Diverse supply chains are better for your business, the economy and your community.
By Matt Alderton
The Chinese zodiac says it’s the year of the tiger — but the global economy isn’t exactly roaring.
The main reason why is inflation, a major cause of which is the insatiable appetite for essential goods. From aluminum and semiconductors to toilet paper and baby formula, demand is soaring and supply is short. As a result, 2022 has felt less like the year of the tiger and more like the year of the splintered supply chain.
As organizations continue to search for ways to fix their fractured supply chains, there’s one under-the-radar solution that can provide a value-added benefit, no matter your business model: diversity.
“Incumbent suppliers … may be reliably low-cost. They’re familiar. They require little new effort to engage with. But are they agile?” consulting firm Ernst & Young asks in a recent article. “Are they fit for a future that is more unpredictable and unstable than ever before? Are they ready to embrace change to the extent that your organization may want to — or be forced to?”
Such questions are especially relevant in the fast-changing retail sector, where recent supply chain disruptions have impacted not only retailers’ core business, but also their facilities, the operation and maintenance of which have suffered from increased costs, inefficiencies and waste. For facilities professionals who pursue it, supply chain diversification — partnering with enterprises that historically are underrepresented in the market, including businesses owned by women, people of color, veterans, LGBTQ+ individuals and people with disabilities — could therefore be a salve that benefits the business as much as it benefits consumers.
The business case is strong for supply chain diversification, said Ciara Lilly, Vice President of Diversity and Inclusion at Diversified Maintenance, which provides commercial maintenance services to more than 9,100 client locations across the U.S. And supply chain resilience is only the beginning.
“Diverse businesses often are able to bring a new level of innovation to our supply chain,” Lilly explained, saying diverse companies are defined not only by diverse people, but also by diverse thoughts and ideas. “Diverse suppliers have often had to think outside the box and be more creative in the ways that they approach their business, and they will bring those fresh ideas to their clients to help them run their operations more efficiently.”
Diverse suppliers might also be more cost-effective. “Their prices are typically very competitive because they tend to be nimbler and more flexible in the way that they’re structured,” Lilly continued.
Indeed, an inclusive procurement strategy expands the universe of potential suppliers from which a company can purchase and therefore promotes increased competition, the effect of which can be increased service quality and lower costs. In fact, research by consulting firm McKinsey & Company finds that diverse suppliers offer their corporate partners year-over-year cost savings of 8.5%.
Those savings can be even greater when you consider the fact that companies may receive federal or state tax breaks in exchange for partnering with diverse suppliers. For example, the federal government provides a tax incentive for firms that utilize diverse suppliers on projects that are funded by federal grants or loans.
Diverse supply chains that save money can also make money, according to management consultancy The Hackett Group, which says companies that dedicate 20% or more of their spend to diverse suppliers can attribute as much as 15% of their annual sales to supplier diversity programs. In a 2019 study for Coca-Cola, market research firm Hootology similarly found that people who were aware of Coca-Cola’s supplier diversity initiatives were 45% more likely to perceive the brand as valuing diversity, 25% more likely to think favorably about the brand and 49% more likely to use Coca-Cola products, the Harvard Business Review reports. Those positive perceptions would lead to an additional 670,000 consumers using Coca-Cola’s products more frequently, Hootology estimated.
Prospective employees also take note of supply chain diversity. A 2021 study by CNBC, for example, found that nearly 80% of workers want to work for a company that values diversity, equity and inclusion, which could make a significant difference for companies that are struggling to attract and retain talent.
The benefits cascade throughout communities, according to McKinsey. If corporate spending with diverse suppliers doubled to $2 trillion from the current estimate of $1 trillion, it says, it could generate $280 billion in additional income and 4 million jobs for minority populations and women, including some 210,000 executive and management jobs. The resulting wealth could be transformative, reports McKinsey, which notes that children from high-income families are six times more likely to graduate from college, that families are 58% more likely to have health insurance when household incomes rise above $75,000 and that every $1,000 increase in household income raises the employment levels of young adults in those families by 1%.
“When we support diverse suppliers, we’re having a meaningful impact,” Lilly said. “We’re creating jobs and helping the overall economy thrive.”
From the ethical to the economic, there clearly are myriad benefits to diversity. But diversifying one’s supply chain can be a lot more difficult in practice than it is in theory. To be successful, FMs must shepherd their organizations over numerous formidable roadblocks.
One of the most common is stakeholder skepticism, according to Lilly, who said business leaders may question the value of supplier diversity programs. In addition to communicating the aforementioned benefits, it’s important to emphasize that diversity does not circumvent due diligence.
“At its core, what we’re doing is creating equitable access to opportunities,” Lilly said. “Companies are still being vetted by going through the same qualification process that everyone else goes through to make sure they will be a valuable addition to our supply chain. Their diversity status is just the cherry on top.”
Another common challenge is finding diverse suppliers that have the size, scale and experience to partner with large retailers. FMs who are struggling in this department can make progress by:
Leveraging your network: Your peers at other companies might be able to share tips, best practices and referrals. “Reach out to organizations that have done this successfully,” advised Lilly, who said ConnexFM can be an especially valuable resource.
Engaging certifying bodies: Organizations that certify diverse-owned companies include the National Minority Supplier Development Council, the Women’s Business Enterprise National Council, the National LGBT Chamber of Commerce, Disability:IN and the National Veterans Business Development Council. These and other organizations can introduce you to diverse suppliers and help you stand up programs that support them, Lilly said.
Offering smaller contracts: If it’s practical to do so, retailers that are used to partnering with a single supplier might break large national contracts into smaller, regionally focused contracts with more manageable scopes of work, proposed Lilly, who said doing so gives diverse suppliers a better chance to complete for new business.
Creating supplier development programs: It’s not enough to just spend dollars with diverse suppliers. It’s equally important to help build their overall capacity, suggested Lilly, whose company prioritizes investing time and resources into developing small and diverse-owned suppliers. “We have a responsibility to develop businesses that aren’t ready for us right now — to help them grow so they are ready for opportunities with us in the future,” Lilly said.
If the platform for your organization relies on national supplier support, developing diverse suppliers may be more challenging. However, you can nurture diversity through your existing supplier base, suggested Catherine Barnes, Vice President of Facilities & Energy Management at Rite Aid, where she has added supplier diversity and subcontractor diversity to recent RFPs and RFIs.
“I’ve learned throughout the years that navigating hundreds of suppliers in a program may not be feasible for lean facilities management teams,” Barnes said. At Rite Aid, the facilities model is 100% outsourced. The program relies on national/regional outsourced suppliers that are not certified as diverse-owned to be trusted partners that have resources to navigate contracts with many local suppliers. “If we work with a large national supplier who uses local subcontractors, we ask them in our RFPs to share information about the diversity of the subcontractors in their network … So even if we’re not working directly with diverse suppliers, we’re able to support diverse-owned growth by partnering with our national suppliers to think about diversity and prioritize it.”
Whether you promote diverse supply chains directly or indirectly, it’s important to be strategic. “To be successful, you need to know where you’re at now — how many suppliers you have, how many of them are eligible for certification as a diverse entity and how many of them are actually certified — and where you’re trying to go with your supplier diversity efforts,” Lilly said. “If you just jump in without taking those essential steps, you might find yourself doing things that are truly ineffective.”
Ambitious targets are commendable. Fortune 500 companies that comprise the Billion Dollar Roundtable, for example, spend at least $1 billion per year with diverse suppliers. And yet, the quality of your effort can be equally important as the quantity, according to Barnes, who said what matters more than how far you travel is that you begin the journey in the first place.
“Success is not necessarily a number,” she said. “I think what’s most important is the end goal: having great relationships with great suppliers who are directly or indirectly diverse. As FMs, we support them so they have an opportunity to grow while providing the best quality and cost for our organizations. It’s a win-win when we can accomplish this together on a greater scale.”