Taking the Lead: The Impetus and Infrastructure of Supplier Diversity
Supplier diversity is a priority for enterprises who want to implement strategic sourcing best practices. Recent survey data found that 74% of organizations now see increased diversity as a way to both enhance their corporate image and meet growing customer expectations. To explore this emerging trend, Donna Wilczek, Senior Vice President of Product Strategy for Coupa, recently connected with Dr. Elouise Epstein, procurement transformation expert and Partner at Kearney, for an in-depth discussion of supplier diversity, its challenges, and its potential benefits for businesses.
According to Epstein, supplier diversity "should have been front and center for the last decade, and it's a travesty that it hasn't been. But it's here now, and it is our collective obligation, our moral imperative if you will, to meet the moment. This can be in everything from our personal lives to our governments, to companies that have the ability to make a difference." And while consumers may be the impetus for this supply shift, Epstein makes it clear that "it can't just be consumers advocating for this change. This has to be those of us that work in and for the companies that are in these industries to make that change."
But what does this mean in practice? What has historically held companies back from embracing supplier diversity? How do they deliver on this opportunity, and where do they need to focus their efforts to drive long-term supplier sustainability?
Evaluating the diversity disconnect
The Harvard Business Review offers a straightforward definition of diverse supply sources: "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." This concept isn't new — the first supplier diversity programs began in the late 1960s with automotive companies like General Motors and technology firms such as IBM.
In recent years, however, supplier diversity programs have largely stagnated. According to Epstein, "what I have seen time and again are supplier diversity initiatives that are in name only. There's a nice little blurb on the company's website, but they're not tied to any tangible objectives." And when it comes to the overall state of diversity efforts, Epstein doesn't mince words: "I'd say everything has failed."
Three factors have played a critical role in this diversity disconnect:
- Lacking visibility — In many cases, Business Spend Management (BSM) and inventory management optimization systems haven't kept pace with the increasing volume and variety of supplier data, which, in turn, has left companies with limited visibility into supplier sources.
- Increasing costs — As noted by Epstein, cost savings and efficiencies have been top-of-mind for many executives over the last five-to-10 years, often at the expense of innovation. While she notes that individual leaders might prioritize a diversity initiative, "it doesn't outlast them when they leave an organization."
- Evolving risk — Concerns around risk have also hampered the development of diversity efforts, with many companies preferring the supposedly safer path of familiar supply frameworks. As noted by Wilczek, however, "organizations are starting to come around to the fact that it actually may be more risky to your revenue and your bottom line and your brand to not do the right thing."
Exploring the supplier shift
For Epstein, current events combined with emerging technologies have set the stage for more substantive environmental, social, and governance (ESG) policies. "If you have technology that's enabling this objective, you can bake this into your operations," she says. "You can bake in making green choices. You can bake in making a diverse supplier choice." And armed with the right supply and spend solutions, companies may also discover that the more sustainable and diverse choices are actually more cost-effective.
In practice, technologies must deliver in four key areas to help jumpstart substantive supplier change:
1. Improved intelligence
Shared intelligence is key to improved decision-making. "We now have elements of community intelligence," says Epstein. "So we can start to see that maybe it's actually cheaper to go with that diverse supplier, or maybe it's more economical. We maybe saved something by going with the sustainable or green choice."
2. Increased visibility
Technology can also help companies gain visibility into key supplier characteristics, service levels, and areas of expertise, which, in turn, allows businesses to select supply partners that both align with ESG goals and help meet line-of-business (LoB) expectations.
3. Informed operations
Access to the right data at the right time is critical to ensure informed decision making. Tools that deliver real-time, contextual data on supplier operations can help companies make choices that best align with both sustainability and diversity goals, as well as spending goals.
4. Integrated reporting
Robust documentation of supplier diversity and sustainability offers objective proof of current procurement efforts and helps lay the groundwork for future diversity-based decision-making. As a result, companies are often best served by spend management technologies that naturally integrate this reporting into familiar workflows.
Empowering strategy and intention
Beyond technology deployments, companies also need operational frameworks that help develop targeted supplier strategies and drive intentional spend and sourcing decisions.
According to Epstein, this starts with coaching the next generation of corporate decision makers to help them understand that "this is not just a feel-good kind of initiative." Instead, it requires regular tracking and follow-up of supplier decisions to ensure diversity best practices are being met. Lightweight and agile processes are also key. "We often start out with the best of intentions," says Epstein, "and then one day we show up with a 60-page legal document that overwhelms just about everybody except the biggest organizations." As a result, keeping it simple is critical to success. This is especially relevant given the impact of recent pandemic pressures on global supply chains; diversity can help reduce the risk of potential supply chain disruption.
Meanwhile, technology must be used deliberately and purposefully to help develop strategic sourcing frameworks, streamline operations, and improve procurement processes. Metrics and measurements play a key role in effective technology application. Companies need tools that help them weigh sustainability, assess diversity factors, and decrease total risk. While technology alone can't deliver supplier diversity, it plays a critical role in sustainability over time.
As noted by Wilczek, "I definitely see a shift with our very strategic customers, the ones that are understanding of the importance of non-cost factors in their sourcing optimization, where they're really starting to consider: how do I weigh sustainability?" This often starts with BSM tools like Coupa that are capable of surfacing the right data in the right places in context to help drive this change at scale.
Last but not least? Breaking down operational silos. "Finally, the silos are breaking down between the chief sustainability office and the diversity programs and procurement technologies," says Wilczek. "And that's becoming an enabler where these people are now having conversations together, instead of simply reporting on spend after the fact."
Building a long-term legacy
Epstein succinctly sums up the impact of supplier diversity: "I would build your legacy on this topic. It's a moral imperative for all of us." In practice, this imperative requires a combination of digital transformation backed by the right technologies, forward-thinking education within the organization to prioritize these operations, and the breaking down of common silos to facilitate supplier coordination.
"The time has come," says Wilczek. "It is incumbent upon all of us to make change, drive change, and have these conversations. I think if you start baking this into everything you do, you just start driving change naturally."