Last year, corporate business leaders pledged to support businesses led by people of color and women with investments and programs to the tune of millions of dollars. Many of these pledges were made in the wake of social movements and protests to address racial and economic disparity. Some of these pledges and new programs have been successful, especially with supplier diversity becoming an essential rather than a “nice to have” for corporate America. Despite the progress, there is still much more that can be done.
As MIT Sloan Management Review writes, “Even though 85% of Fortune 100 companies in the United States have [supplier diversity] initiatives, only 59% of these companies report how much they source from diverse suppliers, according to our research. These companies procure on average only 10% of their supplies and services from diverse suppliers.”
Organizations across every industry must increase their efforts to build an inclusive economy. But what can companies do to fulfill their pledges and make the sustainable, long-term impact intended through their commitments?
The tough part of supplier diversity
After the press releases went out and the task forces were created, many Fortune 100 companies found that achieving their stated goals was much harder than they thought it would be. As reported in Harvard Business Review: “More than half (53%) of Black business owners report that their revenue dropped by at least half since the pandemic began, compared to 37% of white owners,” according to data from H&R Block. This data speaks to an underlying fundamental that often goes unaddressed: Access to capital is not complete without access to commerce. These underrepresented business owners need corporations to buy from them.
For most major corporations, supplier diversity “teams” are typically comprised of one or two people with a minimal budget to serve all procurement departments across an organization. As a result, supplier diversity folks are overwhelmed with requests to fill incumbent roles for multiple departments.
It’s a heavy lift, and the process is not seamless. The certification process is time-consuming, and certifications need to be maintained and kept up to date, thereby requiring a lot of paperwork and information and sometimes site visits to verify. Many corporations don’t allow self-identification and can’t access suppliers who aren’t yet fully certified. As a result, simply relying on existing, preapproved vendors becomes the path of least resistance.
Another barrier, perhaps less codified than corporate policy yet still an entrenched part of how business is done, are the social networks that often facilitate supplier-buyer relationships. In an interview with NPR’s Marketplace, Kelly Burton, executive director of Black Innovation Alliance, described the dynamic: “Supplier diversity is supposed to be designed to create points of entry, but in many ways, it creates additional barriers because people of color have to go through additional steps that our white male counterparts don’t necessarily have to clear.”
Even if supplier diversity teams can identify underrepresented suppliers, there is still uncertainty. How do they know these suppliers will deliver, especially if they don’t have an easily verifiable track record of fulfilling orders at the level at which a corporate customer will be purchasing?
And in fact, many vendors aren’t prepared when a corporate titan comes calling. They don’t have the supply chain or capital in place to ramp up production. Underrepresented suppliers not only need to be corporate ready but also commerce ready when the opportunity does arrive.
Bridging the gap
While more robust intermediaries can prepare both sides and “make the handshakes” so that supplier diversity programs can achieve their corporate goals, the leaders of corporate America need to embrace processes outside of the traditional way of doing things.
Here are several key actions that corporate leaders can take to make an impact:
- Look outside of your existing networks and supplier list and seek out suppliers outside of your network.
- Provide more opportunities for Tier 1.5 suppliers—or those suppliers that are included on larger contracts with Tier 1 suppliers to help build experience and readiness.
- Find intermediaries to mentor under-resourced business leaders or participate in educational events that make procurement more approachable.
- Look down your supply chain and your suppliers and make sure that your supply chain is providing ample opportunity for diverse businesses.
- Put yourselves in the shoes of these business owners and make the process faster and friendlier.
When viewed through the lens above, we can move toward an environment in which supplier selection is not driven solely by competitive pricing but by overall economic impact. Make no mistake, this isn’t an act of charity or a social program. Findings from a Hackett Group study showed that when compared to businesses that consistently use the same suppliers they always have, “long-term supplier diversity programs generated 133% more ROI.” The 2006 report also saw an “increase of $3.6 million to an organization’s bottom line for every $1 million spent on procurement and operating costs.”
Inclusive procurement also has increasing societal benefits. According to the Harvard Business Review, the Minority Supplier Diversity Council reports “certified MBEs (or minority-owned enterprises) generate $400 billion in economic output that leads to the creation or preservation of 2.2 million jobs and $49 billion in annual revenue for local, state, and federal tax authorities.”
Ultimately this is about more than good public relations. Growing businesses are the foundation upon which our economy is built. Embracing supplier diversity can have multiple benefits, from insulating against supply chain disruption to sourcing superior or unique products and reducing costs. The rationale is there; so is the will.
Now it’s time for big business to follow through and take the lead in making business more equitable, creating an inclusive economy in which every business has the opportunity to thrive. Let’s level the playing field together.
Stacey Abrams is a New York Times bestselling author, entrepreneur, political leader, and cofounder of a financial services firm, Now Corp., and a media company, Sage Works Productions. Abrams has received degrees from Spelman College, the LBJ School of Public Affairs at the University of Texas, and Yale Law School. She is a coauthor of Level Up: Rise Above the Hidden Forces Holding Your Business Back.
Lara Hodgson, president and CEO of Now Corp., serves as an entrepreneur-in-residence at Harvard Business School. Lara has also cofounded Nourish, a children’s beverage company, and Insomnia, a firm specializing in complex, world-changing projects. She received an MBA from Harvard Business School and a bachelor’s degree in aerospace engineering from the Georgia Institute of Technology. With Abrams, Hodgson coauthored Level Up: Rise Above the Hidden Forces Holding Your Business Back.