What is Supplier Diversity?
Supplier diversity originated in the United States, born out of the civil rights movement and driven by legislative mandates. Although championed by President Kennedy, it did not grow and gain recognition until President Nixon created the Office of Minority Business Enterprise and issued an executive order, directing federal agencies to develop comprehensive plans and specific program goals for a national minority business enterprise contracting program. While supplier diversity got its start in the United States, it’s reach is global.
In plain talk, Supplier Diversity equalizes the playing field so that everyone has access to the same opportunities in the business arena. Although often referred to as a program, supplier diversity is in fact a strategy that seeks out and welcomes diverse suppliers regardless of their ethnicity, gender or socio-economic status.
In the broadest sense, a diverse supplier is a company at least 51-percent owned by an individual of an underrepresented or underserved group. Common classifications include small business enterprises (SBE), minority enterprises (MBE), women-owned enterprises (WBE), and veteran-owned small business (VOSB). Over time, the list of diverse suppliers expanded to include companies belonging to other minority groups such as service-disabled veterans, HUBZone and disadvantaged business enterprises. For organization participating in supplier diversity, they are asked to record and report the costs of various suppliers. Therefore, it is important to ensure that the suppliers are approved by a third-party certification body; this way everybody gets a chance.
A diverse certification is an important milestone in a supplier’s life as it provides verification that the business ownership meets those of a diverse supplier. Certification also opens the door to new contracts with the federal government, who are tasked with increasing the number of diverse suppliers in the organization’s supply chain – a very fortunate situation.
Why is it so important?
First, scheduling different suppliers can accelerate the growth of businesses and thus increase their economic value. Diversified companies often face barriers that hinder startup and sustainable development efforts, such as access to funding and networking opportunities, and an effective supplier diversification strategy can alleviate these challenges.
The diversity of suppliers not only benefits companies but also supports the development of their communities by creating jobs and increasing wages. This is the so-called economic effect. This demonstrates the value of supplier diversification for the local economy and society.
Some large companies encourage and, in some cases, require suppliers to develop their own diversification plans to increase their impact. For example, as of 2019, retailer Target spent $ 1.4 billion on goods and services provided by various Tier 1 suppliers and influenced those suppliers to buy over $800,000 worth of products and services offered by diverse suppliers.
Supplier diversity has proven to be very beneficial. Aside from giving smaller business an opportunity, to the companies hiring diverse suppliers, it has increased innovation, allowed the sharing of ideas and increased the organizations capabilities. If you are a small business, and fall into one of the classifications above, make sure you are taking advantage of supplier diversity.