Organizations Need to Rethink Their Strategy for Creating Diverse Supplier Partnerships
This is an AArete Profitability Improvement insight
DEI initiatives and economic value are not mutually exclusive. Operationalizing long-term, data-driven strategies can help you achieve both
In recent years, prominent social movements have raised national awareness of the pressing issues facing marginalized and underrepresented communities. As awareness has grown, so have calls for leaders across industries to prioritize and increase investments in DEI.
We’ve seen how DEI initiatives can help solve workplace challenges by addressing biases, discrimination and inequities, but the payoff of prioritizing diversity across all business activities is well documented and extends beyond employee demographics and inclusivity of a work environment. According to a 2019 McKinsey report, executive teams in the top quartile of diversity were 36 percent more likely to report financial outperformance than those in the bottom quartile.
Still, there remain areas of untapped potential that organizations frequently overlook. And amid today’s shifting and uncertain socioeconomic landscape, organizations must rethink the role DEI plays — not only in their internal affairs and practices but also throughout their supplier network.
The many supply chain shakeups and obstacles that have coincided with Covid-19 and geopolitical conflicts reinforce the need to revise protocols and strategies. By uniting DEI initiatives with diversification efforts, organizations can target overlooked suppliers who offer a degree of flexibility, scalability and loyalty that others may lack.
The benefits of building a network of diverse suppliers extend beyond moral and ethical reasons. In a 2022 McKinsey survey of procurement leaders, minority- and women-owned businesses provided corporate partners with year-over-year cost savings of 8.5 percent.
Leaders should be at the forefront of ushering in a new way of thinking about supply chain management, but firmly-held mindsets still hold many back. DEI initiatives can succeed in tandem with the financial bottom line, but a reactionary approach to forming diverse partnerships undermines potential long-term gains.
A world of opportunity awaits for those willing to think outside the box and make bold changes to their organization’s supply chain protocol.
Reframe Your Mindset
Procurement has long been viewed as an administrative, by-the-numbers piece of the puzzle in the sourcing goods and services. More recently, these departments have been reevaluated as strategic players, not only for building beneficial relationships but also upholding and furthering broader goals. As the role of procurement evolves, so do the outcomes and expectations that once constituted a job well done.
Regarding DEI initiatives, cost-cutting measures that may have worked in the past are no longer appropriate. In October, the MIT Sloan Management Reviews asked panelists whether monetary investments in DEI should be expected to generate an ROI. The varied responses are indicative of a question without a straightforward answer.
For the 30 percent of panelists that affirmed these investments would generate an ROI, a common thread in their explanations was that although short-term returns may fall, these investments hold long-term value for stakeholders. Meanwhile, the 47 percent who disagreed still echoed the idea that assessing value based solely on short-term returns undermines how diverse partners will benefit stakeholders down the road.
Tried and true strategies may have worked for a long time, but the transformed role of procurement calls for leaders to redefine the meaning of value and rethink their decision-making processes.
Build a Supply Chain That Furthers Your Specific Mission
An effective supplier diversity strategy hinges on an organization’s ability to target strategic and commodity-based partnerships that reflect its unique goals.
While some institutions may focus on building and deepening relationships with local suppliers, other strategies center around critical yet potentially underrepresented demographics: women- and black-owned businesses, suppliers that aid sustainability initiatives, and so on.
Mission statements are often perceived as an inspirational yet superficial reference point — words and phrases to adorn a webpage or presentation slideshow with little impact on everyday tasks or long-term strategy. However, when it comes to forming and achieving supplier DEI goals, these serve as an integral component that impacts each step in the process.
Your mission statement must be more than just a feel-good sentiment; it needs to be reflected in strategic decisions and inform your approach to building partnerships.
Act Proactively, Not Reactively
Predictive approaches to supply chain management can help you identify trends and make better-informed decisions. Develop a strategy now, and you’ll yield greater harvests later. Your sights should be set at least one year or, better yet, three years down the line.
Attempts to retrofit suppliers into diversity goals will be in vain, but identifying and securing diverse suppliers early on and planning far in advance — rather than in the moment — will yield significant benefits. When procurement acts too late to identify any meaningful partnerships, foresight and proactivity are sacrificed.
Staying in tune with emerging businesses and shifts in broader strategic plans is part of a continuous process. Another key piece of the puzzle is conducting consistent gap analyses to identify opportunity areas and track progress in reaching DEI goals.
Get ahead of the curve, stay current on what’s driving conversations in the industry, and identify needs early. Finally, harness this knowledge to develop a roadmap oriented around future needs and goals.
Achieving supplier diversity goals and financial decision-making should go hand in hand.
When organizations adopt new approaches, DEI initiatives can not only coexist with financial strategy, but they can also prove to be mutually beneficial.
While responding to both external and internal forces offers its own distinctive set of challenges for procurement leaders, a revamped partnership building strategy that prioritizes minority- and women-owned businesses can not only cut costs — it can generate long term value.
These groups have been historically overlooked and undervalued, and in many cases their potential for scalability has been left unrealized. By building out a game plan for the coming years that places diverse suppliers front and center, the positive ramifications will be felt across your organization, suppliers, community and beyond.
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