OutPerform SRM – Supplier Diversity Management
Diversity signifies variety, including variety in the ownership of organizations. In supply management, diversity typically means an organisation’s efforts to include different categories of suppliers in its sourcing process and active supply base and to address opportunities and challenges that arise from differences and similarities.
At a basic level, a more diverse supplier base means an organisation is much more likely to be a reflection of the customers it serves. However, they also deliver other benefits for businesses and the supply chain at large.
Large companies are often better placed to offer global services, more competitive prices, and certain legal protections, while Achilles and IFF research has revealed that big businesses consider SMEs to be more flexible, more efficient, quicker and better located than their larger counterparts. By building a supply chain with both big and small businesses, organisations can draw on all these benefits and improve their resilience in the process.
Diversity is becoming increasingly important in business strategy throughout the world. Diversity’s scope and levels of implementation vary by geographical territory, and therefore often influenced by differing local legislative regimes. The many facets of procurement are often interwoven and supplier diversity is no exception. It is an integral part of corporate social responsibility and sustainability and therefore high on the political agenda. From a European perspective, supplier diversity is seen as an enhancer for innovation (by increasing knowledge within the supply base), and thus increased competitive advantage for businesses in the European Union.
Supplier Diversity in UK
Supplier diversity is gaining importance as an integral part of the business agenda by encouraging the use of a wide range of supplier types. With Public Services (Social Value) Act 2012, Localism Act 2011, Best Value Statutory Guidance (2011), Equality Act 2010 and the UK government target of 25 per cent procurement from SME’s, companies are increasingly being asked to provide information regarding their supplier diversity.
Despite the fact that 99 per cent of all UK businesses are classed as SMEs, according to government figures, research from Achilles and IFF revealed that 80 per cent of large companies in Britain aren’t planning on increasing the number of SMEs they work with. What’s more, just 25 per cent of contracts are currently awarded to SMEs, demonstrating the monopoly big business has on the supply chain.
Supplier Diversity in USA
It could be argued that the United States was one of the first countries to formalise a process for managing and promoting supplier diversity. One example is the New York and New Jersey Minority Supplier Development Council Inc (the Council), established in 1973 as a vital link between major corporations and minority business enterprises (MBE’s). This Council is part of the network of 39 regional affiliates of the National Minority Supplier Development Council Inc (NMSDC).
The stated aim of the Council is to “aggressively seek viable minority suppliers for procurement opportunities with its corporate membership”. The Council enables corporations to diversify their base of competitive suppliers. This activity by the NMSDC increases opportunities for Council-certified suppliers and helps facilitate employment and economic development. In common with many supplier diversity Councils in the United States, a certification service is available to enable businesses to take advantage of two pieces of federal legislation, the Disadvantaged Business Entities (DBE) and what is known as an 8(a) Certification. This certification confirms that:
• the company is 51% owned or controlled either by a minority group or women, and
• the minority or female owner was socially and economically disadvantaged
Benefits for disadvantaged business entities (DBE ) include:
• increased opportunity to participate in local and federal funded projects.
• opportunities to supply prime contractors needing to fulfil DBE participation goal requirements.
• listings in official directories used by prime contractors
• national exposure.
The United States experience suggests that opening up supply chains can offer real bottom-line benefits. Companies that focus heavily on supplier diversity generate 133% greater return on procurement investment than typical business. Such companies spend on average 20% less on their buying operations and have procurement teams half the size of their peer
Managing Supplier Diversity
Above all, a supplier diversity strategy is a highly effective framework to demonstrate an organisation’s responsible procurement agenda as part of its (corporate) social responsibility ethos. Equal opportunities, greater social inclusion, good race relations, the fostering of local economic development and the diversification of supply risk are all positive benefits of a considered supplier development strategy.
The main areas within an effective Supplier Diversity Management include:
- Supplier Diversity Scorecards.
- Supplier Diversity Spend Analysis.
- Supplier Diversity KPIs and associated Reporting.
- Supplier Diversity Risk and Impact Analysis.
- Supplier Certification Management.
- Supplier Diversity Compliance Management.
- Tier 2, Tier 3 Supplier Diversity Management.
- Supplier Diversity Opportunities and Challenges Management.
Outperform SRM can help with the planning and implementation of your Supplier Diversity program thereby ensuring that you have the necessary expertise and processes in place for successfully managing your Supplier Diversity Initiative.
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