Maximizing the Benefits of B2B Supplier Diversification
Supplier diversity initiatives are a savvy business move as well as an investment in social responsibility.
As America’s population becomes more diverse and social movements highlighting the need for inclusion have taken center stage, governments, nonprofits, and large companies from a wide variety of industries (for example, Nike, Nordstrom, Pfizer, IBM, Microsoft, Dell, Coca-Cola, Fox News) have responded to these demographic changes with initiatives to promote supplier diversity and inclusion. These B2B programs are intended to make it easier for small businesses or those owned and operated by people from socially or economically disadvantaged groups, such as minorities, women, the LGBTQ community, and veterans, to win contracts and sell their goods and services. For instance, Google’s supplier diversity program has helped small and minority-owned businesses win contracts for a wide variety of commodity products and for services like transportation and catering.
Such businesses are vital to the economy and society of the United States. Small businesses alone account for nearly half of the country’s GDP and have created over 60% of the country’s new jobs in recent years. Women own 40% of all businesses in the U.S., and ethnic minorities own nearly 30%. Taken together, these numbers make small and diverse businesses a key facet of the U.S. economy — and the numbers will continue to rise.
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Many companies describe the implementation of these supplier diversity initiatives as a moral decision and treat them as an investment in corporate social responsibility, demonstrating that their company stands for a set of core values. But despite these initiatives’ economic and social significance, their success has been mixed, due in part to doubts about their effectiveness.
Assumptions of Financial Inefficiency Results in Lackluster Support
Despite the fact that many large businesses proudly describe their supplier diversity initiatives on their websites, very few of them actually report the key results or disclose how many of their contracts are won by diverse suppliers. This lack of disclosure easily leads to cynicism; big companies may pay lip service or implement half measures, but it’s unclear how much they embrace and practice supplier diversity.
Some buyers fear that such initiatives do not make financial sense — that choosing to buy from any but the cheapest business increases their purchasing costs. Some politicians and analysts have criticized supplier diversity initiatives as financially inefficient and relevant monitoring systems as weak or lacking.