As a business owner or leader, a crucial part of your role is sourcing goods and services for your company. Plenty of factors go into choosing vendor partnerships, but an often overlooked aspect is the diversity of your supply chain.
Promoting inclusivity and diversity as part of your procurement process has social and commercial benefits for a business. Understanding supplier diversity and its importance is the first step toward building an effective supplier diversity program that can help your business ecosystem grow.
What is supplier diversity?
As a business strategy, supplier diversity is a concentrated effort to broaden a business's supply chain through partnerships with a wide range of companies. This should take place throughout all levels of the supplier base during the procurement of goods and services for your business.
Going even further, the partner businesses that your company works with should be considered diverse-owned businesses. This means that they are owned and operated by underrepresented demographic groups.
Identifying diverse suppliers
When you're looking to diversify your partnerships, particularly if you're looking to work with minority-owned businesses, it's important to understand what exactly a diverse supplier is. Generally, a business is considered diverse if the majority ownership (51% or more) is part of an underrepresented or underserved group.
In the United States, small business enterprises (SBEs), women-owned business enterprises (WBEs), minority-owned business enterprises (MBEs), veteran-owned businesses (VBEs), businesses owned and operated by LGBTQIA+ individuals, and entrepreneurs with disabilities are all considered to be diverse businesses.
These companies may hold diverse certification, which authenticates their inclusion in at least one recognized diverse group. For those looking to expand their supply base and build business opportunities with minority groups, there are several organizations that maintain records of these registered businesses.
The National Minority Supplier Development Council (NMSDC) is one of the best places to start, along with the U.S. Hispanic Chamber of Commerce and the Women's Business Enterprise National Council (WBENC).
Other organizations like the National LGBT Chamber of Commerce (NGLCC) work closely with and certify business owners who identify as LGBTQ-owned businesses. The U.S. Department of Veteran Affairs also certifies service-disabled veterans and veteran-owned businesses through the Vets First Verification Program.
On a state and local level, the Small Business Administration (SBA) and local chambers of commerce may also hold their own records of minority business enterprises working in various industries. This is the best place to go when you're looking to improve your diversity efforts through business connections and partnerships.
Benefits of a supplier diversity program
Building a more equitable world and improving inclusivity for all, particularly in business, should be something that every business owner is thinking about. Simply put, it's the right thing to do.
Beyond social responsibility, though, businesses see tangible benefits to their bottom line when doing business with diverse companies and making dedicated efforts to build a supplier diversity program.
Diversity brings economic growth
Minority-owned and diverse businesses have traditionally found it more difficult to access the necessary capital and support to become successful than non-minority-owned businesses. But many of these challenges can be overcome when partnerships are made and supplier diversity initiatives are introduced.
When diverse businesses thrive, cash flow is introduced to the underrepresented groups they're a part of. From there, jobs are created, and more money is available to uplift and provide sustainability to the whole community. The economic impact that successful diverse businesses bring is impossible to deny. And when these small businesses grow, everyone benefits.
There are also notable economic benefits for the businesses investing in and supporting these diverse businesses. Research has repeatedly found that diversity-supporting companies earn more over time. A 2022 study reported that inclusive businesses earned more than two times per employee than businesses that were not diverse, with productivity increasing by 35%.
More suppliers improve product variety and quality
Adding diverse suppliers to the procurement process gives businesses a competitive advantage. With more variety in products or services to choose between, vendors work to produce the highest quality materials at the best prices to win your business.
With more sourcing options open, there's also greater resilience and agility throughout the supply chain. It's a win for the diverse businesses you partner with and a win for you with a greater return on investment (ROI).
Additionally, widening your pool of potential procurement partners fosters an environment of innovation and creativity. Working with suppliers who bring their unique viewpoints and knowledge to the table can often lead to new opportunities that help you stand out from competitor businesses.
This translates to a more diverse range of options for your customers to choose from within your organization, helping you increase your market share within your industry.
Supplier diversity programs support recruitment efforts
Working with diverse suppliers isn't only beneficial from a direct economic impact perspective. Thinking about your business's overall reputation, and efforts to become more inclusive and increase diverse spending within your supplier base is a significant outward demonstration of the values your brand is built on.
This is of critical importance when you're looking to grow your own operations and bring on new team members. 92% of Americans say that it's important for businesses to promote racial equity in the workplace, while 64% of Millennials say that they won't work for companies with poor corporate social responsibility.
Investing in supplier diversity programs and working with more minority and women-owned enterprises (MWBEs) is a clear signal to potential employees that your business is serious about diversity, inclusivity, and equity. As a result, you can expect to see more applications from top candidates whose skills and expertise can be vital assets to your business.
Challenges in expanding supplier diversity
One of the biggest challenges that comes with expanding your supply chain to include more diverse businesses is finding companies that meet both diversity certification standards and the procurement needs of your company.
Working through larger entities like councils or chambers of commerce is one solution to this issue. This solves many of the verification problems that businesses may run into when looking to confirm whether or not a business is owned and operated by an underrepresented group.
But this doesn't account for local businesses that may not be aware of these organizations or the certifications they offer. On a local level, your business may have the opportunity to work with an uncertified diverse business and provide them with outreach or mentoring that allows them to meet the standards required for certification through a larger entity.
3 tips for starting a supplier diversity initiative
Despite the difficulties that come with launching a supplier diversity program, the benefits to both your business and those in your community make efforts worth the time and financial investment.
1. Set goals and benchmarks for diverse partnerships
Just as you would with other areas of your business development, setting measurable and trackable goals is an essential step in building a supplier diversity program.
Determine the metrics that you'll be using to chart your success, such as spend per quarter with diverse businesses or the savings made from working with diverse suppliers.
You can also track figures that aren't revenue based, like the number of diverse businesses your company works with as regular suppliers or jobs created in your community through minority-owned businesses.
2. Continually review and identify possible diverse suppliers
Research companies in your industry, both suppliers and competitors, who are considered diverse or work with diverse businesses. This is a good starting point if you're looking for partners but need to figure out who to approach first.
Get involved with networking opportunities and events through some larger organizations supporting minority-owned businesses. Not only can the other attendees help you find diverse suppliers, but they can also provide you with valuable insight into starting and running a supplier diversity program within your business.
3. Build a diverse and inclusive company culture
Focusing on goals and benchmarks around supplier diversity is important in measuring how successful your program is, but it can quickly become the sole focus if other areas of inclusivity aren't addressed within your business.
A crucial part of becoming a more socially responsible company is changing your company culture to reflect the inclusive values you want your business to stand on—this should be more about allyship and creating opportunities for underrepresented groups than a performative effort to improve your brand appearance.
That's why creating a truly inclusive company culture should be at the forefront of your business growth plans. At all levels of your business, employees should be asked for feedback on diversity and inclusion efforts and diverse recruitment practices must be incorporated by your HR team to grow your workforce's diversity naturally.
Using QuickBooks Enterprise to diversify your vendors and suppliers
Keeping track of every supplier and vendor you work with can be time-consuming, but it's necessary to ensure your business runs smoothly.
QuickBooks Enterprise provides you with vendor management tools that centralize your supplier information on a single dashboard, making it easy to compare contracts and pricing across your entire supply chain.
With alternate vendor reports, you can view your supplier lists by category, like inventory stock status. Reordering with individual vendors is also easy and can be done directly within QuickBooks Enterprise to make your essential business operations run as smoothly as possible.
