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Supply Chain News: Companies Could Get Much More Out of Supplier Diversity Programs, Hackett Research Finds


Programs too Focused on Just Meeting Target Numbers to Driving Innovation, Increasing Market Share

Feb. 21, 2017
SCDigest Editorial Staff

Many companies have programs related to supplier diversity, but more are focused on reaching set goals for the number of such suppliers or amount of spend with them, missing other opportunities to improve company results, new research from Hackett Group finds.

In general, respondents to Hackett's 2016 Supplier Diversity Study say their companies emphasize only a narrow set of supplier diversity objectives: improving the corporate image in the marketplace; supporting corporate culture around diversity and social responsibility; and complying with regulatory requirements.

Supply Chain Digest Says...

Supplier diversity programs are generally a good thing, but most companies have a limited view of how they can deliver value to the enterprise.

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Now, Hackett says, "More companies are beginning to realize that they cannot maximize benefits from supplier diversity programs if their objectives stop there. By expanding the goals and activities of supplier diversity programs, they can gain access to new markets and more beneficial supplier partnerships."

While many companies have supplier diversity programs, Hackett notes that there are high hurdles to obtaining the necessary support to invest in them at many companies. Often, Hackett, says, business leaders worry that dedicating resources in this area means sacrificing procurement savings or even quality.

"However, our research suggests that not only do procurement organizations with top-performing supplier diversity programs experience no loss in efficiency, but they extract even more benefits from the program," Hackett says in its new report on the subject, written by the firm's Patrick Connaughton and Laura Gibbons.

Hackett says its research shows that 99% of all diverse suppliers meet or exceed expectations, which should dispel any notion that quality and overall performance suffers from procurement diversity programs.

For procurement leaders, "Supplier diversity is evolving from a check-the-box, corporate social-responsibility requirement to a strategic enabler providing access to new and innovative products and increased market share," Hackett says.

Hackett's research showed a strong relationship between high levels of diversity spend and increased market share. For example, companies that allocate 20% or more of their spend to diverse suppliers attribute 10%-15% of their annual sales to supplier diversity programs, much higher than the less than 5% of sales companies that direct less than 20% of spend to diverse suppliers identified.

Key to these higher level benefits is partnering with diverse suppliers, Hackett says, identifying three recommended practices:

Developing and mentoring local suppliers: Knowledge-sharing (the most common supplier development practice) and mentorship programs are commonly used due to their advantages for both buyers and suppliers. Use of workshops to share knowledgewith suppliers is a common technique.

Join forces with suppliers on product innovations: Hackett says supplier-buyer innovation is frequently the most immature area of supplier diversity programs, with few companies integrating supplier partnering and innovation into their relationship management goals.

However, Hackett says small business suppliers can be particularly successful partners due to their interest in innovation as a strategy for successfully competing with larger firms.

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Sharing experiences with other companies: A lot can be gained from meeting with other companies that have supplier diversity programs and sharing notes, Hackett says.

If You're Doing It, Market It

To gain maximum advantage from diversity programs, companies need to let the world know what they are doing, Hackett says. As usual these days, social media is a good place to start in communications relative to what a company is doing in terms of its efforts in this area.

That applies to internal company communication channels as well as external communications, Hackett says, noting that "Spreading the message of diversity and inclusion can also help bring in new talent and retain top performers already working in the organization."

It adds that "Developing a strong reputation for dedication to supplier diversity can result in increased market share and talent retention. There are multiple channels available to facilitate a clear and positive message regarding supplier diversity, including both internally and externally facing activities."

One challenge to such programs is finding suppliers to participate, such as by responding to requests for proposals. Hackett suggests engaging third parties that specialize in connecting buying organizations with diverse suppliers, such as WBENC and WEConnect International, which are partnering-certification providers for woman-owned businesses.

The Bottom Line: Supplier diversity programs are generally a good thing, but most companies have a limited view of how they can deliver value to the enterprise. Procurement leaders are taking their programs to the next level with more strategic approaches to their initiatives.

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