening in silos, making it difficult for organizations to realize their full impact,” said Donna Wilczek, senior vice president of Product Strategy and Innovation at Coupa. “The data in this report reinforces just how important it is for companies to embed supply base diversification practices right within the spend process in order to maximize business and societal impact in concert.”