Author: Stephany Lapierre, founder and CEO of TealBook
Over the last several years, businesses of all sizes have made diversity, equity, and inclusion a bigger priority—and with good reason. DEI initiatives allow companies to create a space in which underrepresented or marginalized people have fair access to resources and opportunities and feel welcomed and accepted within that space. Let's consider the internal and external benefits that are motivating so many companies to make progress.
Internally, teams are developing employee resource programs and building relationships with DEI-focused institutions. There is a greater focus on growing a more diverse workforce to leverage the innovation and unique experiences those with varying backgrounds can bring to the table. Organizations across the globe are working to address racial and socioeconomic inequities experienced by underrepresented groups.
While these internal efforts to build a more diverse and inclusive workforce are excellent steps to take, these same organizations are also realizing that there are large impacts to be made from a procurement perspective. By evaluating their supply chains and finding opportunities to onboard more diverse and small suppliers, they can enable enhanced DEI throughout their business processes, with the impact growing over time.
Supplier diversity is about more than just numbers and meeting board requirements. Increasing diverse supplier spend can also have monumental effects on local communities.
The impact of supplier diversity
When developing a supplier diversity program, the initial concern might be how much of a financial impact working with these suppliers can have on the organization's bottom line. After all, for decades, the biggest priority of most procurement teams was to achieve the highest cost savings possible without sacrificing the quality of the company’s service or product.
Now, this is not to say that supplier diversity can’t help improve an organization’s financial health. Research done by McKinsey has shown that diverse teams tend to outperform the less diverse by 36%. Furthermore, diverse suppliers—such as those owned by women or minorities—often carry unique life experiences and have overcome different challenges that can allow them to approach goals or processes in a unique way, driving team efficiency and creative problem-solving.
Having a diverse supply base also allows procurement teams to build contingency plans and reduce the risk of disruptions to their supply chains, expand into new markets, and create competition—all of which can help drive cost savings.
Beyond the financial impact supplier diversity can have within an organization’s procurement processes, working with more small and diverse businesses creates opportunities for underrepresented and underserved communities to gain more equitable access when they previously had difficulty doing so.
Understanding the struggle of minority-owned businesses
Minority-owned business owners often face numerous barriers when it comes to getting a strong foothold in the business space.
The COVID-19 Pandemic
For starters, even before the start of the COVID-19 pandemic, minority-owned businesses were considered the most financially at-risk of all small businesses in America. When the pandemic hit, many of these businesses were hit hard, especially industries with the highest share of minority owners, such as retail and food services. In Canada, Indigenous business owners were also heavily impacted by pandemic-induced casino closure – an industry providing a major stream of revenue for First Nation communities.
Social Factors
Systemic racism faced by Black, Indigenous, and other minority business owners can sometimes prevent owners from earning capital as they begin their business endeavors as well as prevent them from expanding into international markets.
Research has shown that minority business owners are more likely to be denied business credit and left using personal finances to fund their ventures than the non-diverse. Women business owners are often more educated than their male counterparts but have smaller annual revenues.
Certification Issues
Lastly, there is also the issue of diverse certification to consider. Earning an official third-party certification is often not a simple task for a small business. These certification processes require a lot of time, money, and effort to apply for and small businesses may not have the resources needed to dedicate to fulfilling these requirements. Plus, while certification can help improve a supplier’s chances of earning more business, it is not a guarantee—making the incentive to go through the entire process a bit weaker.
However, when sourcing diverse suppliers, enterprise organizations typically look only for those businesses that have earned that certification. This excludes suppliers who technically qualify for a specific certification from sourcing events that lead to potential revenue.
When we look at all the struggles small and diverse suppliers face, it’s vital to determine what we can do to ensure that these communities are welcomed and included in procurement processes and supply chains.
How does supplier diversity affect DEI?
When it comes down to it, supplier diversity has the power to create impactful change within the community surrounding your business. By taking steps toward improving supplier diversity within procurement processes, your organization can grant access to suppliers who previously were unable to get their foot in the door, much less a seat at the table.
Support Surrounding Communities
When procurement teams are sourcing materials and services, there is a tendency to source from larger, more well-known companies with a history of delivering a good product. While this process has worked well in the past, imagine if you could get the same product, or better, from a small or diverse business and make a bigger impact on that business owner’s bottom line.
When large firms make a sale, it can often be a drop in the bucket. When a small business does, that sale can make a huge difference in its profits and business functions moving forward. What may seem like another purchase on the buyer side could be a life-changing sale on the supplier side. This could enable that small or diverse business owner to produce more products or services, increase staff, or expand their business to larger or additional locations.
Consider the difference you can have on a small bakery if they began supplying your office breakfasts or a small trucking business if you hired them to make deliveries in your region.
Expand Sourcing Pools
Think about where your procurement team often goes to source goods and materials. If your team is like most, you start with people and companies you know. This isn’t just the case in procurement; in most aspects of life, we tend to look to those in our own circles for advice, help, or services.
If your sourcing pools are lacking in areas of diversity, how are you supposed to find new diverse businesses to include in sourcing events? Expanding your supplier discovery with technology or through connections with industry professionals is a great start to developing a more diverse supplier base.
Not only does this help increase diverse spend on the buyer side, but it gives more diverse suppliers the opportunity to gain new business as they are included in more sourcing events.
Solve the certification issue
With small and diverse businesses not always having the capacity, time, and money to pursue third-party certification, there is an opportunity for enterprise organizations to step in and help solve this problem, creating a more inclusive and equitable space for these suppliers. But how are you, on the buyer side, supposed to address this? Consider potential suppliers who do not yet have certifications.
Take time to research your suppliers and dig into their business functions. Perhaps you see their board is made up of a majority of women, but they don’t have a WBE certification. Maybe their company size makes them small enough to be an SBE, but they aren’t showing a certification for that.
By considering those without third-party certification, you can open your sourcing events to additional suppliers that can meet your organization’s goals, and also create greater opportunities for diverse businesses.
Now, here’s the hot question: how are you supposed to find these suppliers without spending even more time and effort than you already do? Simply put: you rely on better data.
TealBook enables better DEI through supplier diversity features
One of the most difficult challenges procurement teams face when trying to increase diverse spend—therefore creating a more inclusive and equitable business environment for small and diverse suppliers—is finding those suppliers in the first place. Traditional forms of data management leave procurement teams with stale data that doesn’t account for changes in business details or serve their goals.
TealBook uses machine learning and AI to consistently harvest, analyze, and refresh supplier data to provide organizations with the information they need to make strategic procurement decisions. Our Supplier Intelligence Application also hosts a number of capabilities that allow firms to easily and granularly source diverse suppliers, track diverse spend, and enable increased supplier diversity at multiple levels of their supply chains.
Our latest products offerings, in particular, allow firms to drive DEI initiatives and include:
A new Save & Compare feature to store and analyze diversity reports.
Simplified outreach to suppliers to self-certify and renew contracts.
An Economic Impact Assessment to track how your diversity efforts are impacting local economies.
By giving procurement professionals the data and tools they need to enable effective supplier diversity strategies, we can achieve a more equitable and inclusive sourcing process that increases overall supplier diversity.
TealBook enables diversity, equity, and inclusion efforts on a local and global scale by providing our customers with dynamic supplier data. Contact our team to discuss how we can help you achieve your goals to unleash procurement possibilities.