What is Supplier Diversity and Why it is Important?
Diversity is an important concern in the modern world. In the recent years, there has been an increasing scrutiny regarding the diversity initiatives that companies are undertaking. Workplace diversity has become increasingly importance and now there is a heavier push for equal employment opportunities for all, regardless of gender, race, disability or sexual preference and orientation. We talked about workplace diversity at length in our blog before, which you can visit here. However, there is another facet to diversity that is getting quite a lot of attention. Supplier diversity is about giving small companies, owned by minorities and other disadvantaged sections of the society the opportunity to compete with established vendors companies. Diverse suppliers are lean and hence agile, cost-effective, and their disadvantages ensure a degree of innovation from them in order to provide better services.
What is Supplier Diversity?
Supplier diversity is related to diversifying the suppliers for your company based on a variety of factors. As per the Harvard Business Review “A diverse supplier is a business that is at least 51% owned and operated by an individual or group that is part of a traditionally underrepresented or underserved group”. Commonly, underrepresented or underserved groups include small-business enterprises (SBEs), minority-owned enterprises (MBEs), and woman-owned enterprises (WBEs). Along with these classifications, they also include Veteran owned small business enterprise (VOB), people with disabilities and members of the LGBTQ community.
Supplier diversity is an extremely important part of Government contracting. Most Federal and SLED Government agencies have overall supplier diversity goals established. These Government agencies then set supplier diversity goals for each contract opportunity they release. Vendors who wish to bid on these contracts must give a certain amount of the workshare to diverse suppliers. For example, the State of Maryland has established overall diversity goals for each of its State level agencies (MDOT State Highway Administration (SHA) – Overall 26.04%). Whenever SHA will release a contract opportunity, it will establish a goal on the opportunity for MBEs/DBEs/VOBs, which will have to be fulfilled by any vendor who wins the contract. This goal will, in turn, contribute to the overall diversity goal set by the State for that agency.
Types of Diverse Suppliers
For a business to call itself a diverse enterprise it must be at least 51% owned by a diverse person. Types of diverse suppliers include:
- SBA defined small business enterprises
- Disadvantaged Business Enterprises
- Service-disabled veteran-owned
- Historically underutilized businesses (Also known as HUBZone businesses)
But just identifying as a diverse supplier does not help. A firm needs to be certified by a recognized certification agency which provides diversity certifications.
Certified diverse suppliers are important in situations when a company is dealing with federal and state governments (which themselves set aside business for certified diverse suppliers). Usually, the government agency releasing the contract opportunity will have a criteria set for the eligibility of a diverse supplier for the diversity set-aside goal. They also have a list of certification agencies whose certifications they recognize. It’s important to be acquire those certifications which are most beneficial for a diversity supplier in their region of business.
Some famous certifications that are recognized at the federal level are given below:
- Certifications offered by the United States Small Business Administration (SBA), under its 8(a) Business Development Program (13 CFR part 124, subpart A) or its Small Disadvantaged Business (SDB) Program, (13 CFR part 124, subpart B)
- Certifications offered by the United States Department of Transportation (DOT), under its regulations for Participation by Disadvantaged Business Enterprises in DOT Programs (49 CFR parts 23 and 26)
Benefits of Supplier Diversity
The case for Supplier Diversity is not just supported on the moral and ethical grounds. There are some key benefits for companies looking to diversify their supplier pool.
It helps to make your supply chain more agile and cost efficient, benefits that are offered by diverse suppliers. In today’s times, which have proven to be the most uncertain, both financially and qualitatively, this helps you stay dynamic in a volatile market. As per Terrez Thompson, Vice President of Global Supply Inclusion and Diversity at Coca-Cola, “Diverse suppliers can turn on a dime and are now considered for contracts that they would not have been otherwise due to the imperative for flexibility. They have proven themselves to be agile in terms of responsiveness”.
Also, it offers a wider pool of potential suppliers to choose from and there is a push for exploring new opportunities for collaboration with diverse suppliers. It promotes competition in the pool which in turn helps reduce costs and improve quality of service.
It also helps improve your brand, through positive associations that come with opting to diversify your supplier pool. These initiatives do not go unnoticed and are certain to give your brand image a positive boost.
As per Harvard Business Review, in a 2019 study for Coca-Cola, Hootology, itself a diverse supplier, found that the individuals who were aware of Coca-Cola’s supplier diversity initiatives were 45% more likely to perceive the brand as valuing diversity, 25% were more likely to think favorably about the brand, and 49% were more likely to use Coca-Cola products. Hootology estimated that these favorable perceptions would lead to an additional 670,000 consumers using the company’s products more frequently.
The modern times are an era of great social change. There is a growing attention on diversity as a whole and supplier diversity. More and more economic stimuli are being provided to diverse suppliers by the Government and there is an increasing rate of inclusion efforts in Government contracting as well as the corporate world at large. Companies who take a frontline approach and pioneer new ways to include diverse suppliers are sure to be ahead of the curve.
Powersolv, Inc. is a Small, Disadvantaged Minority Business Enterprise with CMMI Level 3 (SVC), ISO 9001:2015 and ISO 27001:2013 certifications and more than twenty-five years of experience. We have successfully supported IT initiatives of various agencies at the Federal, State, and Local levels. We also have extensive experience in servicing agencies in the Education, Transportation and Utilities domains. You can read more about us here.