An effective supplier diversity program is not a form of charity; it is a smart business decision that both benefits the company with the program and builds a stronger market. The vendors in a robust supplier diversity program should meet or exceed the same standards as non-diverse suppliers outside of it, and they usually do. According to a study by the Hackett Group, 76% of diverse-owned vendors meet buyer expectations and another 23% exceed them.
Whether you’re looking to overhaul an existing program or start from scratch, ensuring you create a rigorous, organized program with buy-in from top management is the best way to ensure it will succeed. Near the end of this article, I’ll be going over some best practices to ensure you have a strong program and to help you find the diverse suppliers you’re looking for. First, however, let’s explore what exactly a supplier diversity program entails, and how it benefits both your company and the larger community.
At a glance:
- What is Supplier Diversity?
- Supplier Diversity Benefits
- Supplier Diversity Program Best Practices
- Finding Diverse Suppliers
What is Supplier Diversity?
Supplier diversity programs are initiatives that vary the pool of suppliers a company uses by increasing the number of its vendors that are either small businesses or owned and operated by underrepresented people. This can include veterans, women, people of color, or other groups. Businesses like these typically face challenges other companies do not, ranging from lack of access to funding and mentorship to outright discrimination, which is why supplier diversity programs are so important. Ensuring business also goes to these companies enables them to grow and increases competition to promote a healthier market.
Diverse suppliers fall into one of three categories:
- Small business: this can depend on the certification, but companies are typically classified as small based on their revenue or number of employees. (The Small Business Administration currently offers a set of tables to evaluate if a company falls into this category for their certification).
- HUBZone (Historically Underutilized) business: a company located in an economically disadvantaged community. (Learn more about what qualifies as a HUBZone Business here.)
- Diverse-owned business: a company at least 51% owned and operated by someone in an underrepresented or underserved group. This includes veterans (including service-disabled veterans), disabled, women, LGBTQ+, and minority groups, including Hispanics, African-Americans, Asian Americans, Pacific Islanders, and Native Americans.
Some suppliers are simply classified as diverse, while others are certified through a third party. Suppliers with certification of their diverse status are better for dealing with federal and state government contracts, as well as for keeping more accurate records of vendors for potential customers. No single body issues all certifications, so the certifications you’ll want to see may depend on your industry. However, some of the major certification bodies in addition to local and state governments include:
- the Small Business Administration
- the U.S. Department of Veteran’s Affairs Vets First Verification Program
- the National Veteran-Owned Business Association
- the National Veteran Business Development Council
- Disability:IN (for veteran- and disability-owned companies)
- the Women’s Business Enterprise National Council
- the National Women’s Business Council
- the National Minority Supplier Diversity Council
- the National LGBT Chamber of Commerce
Supplier Diversity Benefits
Supplier diversity benefits buyer companies both directly and indirectly, as well as the suppliers and the larger market. A buyer company gains a more robust supply chain and more competitive suppliers. Meanwhile, the market at large benefits from increased competition, and money from the diverse business benefits its local community.
Apart from increased supply chain flexibility and competition among suppliers, a supplier diversity program will give the buyer company early access to innovative new businesses. It will also raise the buyer’s market share. Companies that spend 20% or more on diverse suppliers report the program contributes to 10-15% of their sales, while those that spend less than 20% get a sales bump of 5% or less. This may partially be from increased access to opportunities; using a certain number of certified diverse suppliers allows a company to bid for government contracts. At the same time, increased diversity in the supply chain enables a company to expand into diverse markets more easily. This is not an insignificant opportunity when you take into account the Department of Commerce’s prediction that minority buyers will increase their buying by 70% between 2000 and 2045.
As a bonus, these programs give the buyer company a way to showcase how it’s benefitting the larger community, something that has become more and more important in recent years. Many companies with a supplier diversity program will keep track of their economic impact to demonstrate how they’re meeting ESG goals to stakeholders, customers, and the public.This can include factors like the amount of money contributed to local economies and the number of jobs a buyer is supporting.
On a larger scale, however, a supplier diversity program helps build a more robust market and benefits the wider community. Starting with the diverse business itself, additional business will give it funds to grow which it might not have otherwise had access to. This increases the number of strong competitors in a market, helping to lower prices, avoid monopolies, and increase innovation. Small businesses accounted for 44% of economic activity in the United States in 2019 according to the SBA. Supporting them increases the strength and flexibility of the economy in addition to your own supply chain.
Supporting diverse businesses also helps their local communities outside of the number of jobs supported. A flourishing business can hire more employees, increase pay, and expand. It will also pay more in taxes, which will go toward community improvement.
Supplier Diversity Program Best Practices
Supplier diversity program best practices include organization and periodic evaluation. A strong supplier diversity program is consistently monitored and demonstrates a return on investment. The best programs involve consistent engagement with tier 1 and tier 2 suppliers, as well as some mentorship on the buyer company’s part. To ensure your program continues to add benefits, it’s important to:
- Clearly determine who your diverse suppliers are and what you spend with them. From this, you can identify and close any gaps or weak areas.
- Create goals around which supplier types specifically you want more of (for example, you may not have any women-owned suppliers). Make sure buyers and stakeholders are clear on the goals so they know how to evaluate potential new suppliers.
- Get supplier diversity info whenever you start using a new supplier. You can include certifications and other info in your onboarding paperwork.
- Avoid accepting any lower standards from a diverse supplier than you would for any other supplier.
- Keep detailed information on each supplier including metrics for evaluation.
- Ensure there are supplier diversity rules for Tier 2, 3, and 4 suppliers.
- Enable diverse perspectives in supply chain decisions.
- Offer information to remove obstacles for diverse suppliers. This can include measures like training or information on what diversity certifications you will accept, or putting which products and services your company needs on your website.
- Make sure there is support for the program from company management to ensure it will continue to thrive. If it’s possible, make sure it’s part of company policy.
- Continue to monitor and adjust the program over time to ensure it’s still effective.
Finding Diverse Suppliers
You can find diverse suppliers both by tapping your company’s own network and resources and getting information from diversity, trade, and government organizations. It goes without saying that you’ve already found one diverse supplier: ASE Direct is a Service-Disabled, Veteran-owned Small Business. To find more suppliers, however, the first place to look may be your own supply chain. Increase transparency to see if there are already diverse companies there- any that you find should be added as part of your progress in your diverse spending goals.
According to a 2019 study by The Hackett Group, companies surveyed found the most effective method of finding diverse suppliers is collaborating with other companies, followed closely by utilizing supplier diversity organizations. These include the NMSDC, NaVOBA, WBENC, and the other certifying organizations listed earlier.
The third most effective method was to use supplier databases outside of in-house sourcing tools. This can include websites like the SBA’s search tool, more local government databases like this one for the state of Pennsylvania, or private company databases like Thomasnet.com, which has filters to search for more than 20 types of diverse businesses ranging from veteran-owned companies to woman-owned companies for free. You can also use companies that tap into private supplier networks that include certified veteran-owned or other diverse suppliers, like Xometry.
Other methods in the top ten included participation in industry events like trade fairs, matchmaker events, tapping trade associations and councils, finding suppliers as part of RFI or RFQ processes, and companies tapping their own supplier networks. Businesses also found supplier diversity trade fairs helpful, as well as putting on events on how suppliers could work with them.
Moving Forward with Supplier Diversity
Implementing or overhauling a supplier diversity program enables your company to unlock a host of benefits without sacrificing budget or quality. It is crucial to ensure your program is organized, has top-down support, and holds suppliers to the same standards as your other suppliers to ensure it will bring back the measurable ROI it should. However, there is a vast market of diverse suppliers to choose from, including ASE Direct itself. Investing business in these companies will help build up your company and the larger market for years to come.
For over 120 years, Thomas has served as North America’s number one industrial sourcing platform and marketing powerhouse. With the legacy of the Thomas Register® at our back, today’s Thomas is a data, platform, and technology company that has become a leading resource for the industrial marketplace. We serve professionals on both sides of the industrial buying process to create solutions that inform, support, and empower industry.
Xometry (NASDAQ: XMTR) powers the industries of today and tomorrow by connecting the people with big ideas to the manufacturers who can bring them to life. Xometry’s digital marketplace gives manufacturers the critical resources they need to grow their business while also making it easy for buyers at Fortune 1000 companies to tap into global manufacturing capacity.