What Does Diversity Have to Do With Procurement?

Throughout all levels of a company, diversity can yield a variety of benefits, ranging from boosting innovation to improving recruitment to helping brands live up to their values on inclusion and social responsibility. But while it may be relatively apparent how having more diverse perspectives within boardrooms and throughout an employee base can lead to new ideas and ultimately growth, the connection between diversity and procurement may be less clear at first glance.

However, a closer inspection reveals that purchasing from a diverse supplier base of women-owned, minority-owned, veteran-owned, and other diverse businesses yields many of the same benefits of having employee diversity, due to factors such as gaining access to new products and services. And this is not a new phenomenon. In 1969, President Richard Nixon signed Executive Order 11458, which created the predecessor to what is today the Minority Business Development Agency and kickstarted governments, universities, non-profits, etc. to be more inclusive in working with minority businesses.

Today, many of these types of organizations have a compliance requirement to work with diverse suppliers, and some private organizations do so to meet corporate governance standards. Yet doing so can extend far beyond checking a box to satisfy stakeholders. In fact, in 2006 the Hackett Group found that companies considered leaders in supplier diversity add an extra “$3.6 million to their company's bottom line for every $1 million in procurement operations costs.”

Improving Procurement Quality Through Supplier Diversity

As companies look to improve procurement, they can do so not only by finding cost savings opportunities with vendors but also by finding ways to build stronger relationships with vendors that offer superior product quality and service levels.

While the ownership composition of a supplier does not inherently mean that a vendor is of higher quality, diverse businesses do not necessarily have the same networks as other vendors, and it’s easy for companies to overlook women-owned, minority-owned, veteran-owned and other diverse businesses. As such, companies that do not have diverse supplier bases could be limiting their options and therefore missing out on the ability to procure the best products and services.

Furthermore, because diverse businesses are often overlooked and can tend to be smaller, they can be nimble and offer creative solutions  to companies with diverse procurement practices. Even for a company’s tail spend purchases — the small transactions that sit outside a company's strategic spend and tend to go unmanaged  — having diverse procurement can create value, such as if diverse vendors offer access to new products that would otherwise be unavailable, or if these vendors use their nimbleness to meet custom requirements for delivery times. 

Overall, in a more recent Hackett Group study, the results show that only 1% of diverse suppliers do not meet buyers’ expectations, whereas the other 99% either meet or exceed expectations.

Improving Brand Reputation Through Supplier Diversity

In addition to improving product and service quality through expanded access, supplier diversity initiatives can yield more to a company’s bottom line than the cost of implementing such programs by improving a brand’s reputation among customers and employees.

As The Hackett Group finds in their research, companies with top-performing supplier diversity programs promote their efforts internally and externally, such as by sharing their initiatives on social media and working closely with their diverse suppliers to collaborate on innovation, understand markets better, and provide mentorship to growing vendors.

These types of efforts can appeal to employees who want to work for companies that are diverse and inclusive, as people increasingly want to be a part of companies promoting social good. A study by BetterUp, reported in Harvard Business Review, found that more than 9 out of 10 people would take the tradeoff of earning less income for doing more meaningful work.

In addition to employees appreciating diversity, customers also increasingly want to buy from companies with a purpose beyond just profit. Having diverse procurement from Tier 1 through tail spend suppliers can go a long way toward creating a company that helps build a more inclusive society while better representing the customers they serve. When customers see these efforts in marketing campaigns, for example, they can see a more socially responsible side to companies and may choose to then support these businesses that align with their values.

Some companies such as retailers can also leverage diverse procurement practices to offer new products to customers. At Walmart, for example, customers can specifically shop for products from diverse suppliers so they can directly support these businesses.

Start Adding Diversity to Your Supplier Base

With the myriad of benefits that come from diverse procurement, companies of all sizes should look to add more diversity to their supplier bases. Whether you’re a B2B or B2C company, having diverse vendors can spark innovation, improve employee and customer experience, expand access to high-quality products and more.

One way to increase supplier diversity is to work with other minority business enterprises and choose products and services from a growing network of diverse vendors. In addition, companies can start to talk about their supplier diversity programs or ask for related recommendations for free on social media, looking at examples of how larger companies have established and promote theirs. From there, they can encourage other diverse businesses to apply to be added to their supplier network.