How to diversify your suppliers

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Will_Green_100.jpgBy Will Green

The need for greater diversity has finally reached beyond staff and hit the company purse strings. Supply Management takes a look at why you should up your supplier diversity and how to go about it.

In 2020, two major events helped lay bare some of the inequalities in modern society. First came the coronavirus, which has affected black and minority ethnic people in far greater numbers than those from other groups, highlighting, among many other issues, disparity in access to healthcare. Then, on 25 May, the death at the hands of the police of 46-year-old African-American George Floyd in Minneapolis, Minnesota, sparked outrage and led to an outpouring of anger and grief under the banner of Black Lives Matter (BLM), which grew from being a social media hashtag to a global movement.

With a double impact that reverberated around the world, companies and brands were suddenly scrabbling to adopt a position on BLM and diversity in a way that they never had before.

For Jamie Crump, President of diversity consultancy The Richwell Group, social media has been a game-changer. "It has forced companies to take a stand which typically try to stay out of taking a stand on such issues", she told a Jaggaer webinar. And while global attention has turned to diversity, procurement has found itself in the spotlight, as the gatekeeper to a key weapon in any organisation's arsenal: spending power.

From minority to majority
Mayank Shah, Founder of supplier diversity organisation MSDUK, sets out the compelling reality for those yet to make a change. By 2050, 38% of the United Kingdom (UK) population will be non-white. This should be a critical consideration when it comes to attracting the best talent into the profession, but it does not stop there. "For any business, that is your future customer", says Shah. "Why would you not want to have your brand visible to those communities?"

The combined buying power of black, Asian-American and Native American people in the United States (US) today is estimated to be $2.4 trillion. Hispanics alone hold a spending power of $1.5 trillion - that is "larger than the GDP of Australia", according to Tina Andrews, Managing Director of consultancy Supplier Diversity Experts.

"We're heading into a world where under-represented groups are a larger percentage of the American population than ever before", says Andrews. "The majority is becoming the minority." For procurement professionals, the challenge starts with persuading the rest of the business to get onboard with a supplier diversity programme.

"The first thing that needs to happen is proper supplier diversity training for senior management and all procurement professionals", says Andrews. "Their mindset needs to be changed and they should look at diverse firms as partners - these are not handouts."

"Diversity must become part of an organisation", says Shah. "If supplier diversity is to work, it has to be embedded across the business and the only way to do that is to keep educating budget-holders of the value of supplier diversity."

Pizza firm Papa John's International has made diversity part of its business. When its Founder and former Chief Executive Officer (CEO) stepped down in 2018 after using a racial slur, action was taken to embed diversity into the company values. Natonya Harbison, Director of Diversity, Equity and Inclusion, told a Jaggaer webinar that, in order for the programme to work, it must start internally: "The first thing I wanted to establish was a policy."

So, what should such a policy look like? "Start with your targets", says Andrews. "Once you have set your supplier diversity programme policy, you must set your goals. And your goals should be achievable."

Shah has a simple rule that can be applied in almost all circumstances, unless there is a specific reason for exemption: "For every RFP or RFI that goes out of the business, make sure that at least one diverse business is invited into that process." Setting a target around a percentage of spend with diverse suppliers is also a good idea: "If 38% of your community is non-white, is there any harm in setting a target of 5% of spend with them? It gives you something by which to measure your performance."

Shah is calling on FTSE 100 firms to commit to a 1% target, which equates to a sum of around £18 billion: "Think about putting that £18 billion into deprived communities...the impact it would have on reducing the inequality we see all around us."

A measured response
For Harbison, data has been an invaluable tool, not only enabling Papa John's to identify gaps but also to hold individuals accountable. "Digitalisation allowed us to be more intentional in our efforts to identify diverse suppliers", says Harbison. "Our investment in technology has allowed us to increase performance and to understand where the gaps are. Technology allows us to be more fact-based with our decision-making."

Developments in technology and data collection enable organisations to see far more clearly where their spend is going and, therefore, control it. Crump says: "I think the data is perhaps more credible than it has been in years past, so it's easier to go in and sell the results to finance and the CFO. In the past, processes were manual and it was a question of 'What's going on in the background exactly?'"

"And this level of insight pays dividends in other ways", notes Crump. "Rather than just the spend, you can look at how many [diverse] people we're meeting with, how many we are taking forward in the process, how many we introduce to the supply chain, how many get invited to bid, how many of those bids don't fall away in the first round. Those types of trackings are going to show the progress and where companies can hone in."

"Sticking with results, procurement people should be reporting annually on how many diverse suppliers have been invited to bid, how many have won contracts and how much spend", says Shah. Sourcing teams should be setting objectives around this and it should form part of performance reviews.

To evidence the impact and reinforce the benefits, Shah recommends that after a diverse supplier has won two tenders, procurement should measure the social and economic impact: "How many jobs have they created in those deprived communities? Those are the things they need to measure, to shout about."

Stop justifying diversity
For Shah, it is a frustration that we are still being asked to justify the value of diverse suppliers: "Procurement organisations, day in, day out, give business to new suppliers and no one asks what value they have brought. So, why suddenly when it comes to diverse businesses do we have to prove their value?"

And this is understandable as procurement today is about innovation and forging partnerships with a supply chain. Supplier diversity fits neatly into this narrative; it promotes innovation through new products and services, drives competition with existing vendors and opens up additional procurement channels.

Supply Management

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