No organization anywhere buys more goods and services than the U.S. federal government. Yet less than 10% of federal agencies’ contracting dollars “typically go to small disadvantaged businesses (SDB),” according to the White House.
In 2021, the Biden administration announced new federal supplier diversity requirements. The mandated diversity spend is part of its efforts, it says, “to remove [economic] barriers faced by underserved individuals and communities.” It aims to increase annual spending on SDB from a 9.8% average over the last five years to 15% by fiscal year 2025.
The federal government isn’t the only organization paying more attention to diversity in its supplier base. More businesses concerned with corporate social responsibility (CSR) are instituting or strengthening a supplier diversity program.
Indeed, 45% of respondents in the 2022 State of Supplier Diversity Report from Supplier.io indicated their companies have formal supplier diversity programs. Another 12% reported implementing a new program. Another 19% said they have no formal program but track their diversity spend.
Do you have questions about supplier diversity programs? We at CenterPoint Group have answers.
What is Supplier Diversity?
Supplier diversity is a procurement process for including traditionally disadvantaged, underrepresented, or underserved suppliers in contract bidding opportunities.
A supplier diversity program:
- Measures a business enterprise’s potential to procure from diverse suppliers—those with whom it may already spend, as well as new suppliers
- Quantifies the contributions diverse suppliers make to the business’s supply chains
- Measures the economic impact procurement opportunities make on communities
In these programs, procurement managers use objective metrics to ensure supplier diversity compliance.
Which Suppliers Does a Diverse Vendor Pool Include?
Business enterprises that qualify as diverse suppliers are those at least 51% owned and operated by individuals or groups who are traditionally underrepresented or undeserved. Such individuals and groups include:
- Ethnic minorities (such as Asian-Indian, Asian-Pacific, Black, Hispanic, or Native American)
- Veterans, including disabled veterans
- Individuals with disabilities
- Individuals who identify as LGBTQ
Diverse suppliers are often, though not always, small businesses—the SDBs targeted by the new federal supplier diversity requirements. SDBs are at least 51% owned and operated by both economically and socially disadvantaged people (that is, “subjected to racial or ethnic prejudice or cultural bias within American society”).
How Can a Supplier Diversity Program Benefit Your Business?
Your company’s diversity spend benefits the suppliers you bring into your vendor pool. When you do business with them, you create economic opportunity and encourage their continued viability and growth.
Many major corporations—UPS, Coca-Cola, and Target, for example—view supplier diversity programs as “the right thing to do,” according to Harvard Business Review (HBR).
And as majority-white, majority-male-owned corporations become more aware of systemic racism and sexism and their accompanying persistent economic inequalities, including more businesses with minority and female owners comes into focus as a morally urgent matter.
HBR also points out a supplier diversity program can bring specific commercial benefits to businesses that implement them. These benefits can include:
- Widening the business’s pool of potential suppliers, giving it more options
- Promoting competition among suppliers, which can drive down costs and drive up quality
- Increasing MRO supply chains’ resiliency and agility
- Making companies more attractive to potential employees who are concerned about environmental, social, and governance (ESG) issues
- Elevating a brand’s favorable perception among customers and consumers, substantial majorities of whom want companies to speak out on major social issues
How Does Supply Chain Structure Affect Diversity Spend?
Modern supply chains comprise several tiers, or levels, of suppliers.
- Tier 1 suppliers directly provide a company with the finished products it needs to manufacture its product. (For example, Tier 1 suppliers provide finished motors to car manufacturers.)
- Tier 2 suppliers are subcontractors for Tier 1 suppliers.
- Tier 3 suppliers are subcontractors for Tier 2 suppliers.
Tier 1 suppliers are the most direct gauge of supplier diversity. But supplier diversity programs can also take Tier 2 suppliers into account. Dealing with vendors whose own vendor pools are diverse amplifies your own company’s diversity spend.
CenterPoint is a group purchasing organization (GPO) that negotiates and manages contracts with enterprise-level best-in-class terms for products and pricing. Diversity Products, a CenterPoint Group company and Certified Minority Business Enterprise (MBE), can help you get started. We are a Tier 1 diverse supplier, certified by the National Minority Supplier Development Council.
As a leading, regionally recognized minority-owned enterprise, Diversity Products is well-positioned to help your business achieve supplier diversity compliance in your MRO supply chains. Contact us online or call us at (866) 229-6205 to get started.