For those who work in any area of the supply chain, diversity is a word that comes up often. Supplier diversity or diversity in contracting are programs that can be either mandatory (i.e., requirement to fulfill state or federal contracts) or voluntary (i.e., procurement/social responsibility strategy).
Whether your organization chooses diverse suppliers for advocacy and social responsibility reasons, to comply with state or federal regulations, or to simply meet your stated requirements and work scope, the benefits of supplier diversity can have lasting impacts on your community and your organization.
Starting a Supplier Diversity Program (SD Program) in your organization requires input and collaboration from various stakeholders at all levels. The SIG Resource Center has a wealth of information to help you begin the process to implement an SD Program, including how to make the business case to internal stakeholders, best practices and benchmarking studies from your peers.
What is a Supplier Diversity Program?
A supplier diversity program is an organization's documented intent and program to provide economic development opportunities for small, diverse business enterprises, which include, but are not limited to, small enterprises, minority, women and disabled veteran-owned suppliers.
Supplier diversity as a business practice varies by organization. In a recent interview with Daryl Hammett, COO and Partner of ConnXus, an Ohio-based tech start-up that connects diverse and small businesses with companies seeking to expand and diversify their supplier base, he tells SIG CEO Dawn Tiura how he views supplier diversity:
"When I say diverse, I do not necessarily mean ethnic diverse, but diverse in a different state. Diverse could be veteran-owned, woman-owned or an LGBT company."
For Daryl, working to make the process more efficient is what drives his passion because he has been a minority supplier. And with efficiency comes more room to be innovative and strategic.
The California Water Service Group (Cal Water) recently presented at the SIG Global Executive Summit on "Supplier Diversity: The Why, the How and the First 90-Days," which explored the benefits and consequences of non-compliance. The presentation also touched on actionable items for the first 90-days of starting a supplier diversity program.
As the third-largest publicly traded water utility group in the U.S. with close to $700 million in annual revenue, Cal Water defines diverse suppliers as a business enterprise that is at least 51-percent owned, managed and controlled by one or more of the following:
Minorities: African-American, Hispanic-American, Native-American or Asian-American
Lesbian, Gay, Bisexual or Transgender Individuals
As a regulated utility, California Water Service Group falls under the California Public Utilities Commission General Order 156 (GO 156) establishing a SD Program. Compliance often gets a bad rap, but according to Jose Espinoza, Supplier Diversity Program Manager at Cal Water, the SD Program actually increased competition for projects and provided more competitive rates.
The SD Program also led to new innovations. Through a Minority Business Enterprise, Cal Water was able to develop a mobile workforce application, migrating from paper and pen to tablets and GPS.
But the benefits are not just quantitative; there are qualitative impacts to Cal Water’s SD Program: “By sourcing from our communities, we have a positive and tangible impact in their economic development and well-being,” he says.
Managing Perceptions and Expectations
Getting buy-in from upper management and internal stakeholders can be a challenge to implementing SD Programs, especially when organizations are focused on cutting costs.
It appears that perception and reality in the use of diverse suppliers are misaligned. A 2016 survey by the Hackett Group found that "virtually all diversity suppliers meet or exceed expectations, and top corporate performers in supplier diversity experience no loss in efficiency."
Additional findings from the research include, "increased market share and access to new revenue opportunities" as a result of taking on diverse suppliers.
A 2017 SIG Member Benchmarking Study for Supplier Diversity Spend highlights that success hinges on the need to have senior leadership advocacy of the program. Looping in your organization's marketing department to build out brand reputation is a move recommended by many in our studies.
Identifying Small and Minority Suppliers
This is a challenge echoed in SIG's benchmarking studies and external research alike. A number of responses to a SIG Peer2Peer inquiry into supplier diversity solutions recommend partnering with national and regional organizations that provide diversity certifications to suppliers, attending small business conferences and tradeshows that diverse suppliers frequent and utilizing third-party providers that specialize in this area.
A whitepaper by Paul D. Larson, Ph.D., CN Professor of Supply Chain Management at University of Manitoba, examined supply chain policies and practices of large public, private and voluntary organizations. The research identified positive outcomes for organizations that have SD Programs in place:
Increased customer satisfaction (and sales revenue)
Increased employee satisfaction (and reduced turnover)
Increased investor confidence (and access to capital)
An improved public image
Better product/service quality at a lower cost due to greater and more diverse competition
Additional Supplier Diversity Resources
Additional resources on supplier diversity programs can be found in the SIG Resource Center, including templates, thought leadership, case studies and more. You can also utilize SIG's Peer2Peer program to crowdsource the experience of industry professionals and leverage their expertise by posing questions to the greater SIG community.
Organizations that can assist you to identify small and minority suppliers include the following:
NMSDC – National Minority Supplier Diversity Council
Mary Zampino is the Senior Director of Global Sourcing Intelligence at SIG and has over 20 years of experience in information technology and over 15 years of experience in sourcing. Prior to joining SIG, Mary worked at Enporion, where she was responsible for the analysis, configuration, execution and award evaluation for over one thousand sourcing events, across a diverse range of direct and indirect categories. Mary is committed to customer service and considers information sharing and usability the top priorities for any project or organization. Mary holds a Bachelor's Degree in Information Science from the Florida State University and has completed certifications in Health Information Technology and Requirements Gathering.