Procurement diversification: The business of inclusion

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  Quantumrun Foresight
• September 1, 2023

Insight highlights

In a drive towards inclusivity, businesses are consciously expanding their supplier base to reflect corporate values, which enriches society and bolsters financial outcomes. Adopting supplier diversity programs has proven its worth as a strategic business asset, facilitating significant returns on investment and fortifying resilience in industries with intricate supply chains. As this trend amplifies, it can foster localized economic growth, stimulate innovation, and impact public policy.

Procurement diversification context

Businesses are actively diversifying their suppliers to reflect corporate values, impacting societal inclusivity and financial performance. Data from Supplier.io's 2022 report indicates an 81 percent alignment with corporate inclusiveness driving diversity in procurement, particularly from businesses owned by minorities, women, veterans, LGBTQ+ individuals, and those with disabilities. Their platform aids in identifying and credentialing diverse suppliers, addressing a significant hurdle in supply chain diversification. 

A supplier diversity initiative supports the inclusion of groups historically overlooked. Prominent companies like Coca-Cola, UPS, Delta Airlines, and IBM are leveraging supplier diversity for its financial benefits and societal impact, marking it as an effective and sustainable procurement approach that enhances business resilience and adaptability. Rather than merely a Corporate Social Responsibility (CSR) effort, these programs are increasingly viewed as a business necessity and source of competitive edge. 

Diversification is profitable; Hackett Group's 2019 study reveals that companies committing to supplier diversity programs yield a 133 percent higher return on investments and 20% reduced buying operations expenditure. Modernized sourcing technology, as surveyed by procurement software Ivalua, fosters a 76 percent increase in effective supplier relationships and is viewed as four times more critical than growing staff numbers. Platforms like MSDUK and Nvidia's DeepStream aid in widening supplier diversity, empowering thousands of minority-owned businesses and leveraging AI for automated procurement.

Disruptive impact

Diversified suppliers can gain significant growth opportunities. Traditionally excluded groups will have a chance to interact with larger companies, which can lead to capacity building, technical skill advancement, and improved business acumen. It creates a trickle-down effect where these businesses, particularly those in underserved communities, trigger localized economic growth.

Moreover, a diverse supplier base brings a range of unique perspectives, backgrounds, and ideas that can fuel creativity and foster innovation. As companies collaborate with suppliers from these backgrounds, they can develop new products, services, business models, and, more importantly, markets. This shift in perception can lead to a more accepting business culture in which diversity is not just respected but actively sought out.

In terms of specific industries, those with complex supply chains like manufacturing, logistics, and IT can reap substantial benefits. With a diverse range of suppliers, these industries can mitigate risks associated with supply chain disruptions. By decentralizing their procurement from a concentrated few to a more diverse group of suppliers, they can build more resilient supply chains that can bounce back from various shocks, such as geopolitical uncertainties or natural disasters.

Finally, as supplier diversity becomes increasingly critical for business competitiveness, governments might respond by formulating policies that protect and promote this strategy. For instance, tax incentives could be provided to companies that significantly engage with diverse suppliers, while trade agreements might begin to feature clauses that facilitate the growth of such suppliers.

Implications of procurement diversification

Wider implications of procurement diversification may include: 

• Increased education and skills training among underprivileged communities improving the quality of labor in these areas.
• Companies prioritizing suppliers that have sustainable practices, resulting in reduced carbon footprints and contributing to climate change mitigation efforts.
• Supplier diversity programs promoting gender parity, especially in societies where women are traditionally underrepresented in business. More opportunities for female-owned businesses could lead to increased gender equality.
• Digital inclusion as businesses of all sizes will need to adapt to new technologies to participate in these programs, helping bridge the digital divide, particularly in developing regions.
• Income redistribution decreasing wealth inequality and creating a more balanced economy.
• Urban revitalization as diverse suppliers flourish in cities, attracting more people to these areas and changing demographic patterns.
• Cultural exchange and empathy as companies worldwide engage with suppliers from diverse cultural and geographical backgrounds.
• Companies offering supplier and procurement solutions, including maintaining a vast database of global suppliers.

Questions to consider

• If you own a business, how are you diversifying your suppliers?
• What are the other benefits of having diverse suppliers and procurement strategies?