Supplier diversity and supplier diversification are such similar terms that it’s tempting to use them interchangeably, but they have very different meanings.
Here’s a hint: one is mainly about boosting CSR, while the other is about reducing the risk of supply chain disruption.
What is Supplier Diversity?
Supplier diversity programs promote the procurement of goods and services from businesses at least 51% owned by individuals who have traditionally been underrepresented or underserved, including veterans, women, people of color, and members of various marginalized groups.
These diverse enterprises encompass minority-owned, women-owned, disabled, LGBTQ+, veteran-owned, and other categories. Diversified businesses encounter obstacles to their growth, such as limited access to funding, networking opportunities, racial injustices, and other forms of prejudice.
Supplier Diversity Programs
In 2021, the Biden administration unveiled fresh federal supplier diversity mandates as part of its initiatives to eliminate economic barriers encountered by underserved individuals and communities. The objective is to elevate the annual spending on Small Disadvantaged Businesses (SDB) from an average of 9.8% over the past five years to 15% by fiscal year 2025.
In sectors where mandates do not yet exist, many businesses are voluntarily launching supplier diversity programs as a key pillar of their corporate social responsibility (CSR) efforts.
The key to a supplier diversity program is to avoid token or ad-hoc gestures. Procurement managers should have visibility into:
- The organization’s potential to procure from diverse suppliers
- The diverse suppliers available for their industry and in their locality (use databases such as Thomas)
- The diverse suppliers the organization may already be buying from
- The contribution diverse suppliers make to the supply chain
- The economic impact diverse spend makes on communities
Example
Let's say, for example, that a food services company has made great progress in its employee diversity program, and turns its attention to the supply chain. A discovery progress reveals that there are dozens of high-quality, reputable minority-owned suppliers in the area.
By engaging with these suppliers, the company starts to enjoy benefits including:
- More choice by expanding the range of potential suppliers available to the business
- Fostering competition among suppliers, leading to cost reduction and improved quality
- Enhancing the resilience and agility of supply chains
- Boosting attractiveness to potential employees concerned about environmental, social, and governance (ESG) matters
- Heightening a brand's positive image among customers who care about CSR and ESG
- Ensuring the businesses’ supply chain reflects the organization’s diverse customer base
What is Supplier Diversification?
Supplier diversification involves engaging with several suppliers capable of providing comparable products or services, thereby avoiding dependence on a single supplier.
Here are some of the benefits:
Defend against disruption: Minimize supply chain disruptions by engaging multiple suppliers and avoid the risks associated with relying on a single supplier during events like natural disasters or labor strikes.
Lower costs: Fostering competition among suppliers can lower costs for the company – but keep in mind that depending on the situation, the opposite strategy (consolidation of purchasing power) may be a better way to save costs. A better way to think of diversification and cost savings in this respect is about avoiding the cost of disruption.
Boost adaptability: Enhance adaptability to market changes through supplier diversification. Navigate shifts in demand, technological advancements, and regulatory changes with a diverse supplier base.
Improve quality: Elevate overall product or service quality with engagement from multiple suppliers. Suppliers are motivated to deliver superior service to maintain the relationship.
Example
For example, imagine a tech company suddenly facing a supply chain disaster. They used to put all their chips on one supplier for a vital tech component, but then geopolitical tensions started to soar.
In response, the tech company got smart and diversified its supplier base. They brought in new suppliers, both local and global, to share the load. Fast forward to when those tensions hit the fan, causing chaos with the original supplier. The tech company was able to smoothly shift gears by tapping into their diversified network to keep production rolling.
The result? No disruptions, no delays, and definitely no panic thanks to the supplier diversification safety net.
The Connection Between Supplier Diversity and Diversification
Although the two terms mean different things, there can be a connection between the two. If your organization is embarking on a supplier diversification strategy, why not engage with more diverse (minority-owned) suppliers as part of this journey and solve two challenges at once?
Can Partnering With a GPO Help With Supplier Diversity and Diversification?
Yes! Even if you are looking to work with a GPO to consolidate your supplier base, Una can help you meet your supplier diversity goals. We have over 5,000 pre-negotiated contracts with hundreds of suppliers, and our supplier list clearly identifies which suppliers are considered diverse or have diverse supplier capabilities.
Download our supplier list below and contact Una to learn how we can help you make the case for a supplier diversity program and avoid supply chain disruptions.
