Commercially-Savvy Reasons Behind Supply Chain Diversity

What’s the ROI of your supply chain diversity programs? If you’re struggling to come up with a number for this, you’re not alone. A poll taken as part of Supplier Diversity Discussions asked companies what the primary reason was for having a supplier diversity program. The most common reason by far: it is the right thing to do.

No doubt, we all agree with this. But companies need to measure the success of initiatives alongside broader objectives and procurement departments need to convince management to work with minority-owned businesses. This is very difficult to do if the reason is simply ‘because we should’.

Quite simply, we need to identify the anti-altruistic motivations behind working with small to medium enterprises. What are the commercial benefits of diversifying the supply chain? Here are three.

Win the war for talent

Procurement is no longer only about cost-cutting initiatives. Innovation, digitisation, corporate social responsibility – these factors and more have broadened the required skill base and, in turn, made competent procurement officers rarer than hen’s teeth.

Retaining good talent has never been more important. 

Numerous surveys are finding millennials to have different priorities to preceding generations. One survey found 40% of millennial respondents chose a job in the past because the company performed better on sustainability than the alternatives. This percentage dropped to less than 25% for Gen X respondents, and 17% for baby boomers.

Employees of today and the future want to work with socially responsible businesses to such an extent that they’re willing to take a pay cut. Not only that, these workers will be your biggest promoters, spruiking your company’s ethos to other like-minded individuals who have the potential to turn into future employees or future customers.

Become (more) attractive to your customer base

Companies should always be trying to make themselves more attractive to their primary customers. In 2016, Walmart sourced nearly US$250 million worldwide form women-owned businesses. Jenny Grieser, Senior Director of Walmart’s Women’s Economic Empowerment initiative, said, ‘Women are our primary customers. In the long run, they benefit the world, but they also benefit our business.’

This particular form of supply chain diversification is so beneficial to Walmart that its social responsibility commitments are always highlighted in shareholder reports and public branding.

Members of minority communities want to buy goods and services from companies that support them. Further, Millennials and Generation Z prize diversity more than any other generation; if companies want to reach these new and expanding demographics, they have to reflect their values.

Increase your market share

The global population is becoming more diverse. As such, minority groups are taking up a larger portion of the customer base every year. Not only that, minority-run businesses are increasing their share of the small business sector.

These businesses are increasing their sales by 34% every year – about twice as fast as the average for all businesses. When you partner with these enterprises, you gain access to this massive economic growth. Organisations that incorporate minority-run SMEs into their supply chain are introduced to new business networks and wider customer bases.

133%. That’s the increase in procurement ROI that companies with a strong focus on supplier diversity are experiencing, resulting in an additional US$3.6 million to the bottom line.

Get the knowledge to realise the benefits of supply chain diversity

Now that you have the commercially-sound reasons behind supply chain diversification, it’s time to learn how to take advantage of it. Academy of Procurement has a successful history of training procurement officers in social and sustainable procurement, running innovative and interactive workshops that give participants the skills and knowledge needed to navigate this new landscape.

Learn how to identify the SMEs that fit best with your organisation, gain the benefits while minimising the risks, and learn how to bring all stakeholders on board. Get in touch today to begin the transformation