What if you were told that there was a way for your company to save money, increase the effectiveness of your Procurement Department, and improve your company’s brand? How would your customers and prospects view your company if they saw that your organization was serious about diversity? The benefits of supplier diversity are many. This post will show you how it can benefit your organization.
Diversity in the tech world has long been an issue. It became more prominent when Google unveiled its diversity report. This report revealed the lack of diversity in its workforce. It’s a serious issue because a lack of diversity means a lack of unique perspectives that could solve many of the problems companies face today.
Even if your company does not involve technology or any of the other science, technology, engineering, or mathematics (STEM) fields, there are ways it can confront the diversity issue. It’s about diversifying your suppliers.
What Is Supplier Diversity?
Supplier diversity is a procurement practice that involves purchasing supplies from businesses that are owned by minorities or women. Typically, larger companies have a policy that involves an intentional focus on diversifying their suppliers.
When a company has a policy of supplier diversity, it is usually indicated on their website. Minority and female-owned suppliers can submit their bid to become one of their suppliers.
Tier 1 and Tier 2 Supplier Diversity Spend
When it comes to diversity spend, there are two main categories: tier 1 and tier 2. In order to have a successful supplier diversity program, a company needs to include both types of suppliers.
Tier 1 Suppliers
Tier 1 suppliers are the companies that directly sell supplies and resources to the company. Here’s an example:
Your company needs a particular type of software. In order to fill this need, your procurement department sources this software from a female-owned business. The female-owned business directly sells the software to your company. This makes the supplier a tier 1 supplier.
Tier 2 Suppliers
A tier 2 supplier is the company that provides the tier 1 supplier with the product that is to be sold to the end user. The tier 1 supplier may not be a minority or female-owned business, but they get the products they sell from suppliers that are minority or female-owned businesses. These suppliers are known as tier 2 suppliers. They don’t sell directly to the company, but they supply the companies that do.
The Benefits of Supplier Diversity
Supplier diversity should be a key component of any Procurement operation. Many organizations have reaped the benefits of supplier diversity.
Simply put, supplier diversity can help your company save money and drive increased revenue. According to a study done by The Hackett Group, procurement organizations that embrace supplier diversity are able to generate up to 133% higher return on their investments than organizations that don’t.
One of the reasons for this is the fact that minority suppliers tend to be leaner. They enjoy greater agility. They tend to have lower operational costs, which means they can pass savings on to you.
As you already know, the demographics in the United States are changing. Minorities are making up a greater portion of our population. Companies that want to remain relevant need to learn to appeal to different types of people.
If your company chooses to work with a more diverse array of suppliers, it will be in a better position to relate to a more diverse customer base. Your company will become familiar to a more diverse group of communities. This will give your company a competitive advantage over companies that do not embrace supplier diversity.
By adopting a supplier diversity program, your company is helping to solve a social problem. Diversity in the tech world is a serious issue. The STEM fields are crucial to the economy of the United States. A lack of diversity could cause serious harm to the STEM industries.
If your company is willing to take a stand in solving this problem, it will show your customers and prospects that your organization is focused on more than just making money. It will show them that your company is committed to making the world a better place.
This is great from a branding perspective. The more your company shows its “human” side, the more your prospects will be able to relate to it. This issue is discussed further in our white paper on Integrated IT Procurement™. Click here to download it now!