Supplier Diversity Can Save Your Company Money

Supplier Diversity Can Save Your Company Money

Throughout last year, many major U.S. companies (Nike, Microsoft, Meijer, Coca-Cola, others) made a big commitment to diversifying their supply chains with increase procurement from minority, woman-owned, and veteran-owned businesses. Along with this push came several high-profile detractors who felt these initiatives unnecessarily inflated purchase costs. But a deep dive into recent supply chain data suggests this point of view is inaccurate. In many cases, supplier diversity is a very positive option for purchasers and can lead to big gains.

 

Benefits for Buyers

The MIT Sloan School of Management, which is the business school at the Massachusetts Institute of Technology, published some data on the financial benefits of diverse supply chains for buyers in an article in the MIT Sloan Management Review. The authors said that “a stream of academic research has demonstrated that supplier diversity initiatives can quite substantially reduce the buyer’s purchasing costs in a wide variety of industry settings.”

They provided several examples of major savings that various industries were able to generate, including:

  • 12% reduction in Virginia state government procurement expenditures
  • $45 million in savings in the radio spectrum industry
  • 6% municipal snow removal cost reduction in Montreal
  • 10% reduction in expenditures in the logging industry

The crux of all of these savings, according to MIT Sloan authors, is driven purely by the increased number of players on the field, so to speak. National supplier diversity initiatives have created conditions whereby larger, more established businesses can’t compete solely on price. This means the level of competition is intensified.

“Supplier diversity initiatives intensify the level of marketplace competition, forcing large businesses to cut their prices further, which can lead to cheaper, more efficient purchases for the buyer,” the authors said. “Because buyers’ needs may change in the future, suppliers must remain nimble and innovative to stay viable and win future contracts.”

From a purely economically competitive standpoint, any company can gain substantial cost benefits from a supplier diversity program, even if the company has no interest in the socially beneficial aspects also present. Additionally, considering all of the supply chain disruptions throughout the past year caused by the pandemic, it’s clear that more and more companies are finding adaptable, nimble suppliers to be much more preferred.

 

On the Marketing Side

In an interesting survey published last spring, 105 client-side marketing respondents described the biggest benefits of supplier diversity from their department’s perspective. The survey was conducted by the Association of National Advertisers, which is a New York-based association that advocates on behalf of the marketing sector.

They described the biggest benefits of a diverse supply chain as the following:

  • Community empowerment and positive economic impact (cited by 84% of respondents)
  • Provides opportunities for business expansion with the emergence of new customer needs (68%)
  • Drives competition (on price and service levels) among existing and potential suppliers (63%)
  • Promotes innovation on new products, services, and solutions (61%)
  • Provides multiple channels from which to procure goods and services (60%)

Among the notable responses were frequent references to innovation among the qualitative interviews that were conducted with responders. Even though innovation was a lower-ranked item than some of the other top benefits, it kept coming up in the interviews.

One responder said, “Diverse suppliers drive innovation through their unique way of thinking versus traditional suppliers and coming with a different set of tools.” This means there could very well be numerous other direct benefits of supplier diversity in the national pipeline, as more creative and innovative ideas get put into practice and gain attention.

 

Absolutely Worth a Look

A fresh pool of potential suppliers is out there waiting for your company, and their offerings are absolutely worth a look. Aside from the positive socioeconomic impact your company could be a part of, there is a lot of potential to reduce overhead in your supply chain. Given that every company is always on the lookout for ways to save, it’s clear that supplier diversity could be a great option for many purchasers.