What Are Supplier Diversity Programs and Their Benefits?

Diversity is a hot-button issue in today's political climate. While some companies dial back on their DEI (and, in some cases, suffer for it), others hold the line and benefit.

The discussion surrounding DEI is largely focused on company hiring practices and as often focused on upper management as anywhere else in the org charts. What often passes under the radar is diversity in the supply chain.

Known generally as Supplier Diversity Programs, this facet of Diversity, Equity, and Inclusion is a powerful way for companies to exert economic influence and promote social justice and human rights within their niche and industry.

Unfortunately, since supply chains are often largely hidden from public view, many companies ignore this aspect of ESG, and those that do have supplier diversity programs often let them languish, underutilized or underpowered, as much a form of ethical greenwashing as anything effective.

Today, we wanted to talk more about what supplier diversity programs are, what value they can bring to a company, and how to implement one properly. We'll also touch on the pitfalls and shortcomings of many attempts at supplier diversity and how paying lip service to the idea does no one any good.

What, Specifically, is a Supplier Diversity Program?

Nearly every business needs to operate as part of a supply chain. For example, we sell apparel, but we don't make the apparel ourselves. That's handled by another company, and that company doesn't grow or gin the cotton they use, either. There are half a dozen businesses involved in the process of converting the seeds of cotton plants into the shirts you have printed for your business through us.

The people preceding you in the process of creating your products are your suppliers. Sometimes, you might only have one. Other times, you might have a whole chain. We have a wide range of different products in our store, many of which come from different suppliers. The whole chart of everyone we get products from, and everyone those suppliers get their materials from, and on down the line, can be a sprawling flowchart.

A supplier diversity program looks at this chart and seeks to improve the diversity of businesses represented. It means:

• Picking multiple small businesses rather than one large megafactory.
• Picking businesses owned by minority groups, women, veterans, and others.

It's diversity both in the DEI sense and in the "many and varied" sense.

A supplier diversity program is not necessarily choosing to overlook good suppliers in favor of worse but inclusive suppliers. You are still running a business, after all. It simply means weighing the scales slightly; if two more-or-less equal suppliers are vying for your attention, you might preferentially choose the more diverse of the two.

If you aren't sure whether or not a supplier qualifies, the general rule of thumb is that a supplier qualifies as a diverse supplier if it is at least 51% owned by an individual or group of traditionally underrepresented or underserved people. This might be women-owned, black-owned, LGBTQ+-owned, veteran-owned, or another similar classification.

Supplier diversity programs are nothing new, either. General Motors set up its own version of a supplier diversity program before supplier diversity was considered relevant, all the way back in the late 60s. Since then, many firms, large and small, have implemented their own.

What Are the Benefits to a Supplier Diversity Program?

Supplier diversity programs come with a lot of benefits, both for the company implementing them and for the niche, industry, and economy as a whole.

Diverse suppliers drive innovation. Diverse suppliers often have different perspectives, strengths, and techniques available to them to help them succeed, which can be passed onto you as part of a more equitable and inclusive business ecosystem.

Diverse suppliers also foster healthy competition. When one conglomerate is serving as the supplier for a whole industry, what it decides to do has a significant influence on how the industry works. It's the power and influence of a monopoly. When businesses choose to work with multiple smaller suppliers instead, those suppliers engage in healthy competition and drive yet more innovation or compete on the basis of quality or price to the benefit of all.

Using a diverse suppliers list insulates you from supply line problems. As so many industries saw during COVID, reliance on single suppliers and the just-in-time delivery method meant that the supply line as a whole was extremely susceptible to disruption. By working with multiple diverse suppliers, issues in one can be countered by scaling up with another, and you can keep activity going throughout.

Diverse suppliers help foster economic growth. One of the biggest issues with broad-spectrum consolidation through mega-businesses is that it so often drives other potential competitors out of business. Part of having a supplier diversity program means helping to support those "mom and pop" suppliers that not only help circulate wealth through the economy but grow their local communities through their success.

It's the ethical thing to do. For companies that are concerned with ethics and social justice, implementing a supplier diversity program helps to put tangible money and effort into your ethical and moral stances. This has the added effect of being a positive selling point among the consumers who pay attention to these efforts and can even be used as a marketing talking point.

Generally speaking, companies with effective supplier diversity programs:

• Encourage more growth in local communities around the world.
• Foster more growth and innovation within their niche.
• Drive more effective marketing through ethical imperatives.
• Bolster their reputations through tangible efforts.
• Maintain greater resilience against supply chain disruption.
• Enjoy greater profits than near-like competitors without such programs.

All of this is contingent on one key word, though: effective.

What Are the Challenges with Supplier Diversity Programs?

All too often, companies implement a supplier diversity program as a stand-alone initiative that is then ignored, underfunded, and generally left lacking.

This is by far the biggest challenge to implementing and benefitting from a supplier diversity program. If you aren't actually dedicated to it, you end up with 95% of your supply from the same old non-diverse source and a token handful of minor sources that do little more than just mark a checkbox on a list.

Of course, one of the biggest challenges is finding diverse suppliers in the first place. There's a self-perpetuating cycle where the largest, least diverse suppliers drive out the smaller and more diverse suppliers, taking up the demand for themselves and further reinforcing the status quo. That's part of why a diverse supplier initiative is necessary: to forcibly pull away from this paradigm and invest in more diverse operations.

This is why some major corporations, like Coca-Cola and UPS, set up diversity programs that don't just seek out existing suppliers to work with; they help establish and fund diverse suppliers from the get-go.

This does present something of a possible conflict of interest when working with these suppliers, but this is generally minimized by focusing on minimal intrusion in the operations of the suppliers being established.

Are There Certifications for Diverse Supplier Status?

Another prominent challenge you might face when you're seeking to work with diverse suppliers is validating that those suppliers are actually diverse. After all, it can be difficult to see inside a business, and while anyone can claim anything they like about their business, it's entirely possible to exaggerate the truth, make claims based on a different set of standards, or simply lie.

The usual way this is addressed in business is with a certification. So, are there any certifications for diverse suppliers?

The answer is yes, but it's not as easy as looking up a major organization like Fairtrade, B Corp, or an ISO standard.

There are actually quite a few different certifications provided by different organizations. You can look into options such as:

• The National Minority Supplier Development Council
• The Women's Business Enterprise National Council
• The National Gay & Lesbian Chamber of Commerce
• The Disadvantaged Business Enterprise Certification
• The Historically Underutilized Business Certification
• The Minority Business Enterprise Certification
• The Vets First Certification Program
• The US Business Leadership Network

Some of these are stand-alone organizations, while others are certifications offered by state governments to businesses operating within those states. If you're working with suppliers across the ocean (though you should consider avoiding that to minimize the environmental impact of international shipping), you may need to look into international certification programs as well.

Because there are so many different certifications, there's no one easy database to use to find prospective suppliers.

Fortunately, just about every certification program has at least one thing in common, which is the 51% ownership rule. It is, however, up to you to decide if your standards go above and beyond what these certifications demand and how you would want to evaluate and enforce your standards.

How You Can Implement a Supplier Diversity Program

If you're interested in setting up your own supplier diversity program – and you should be – it's not actually as difficult as the above might make it sound. It does require some legwork and investment, though.

Understand the priorities. You can't succeed as a business with sub-par suppliers just because they're diverse suppliers. So, you need to know how to balance and prioritize both efficacy as suppliers and their diverse status.

• Measuring performance. Suppliers need to be benchmarked and their performance monitored, diverse or not. This is also a good way to measure and report on the benefits of diverse suppliers down the line.
• Communications and branding. When you make it known that you have a diverse suppliers initiative, not only will customers support you for it, but potential suppliers may reach out to you.
• Education and development. Diversity is not a fixed position; it's a moving target. Maintaining supplier status and pushing for further inclusivity is critical.

Get buy-in from leadership. As we already mentioned, one of the biggest roadblocks to a diverse suppliers initiative is the separation between the program and the company's operations. If your leadership isn't buying in, you face a significant challenge down the line.

Your supplier diversity program needs to be customized to your organization, your business, and your needs. There's no one-size-fits-all solution, no out-of-the-box program you can implement. You need to analyze what you have, what you need, and where you can get it.

Establish your goals and milestones. In order for any initiative of this sort to be successful, it needs to have tangible goals and milestones you can track to see how it performs. Once again, goals may be different for different companies and industries and can change over time as the industry shifts.

Identify diverse suppliers. Whether you simply make a database of any supplier you can find and evaluate them yourself, or you dig through listings on a certification database, or you just put out a call and accept applications, identifying prospective suppliers is critical for obvious reasons.

Contract with and work with diverse suppliers. Sooner or later, you have to actually pull the trigger and start working with diverse suppliers. As you do, you can track how they perform and what benefits you get from them. It's also worth tracking the benefits of your investment; how does that supplier benefit from your contract? How does their community benefit? All of this can be used to reinforce the decision down the line.

There's no one way to implement a diverse supplier program, and in a sense, as long as you implement something and have a mechanism in place to reinforce and continue it, you can't go wrong. Once you see the benefits you can get from broadening your horizons beyond the same few suppliers everyone uses, you'll rapidly find ways to further invest in and reinforce the decision.

One day, hopefully, concepts like DEI will be nostalgic with how much an artifact of the past they were, and we as a society will have moved beyond the need for specific reinforcement. For now, though, it's a burden each of us must carry to be part of the solution.