With an increase in information sharing and transparency due to the internet, consumers everywhere are better able to examine the complexities—and weaknesses—of an organization’s supply chain.
In an age when consumers expect their purchases to reflect their values and use social media to share their values and purchasing habits, companies are stepping up to meet those expectations of diversity, sustainability and ethical procurement practices.
Though some may see ethics and profits as forever mutually exclusive, savvy organizations are recognizing that shirking their corporate social responsibility can actually cut into profits and cost them the much-needed talent, innovation and customer loyalty that diverse suppliers can bring.
Meeting Ethical Business Expectations
To meet consumer expectations for corporate social responsibility (CSR), companies are looking to decrease waste and emissions, work with greater efficiency and increase their business with diversified suppliers.
Global companies such as Walmart and IBM, the first information technology company to spend over $1 billion with minority businesses, have increasingly made their social responsibility commitments a focal point in both shareholder reports and their public branding.
Walmart’s 2018 Global Responsibility Report Summary outlines the retail giant’s efforts to improve its CSR—from sourcing its products and services via diverse business owners, to being “the first retailer to set a science-based target for emissions reduction,” to using a category scorecard for its suppliers indicating factors such as chemical management, packing design, raw material sourcing and recycling labels.
A commitment to ethical procurement practices is not only important to company shareholders and consumers, but it’s also an important value for corporate employees.
The State of Sustainable Supply Chains report produced by Ernst & Young and the UN Global Compact found that an effective supply chain diversity program can be crucial in “winning the war for talent,” as employees are more likely to promote these programs to others and serve as “ambassadors” for their companies.
Growing Profits and Economic Impact
An increasingly diverse global population means that not only are minority audiences becoming a larger target for companies, but minority-run businesses are comprising a larger portion of the small business sector.
Minority business enterprise sales are growing 34% annually—twice as fast as the national average, according to the CVM Solutions’ report How to Measure Your Supplier Diversity Programs’ Success, meaning they are fast becoming a significant force of economic growth.
The power of that economic growth can transfer to the organizations incorporating diverse suppliers into their procurement management strategy. The Hackett Group’s Supplier Diversity Study found that companies who dedicate 20% or more of their spend to diverse suppliers can attribute as much as 15% of their annual sales to supplier diversity programs.
Depending on annual sales numbers, previous studies have put the ROI of a supplier diversity program as high as 133%.
Organizations are recognizing that investing in diverse suppliers can provide exponential returns. Walmart sourced almost $250 million internationally from women-owned businesses in 2016 through its Women’s Economic Empowerment initiative.
“When you invest in women, they put their earnings back into the community,” says Jenny Grieser, Senior Director of Walmart’s Women’s Economic Empowerment initiative. “Women are our primary customers. In the long run, they benefit the world, but they also benefit our business.”
Staying Competitive in Changing Demographics
Just as Walmart recognized that investing in women-owned businesses could resonate with their female customers, organizations with a focus on doing business with diverse business-owners can gain a competitive edge by increasing the economic standing and the buying power of diverse consumers while developing a new target audience.
The U.S. Census Bureau projects that the country’s population will be “minority majority” by 2045, with racial minorities being both an important demographic and economic growth engine as minority purchasing power is projected to increase to $3 trillion by 2030.
Millennials and Generation Z are the most diverse generations in U.S. history, and they’re also two of the largest. Diversity is an important value in this generational demographics and they are more likely to shop at and work for organizations that reflect their values.
More diverse and ethical supply chain practices can be key attractors for this consumer base. When it comes to reaching new demographics, do not forget that diverse suppliers are consumers themselves—82% of which are more likely as consumers to buy from corporations with supplier diversity programs.
By working to keep up with larger business demands and a growing minority market, diverse suppliers provide the unique opportunity to produce new products and solutions to overcome competition.
Their typically smaller size can provide the advantage of being able to adapt more quickly to market changes and business fluctuations. This all makes diversely-owned businesses prime candidates for strategic relationships with larger companies.
Larger organizations have found that their smaller, diverse business partners can help them improve their own efficiencies and drive innovation. Google collaborates with diverse small businesses to connect minorities, women, LGBT, the disabled and veterans with business opportunities and foster innovation in their supply chain.
Google even outsources areas they don’t cover —like food and transportation—all in an effort to encourage information sharing and innovation since these companies frequently use Google products and provide feedback for improvement.
Diverse suppliers can be a cornerstone of any organization’s success, helping companies to ethically and efficiently source products and services while maintaining profits, growing customers, improving the economy and encouraging innovation.
With forward-thinking supply chain management and a focus on strategic sourcing, companies and the diverse suppliers within their supply chains can increasingly benefit from going into business together.