Recent world events in 2020 have put our societal values, business practices, and plans for the future under the microscope, and of particular importance in the current dialogue is diversity. As supply management professionals, many of us have been involved to some degree in supplier diversity programs, but why are these initiatives more important than ever, and what more can be done?

Diversity in our supply chains has been shown to boost innovation within organizations, promote growth, and increase productivity, but it also increases the resilience of local economies through encouraging entrepreneurship, creating jobs, and improving living standards.

A July 30 article in Forbes points out, “Many minority-owned small businesses were in financially precarious positions even before COVID-19 lockdowns, and often are in industries more susceptible to disruption. This is all the more crucial as minority-owned small businesses are an essential job source, employing more than 8.7 million workers and annually generating more than $1 trillion in economic output.”

Leadership buy-in is critical to the success of supplier diversity

“It’s said that the priorities of the CEO quickly become the priorities of everyone else in the organization. So, if the CEO makes supplier diversity a priority, so will everyone else,” said Adrienne Trimble, president and CEO of the National Minority Supply Diversity Council (NMSDC), in the Institute for Supply Management® 2019 article "50 Years of Supplier Diversity" (ISM member access), which notes that there are more than 8 million minority-owned businesses in the United States.

In a February 2020 CAPS report, Measuring Supplier Diversity Program Performance*, 37% of companies said upper management or senior executives outside of supply management are actively involved in the supplier diversity program.

While there are still strides to be made in leadership participation in supplier diversity programs, a substantial 84% of companies say they have well defined, integrated, and proactive diversity programs.

The CAPS survey polled supply management leaders primarily at Fortune 600 companies, and the definition of diversity business included woman-owned (93%), veteran-owned (85%), minority-owned (84%), service-disabled veteran-owned (84%), small business (75%), small disadvantaged business (68%), HUBZone (63%), and LGBTQ-owned (56%).

Set your sights on best-in-class diversity spend

DiversityInc’s 2019 Supplier Diversity report states best-in-class procurement spend was 18.65% on tier 1 and 3.85% on tier 2 suppliers. Our survey found the average supplier diversity program spend as a percentage of sourceable spend was 14.5% - a promising percentage given the benchmark, though companies should aim to close that gap further still.

It is worth mentioning, the CAPS survey was published in February 2020, before COVID-19 presented major disruptions in supply chains, prior to social upheaval that brought racial inequality to the forefront. At that time, 74% of companies required sourcing and buyers to include a certain percentage of diverse suppliers in RFPs and 11% were required to award contracts to diverse suppliers. In the last few months, however, many large organizations have shifted their policies to include diverse and minority suppliers, and we expect this number to rise.

Diverse suppliers currently constitute an average of 9% of all active suppliers with the organizations we surveyed.

While 43% of CAPS respondents require their tier 1 suppliers to report their supplier diversity metrics, only 10% require it of tier 2 suppliers, representing an opportunity to focus diversity efforts deeper into our supply networks.

Supplier diversity programs offer equal footing in competitive contracts

The CAPS survey found that 72.3% of supplier diversity program contracts were awarded competitively. Further, according to research from The Hackett Group, 76% of all diverse suppliers met buyers’ expectations and another 23% exceed them (Supplier Diversity Performance Study, The Hackett Group, 2016).

Challenges companies cited in working with diverse suppliers were concerns with their ability to meet requirements such as capacity and B2B automation (48%), cost-competitiveness (45%), and pressure to consolidate spend with large global suppliers (45%). These potential barriers can be mitigated through mentoring programs when organizations are willing to become better business partners: 44% of the organizations said their supplier diversity programs include formal mentoring to develop their capabilities, increase competitiveness in the global economy, and increase efficiency.

Many large corporations have recently encouraged dialogue and reinvigorated their focus on supplier diversity programs, ensuring the deliberate inclusion of diverse suppliers in contracting. Executive buy-in is paramount to inclusion becoming the norm. It’s good for innovation, the resilience of our supply chains, the health of our communities.

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* Members can access Measuring Supplier Diversity Program Performance (2020) in the CAPS Library now. Our 2016 report, Supplier Diversity Program Performance Benchmarking Report, is available to everyone in the CAPS Library now, with a free account.

Also, check out our latest infographic, Ensuring Diversity in the Contracting Process, in CAPS Stats now.

About the author

Genevieve Gutiérrez Gil

Genevieve Gil has been the Director of Marketing & Business Development at CAPS Research since 2015, bringing experience in integrative health, tech and web, non-profit, higher education, and journalism. Genevieve has an MBA in global brand management from Thunderbird School of Global Management.