Supplier Diversity: An Imperative to Build Resilient Businesses

Claire Bosch Zuazo

Global Lead, Social Impact

Contents

• What is Supplier Diversity?
• Benefits of Supplier Diversity
• Strategies for Fostering Supplier Diversity
• Contact Us

Share this article

• Share via Linkedin
• Share via Facebook
• Share via X
• Share via Email

What is Supplier Diversity?

Supplier diversity is a strategic business practice that emphasises the inclusion of diverse businesses. These businesses typically include small, medium, and large companies that are at least 51% owned and operated by members of traditionally underrepresented or underserved groups (e.g., minorities, women, LGBTQIA+ people), also known as diverse suppliers. Supplier diversity initiatives help companies incorporate ethical considerations, equity, and inclusivity into the supplier selection process while simultaneously integrating greater resiliency and managing risk throughout their supply chains.

Supplier diversity largely originated in the United States as a result of public policy that mandated supplier diversity in government contracts, and it has been slowly gaining traction in Europe and around the world. Today, in addition to regulatory requirements, supplier diversity is also a key expectation of stakeholders, such as consumers and investors. For example, a recent study of major buyers in Canada found that 82% of buyers expect their suppliers to meet at least one ESG criterion, with the number likely to continue to rise.

Stemming from the beneficial drivers detailed below, interest in supplier diversity has grown substantially due to its potential to drive innovation, build resilience, maximise social impact, and build stronger market value. For instance, 97% of Fortune 500 companies currently have supplier diversity programs.

These programs are typically principled by the belief that suppliers should be treated as partners with mutual goals in creating shared values. In this way, supplier diversity has also been reframed as business diversity and becomes less about compliance and processes, and more about a strategic business imperative that should be integrated within a company’s sustainability approach.

Benefits of Supplier Diversity

Increased Resilience

Diverse suppliers are better situated to help companies mitigate supply chain risks and facilitate a more resilient supply chain.

A diverse supplier base allows companies to reduce their dependency on single sources, have more geographic variety, and access a wider range of technology and expertise. In other words, diverse supply bases facilitate access to products, processes, and ways of thinking different from more homogenous suppliers.

Nurturing a diverse supplier pipeline also results in loyal supplier relationships and competitive advantages. A reliable supplier pool drives competition and innovation on products, solutions, and services. In fact, research has found that diverse businesses are 11% more likely to have recently engaged in product or service innovation.

Social Impact

Businesses focusing on supplier diversity improve social impact performance by spurring investment and growth in local communities.

At their core supplier diversity programs are a means of reaching out and building stronger, more resilient communities. For example, procurement activities with diverse-owned businesses enable community-level economic investment, development, and opportunities. Supplier diversity, especially when paired with local sourcing, results in significant community development. Investments made by diverse suppliers, such as hiring local talent and establishing a new facility, contribute to the vibrancy and growth of the local community.

Growing the prosperity and wealth of underserved communities can also help companies build revenue opportunities, enhance their reputation and public relations, and showcase their commitments to diversity initiatives. A recent case study demonstrated this effect, finding that individuals who were aware of the company’s supplier diversity initiatives were 45% more likely to perceive the brand as valuing diversity, 25% were more likely to think favorably about the brand, and 49% were more likely to use the company’s products.

Alignment with Stakeholder Expectations

Engaging with diverse suppliers helps companies align with stakeholder expectations by advancing their diversity, equity, and inclusion programs while simultaneously promoting significant financial opportunity.

Increasingly, consumers, investors, and business partners are favoring companies that have meaningful and demonstrable diversity, equity, and inclusion strategies. Research, including the Capturing the Diversity Benefit report, shows that companies did respond to changes in consumer and employee sentiment in 2020-2021 when Americans protested the deeply ingrained racial inequities in American society. Moreover, the research shows a statistically significant positive correlation between manager diversity and corporate financial performance.

Investors continue to look more closely at corporate diversity performance, including asking companies for information about how they manage their diversity programs, and asking companies to release their EEO-1 data and the effectiveness of their diversity, equity, and inclusion efforts. Incorporating supplier diversity in your business strategies and practices thus acts as a strong signal to stakeholders that your company values an inclusive and respectful work environment.

Supplier diversity is also a valuable investment; mid-sized diverse-owned businesses represent approximately 30% of the market, with an untapped revenue potential of $1.3 trillion annually, meaning they are quickly becoming a critical source of economic growth. Research shows that collaborating with suppliers that reflect diverse client profiles and corporate diversity, equity, and inclusion efforts creates greater alignment and strategic fit. Leading companies with more diverse supplier bases see, on average, a 133% greater return on procurement investments than those without.

Fostering Supplier Diversity Strategies

To help foster a diverse supplier base, whether to comply with regulations or to meaningfully engage in diversity, equity, and inclusion strategies, companies should:

• Assess & Commit: Map out your existing supplier pool in order to understand your current landscape and establish a baseline. Then, reach internal alignment on goals, processes, and methods, set KPIs that can be used to track progress, and commit to increasing supplier diversity. Finally, walk the walk by investing in building capacity with diverse business communities such as the National Minority Supplier Development Council or the European Supplier Diversity Program.
• Incorporate Supplier Diversity into Corporate Sustainability (and vice versa): Many regulations and reporting requirements (such as U.S Executive Order 13985, the CSRD, and the CSDDD) provide great frameworks to incorporate supplier diversity. Sourcing from suppliers that are diverse in size, ownership and/or operation will lead to engagements with more sustainable suppliers that, in turn, invest in local communities.
• Reduce and Remove Hurdles: Diverse suppliers are usually more lean and agile, and do not have the infrastructure of larger suppliers. This means that many diverse suppliers face challenges in competing against larger firms due to lack of access to capital, early investments and mentorship. For example, requiring use of specific electronic ordering system may pose a great obstacle to a smaller diverse suppliers. Identifying and removing common barriers for small businesses in accessing your large contracts, through efforts like smaller contracts or more favorable payment terms, can greatly increase the effectiveness of your supplier diversity strategy.  

Diverse suppliers help mitigate supply chain risks by reducing a company’s dependencies on single sources, enhancing flexibility and agility, contributing innovative risk management strategies, providing broader geographic reach, ensuring regulatory compliance, and offering access to niche expertise and technologies. Embracing supplier diversity not only strengthens the resilience of the supply chain but also positions the company to thrive in a dynamic and unpredictable business environment.

To explore how we can support you in developing supplier and business diversity strategies, contact us today.