How to Supercharge Supplier Diversity Initiatives with Technology

How to Supercharge Supplier Diversity Initiatives with Technology

This post originally appeared on Procurious, March 30, 2021.

This is not a moment, it’s a movement. 

We experienced a sharp rise in our collective social consciousness over the past year. Diversity and inclusion (D&I) issues have gone mainstream. Thus, they now influence many aspects of our lives – including procurement and sourcing operations. 

But supplier diversity is not new. Big business has been talking a big game for years. They proudly hype and promote their supplier diversity initiatives to whoever will listen. Few organisations, however, have provided transparency into what they’ve accomplished, how they’ve improved, and the impact they are driving.

“It’s time to end lip service. We need to move beyond vague corporate promises and enact real change,” said Alex Saric at Ivalua. “Supplier diversity has been around for more than fifty years. While we’ve seen a lot of positive outcomes for people, communities and businesses, we can do a lot more. Procurement holds the cards.”  

To start, we need to recalibrate our mindsets. Improving diversity across supply chains isn’t a nice thing to do – it’s the smart thing to do. When you embrace that mindset — and fully engrain D&I into your business operations — the value follows. For example, McKinsey conducted a survey of 1,000 companies across 15 countries. It found that “companies with more women on their executives boards were 25% more likely to financially outperform their less diverse peers. For companies with more ethnically diverse boards this likelihood was 36%.” A Hackett Group study conducted years earlier shed an early light on the possibilities. According to Hackett Group, “long-term supplier diversity programs generate 133% more ROI than businesses that continue to rely on the same suppliers.”

“The performance benefits are strong and universal. Recently, we have also found a clear connection between diversity and resilience. Diverse suppliers tend to be smaller, more agile and adaptable compared to their larger counterparts. This is extremely valuable during volatile markets like we’re experiencing today.” said Alex Saric at Ivalua.

Wherever you are in your supplier diversity journey, you need to keep moving forward. The world – and your business – deserves more. Procurement and sourcing technology holds the key.

Four Ways Technology Improves Supplier Diversity Outcomes

Technology is essential for making a real impact. It can help drive greater progress against diversity objectives while also minimising any tradeoffs. Specifically, there are four key areas where technology enables procurement leaders to create more diverse supply chains. Today’s procurement and sourcing solutions enable organisations to:

1. Baseline Supplier Diversity. If you don’t know how you are performing today, how will you know if you are improving? Every diversity program should start with a baseline. Procurement leaders can leverage SRM technology to survey suppliers, integrate with third parties and verify certifications. Advances to supplier mapping functionality can automatically show the interconnectivity of suppliers within a given region or market. This helps procurement teams identify the big fish at the center of the supplier pool. This visibility is critical for understanding where to focus for improving diversity outcomes and reducing supplier risk.

2. Identify new suppliers. Once you understand your current landscape, you’re ready to expand. A historic challenge has been identifying new diverse suppliers. With a limited set of suppliers, competition is hindered; organisations often find themselves having to decide whether to increase supplier diversity or minimise costs. By expanding supplier discovery, companies have a broader set to select from, so they can minimise this tradeoff. And while diverse suppliers tend to be smaller, they also tend to be more local. Thus, they can often provide faster and lower cost delivery to balance out any higher product costs.

Technology can support by integrating outside supplier data and intelligence sources, such as a TealBook or EcoVadis, to expand the pool of potential suppliers and ensure quality data is available to assess them. The key is to bring all the information into a single platform. This makes informed decisions easier. 

Expanding your network of diverse suppliers is also a great way to strengthen customer relationships and create new opportunities. MIT Sloan reports that “minority population growth will account for as much as 70% of the total increase in purchasing power from 2020 to 2045.”

“The more diverse your organisation and supply base is, the easier it will be to connect and establish relationships with prospective partners, employees and customers,” said Alex Saric at Ivalua.

3. Optimise supplier selection. As every procurement and sourcing leader knows, there are a multitude of factors that go into every supplier selection decision. The amount of potential scenarios and outcomes from a sourcing event is tremendous. This makes analysing them manually nearly impossible! As the criteria continue to expand, from cost and quality to sustainability, diversity and risk profiles, optimisation becomes increasingly complex.

Sourcing optimisation technology can help you better analyse scenarios and award the optimal supplier mix based on your priorities, including diversity. The end result is a clear picture of the diversity, financial, risk, quality, service and sustainability implications of any decision you make. Once limited to a handful of complex categories such as freight, such technology has been simplified by some vendors and integrated into sourcing tools so it can be applied to broad sets of categories.

Once limited to a handful of complex categories such as freight, Sourcing Optimisation Technology has been integrated into sourcing tools so it can be applied to broad sets of categories.  

4. Monitor supplier performance. Finally, once you’ve made supplier decisions, you need to monitor performance, identify gaps and work collaboratively with your partners to improve. Technology makes this process easier in several ways: First, by integrating third-party risk monitoring, procurement can get automatic alerts on events and news that affect their suppliers. If something changes, procurement is alerted and can act quickly. Second, technology automates performance monitoring. Procurement can set performance KPIs and thresholds to quickly see how each supplier is performing against contractual KPIs. When a deficiency is noted, automated improvement plans can be set and monitored.  And finally, digitising the supplier engagement process makes everything easier, faster and more efficient. Imagine improving everything from day-to-day supplier communication and contract management to long-term collaboration programs! 

The Secret Ingredient that Brings it All Together

The above improvement strategies share something important in common: They all assume the supplier data that procurement relies on is accurate and verified. “The most important process in improving supplier outcomes – whether it be diversity, sustainability, risk or anything else – is having a trusted, unified data source. Procurement needs clean data and a single source of truth to make decisions, measure performance and drive improvements,” said Alex Saric.

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