Diversity in the supply chain has increasingly become important and reflects a growing concern that disadvantaged groups are not being given access to supply chains.
There are positive outcomes associated with supply diversity, including for example innovation through the entrance of new products, services, and solutions; access to multiple channels from which to procure goods and services; and it drives competition (on price and service levels) between the company’s existing and potential vendors.
Adopt the attitude that a drive towards a more diverse supply chain will open up opportunities and your organisation will gain. Why not make procurement the catalyst for placing your organisation at the forefront of challenging stereotypes.
Challenges of Supply Diversity
The initial challenge is where to focus your diversity efforts in terms of Categories of spend. Focusing on strategic components may not be the best strategy, given the impact on the organisation of any supply chain changes. However, if you are to focus on Indirect spend then you will need to be sure that this domain is under control before introducing supplier diversity.
Another challenge is that executives often view diversity in supply as simply a tick-box exercise. Seeking to show diversity with absolute minimum change or stretching the definition of diverse to include suppliers that are blatantly not from a diverse background. Seeking to introduce diversity in this case is challenged by this definition.
Then we get into the transformational and risk issues that are often raised. Inevitably there will be organisational transformation issues to onboard suppliers from diverse backgrounds. There will also be risks in changing to new suppliers and risks during the onboarding process.
Then there are the risks and element of uncertainty over the impact on a brand over sourcing diversely: where do sourced products come from? Who’s involved in manufacture and supply? What are the financial, geopolitical, and legal risks associated with a vendor? Is there an increased risk of corruption or bribery?
Given these challenges, the next question would be why bother to onboard diverse suppliers at all?
Supply Diversity and Supply Chains – Why do it?
“A more diverse supplier base means an organisation is much more likely to be a reflection of the customers it serves.” Capita. Supplier Diversity Best Practice.
There are many reasons for diversity in supply covering areas such as:
- Social responsibility
- Open up new markets or customer opportunities
- Make yourself more attractive as an employer
- Generate a positive Corporate image
- Creating a working environment where individual differences are valued
- Impact on your local communities
- Tap new sources of supply
- Gain access to innovations
- Build resilience into your supply chain
- Compliance (last as it should not be the primary driver!)
The manifold advantages of utilising diverse supply chains – engaging suppliers from ethnic, racial, gender minorities and disadvantaged communities – are too significant to be ignored.
Diversity will of course provide access to new sources, however an often overlooked aspect of this is that these suppliers are often innovative in their approach and are providing access to innovative products and services.
Diversity also supports a policy of multiple bidders, these new suppliers will not only have a chance to offer competitive pricing, but they can offer the organisation access to new revenue opportunities within communities and markets.
“Diversity is probably a competitive differentiator that shifts market share towards more diverse companies over time.”
Furthermore, these suppliers often align with environmental impact efforts around consumption of materials and energy. Making the gain not just in diversity, but also in areas of sustainability.
Plus, although there are challenges, these can be managed with effective oversight and use of spend management tools that enable you to effectively control the supply chain.
Categories of Diverse Suppliers
There are many definitions of diversity of supply and what constitutes diversity in any organisations supply chain will vary from organisation to organisation. The following categories could be included:
- Small socially disadvantaged business owners
- Women-owned business
- Ethnic minority-owned Business
- Businesses owned by people with registered disabilities
- LGBT owned business
- Veteran-owned business
- Small business – note that the size of small varies widely by sector. For example a 500 employee mining company is small
- Suppliers operating in disadvantaged countries
- Suppliers operating in disadvantaged communities in prosperous countries
Walmart states it has a network of more than 2,600 diverse suppliers – which it defines as a private company that is at least 51% owned and operated by members of a minority group
Control of Supply Diversity
It is expected that with any new supplier that you will move through a process of Planning, Implementing and Operating with diverse suppliers. There are however two aspects relating to control of diverse suppliers that we will focus on here:
- Supplier vetting, as in truly being a diverse supplier
- Supply chain management
For supplier vetting, a central control or overview of suppliers at local, national, regional and global level is important. With their status as a diverse supplier flagged and tracked.
The diverse supplier should move through the same standard supplier relationship phases, as for any other supplier. For example:
- No relationship
- Under Review
The suppliers can then be aligned with Categories of spend.
The supplier status steps, from no relationship through to contracted, allow for verification that a supplier is truly a diverse supplier during the review and evaluation stages. The supplier can then be managed through all these steps and their status, as a supplier from a diverse background, checked and flagged as they progress as a supplier to the organisation. Ultimately being flagged as preferred to encourage diverse supplier use.
Relating to management, centralised control of the supply chain is important for oversight reasons. This is control of the process and not control of buying itself, which in the case of Indirect spend needs to be disseminated throughout the organisation.
The automated process also needs to effectively match records (for example supplier, specification, order, receipt and invoice) at all steps in the procure to pay process, so that there is a screen and monitoring for fraudulent activity.
The other area of supplier management is compliance, in terms of contract and legal compliance. Checks need to be made relating to who is involved in manufacture and supply? What are the financial, geopolitical, and legal risks associated with a vendor? Is there an increased risk of corruption or bribery? Could there be a risk of improper labour practices? This information needs to be captured and reviewed over time.
However do not think that this requires significantly more effort than that of onboarding non-diverse suppliers. The key is effective supplier checks, process automation and automated monitoring of the supply chain, which is something that should apply to all suppliers.
Procurement can be the catalyst for placing your organisation at the forefront of challenging stereotypes.
With an effective and automated spend control process, to support inclusion of diverse suppliers into the Indirect spend category of supply, an organisation can rapidly demonstrate a commitment to diversity.
Diversity of supply impacts upon many aspects of a business. Including, innovation, local community engagement, employee engagement and supply chain resilience amongst others.
Why not start or accelerate the process of diversity within your organisation?