Leveraging diverse suppliers as a major source of value production is a strategy for gaining a competitive advantage in a global, diverse marketplace.
-Cecil Perang
Companies are increasingly dependent on supplier relationship management (SRM) to achieve business objectives, including profitability and strategic goals. New dynamics, like technology and the need for continuous innovation and agility to remain effective, are placing even more emphasis on effective supply chain management. Companies must source globally, utilize technology in new ways, adapt procurement functions for cost effectiveness, and be more responsive to customers.
A successful strategy for meeting goals has been the development of a diverse supply chain, but companies still often fail to fully leverage the diversity they worked to achieve in order to gain a stronger competitive position and financial sustainability. Diversity can open up new markets, enable companies to become more responsive to customers, promote acceptance in different cultures and communities, and bring creativity leading to innovation.
Unlocking the potential competitive power of a diverse supply chain must be a top priority for any organization that wants to be adaptable to change.
Developing a diverse supply chain makes sense given the growth in the minority population and minority businesses nationally, and the continued globalization that businesses of all sizes are undertaking. Adding MWBEs to the supply chain is only a first step. Unless their full power is unleashed, the business is missing out on the ability to strengthen a competitive position.
For example, as the population becomes more diverse, minority spending power increases. Statistics indicate African-Americans spend $1.2 trillion annually. In some product cases, people of color account for more than half of spending.
Research company Nielsen noted that the power of the purse has led minority consumers to demand that businesses offer products and services that resonate with them experientially and culturally, as well as continuing to provide traditional products. African-American consumers base brand loyalty on their perception the brand is authentic, socially conscious, culturally relevant and responsible. Once a company connects with black consumers and develops brand loyalty, their spending embraces specialized and mainstream offerings, generating increased market returns. How can a company meet these demands unless it includes African-American suppliers in the discussion?
This information applies to all diverse consumers – minorities, women, veterans, people with disabilities, and LGBT+. It also applies globally.
There are numerous epic failures in which U.S. companies were unable to succeed in foreign markets. The failures were largely due to a lack of cultural understanding. Big brand American retailers have failed overseas primarily because they did not understand cultural nuances and preferences. Home Depot entered China in 2006 by acquiring 12 stores from the Chinese company Home Way but closed the stores within six years. The company learned the hard way that Chinese consumers buy homes for investment, were not interested in DIY projects because handyman labor is so cheap, and prefer to shop at small local businesses.
Companies have also failed in the United States. Dove ran a racially insensitive ad showing a black woman turning herself white. Pepsi ran an ad in which a white woman uses a can of Pepsi to bring peace between a group of police officers and a group of Black Lives Matter protestors.
Unlocking the potential competitive power of a diverse supply chain must be a top priority for any organization that wants to be adaptable to change.
Diving for a Deep Cultural Understanding
Being responsive to customers increases brand reputation and revenues, and one of the most important ways to do so is to work with suppliers who can bring a deep understanding of the culture and experiences of one or more diverse group of consumers. The question each company should be asking itself is whether the diversity in the supply chain is fully leveraged. If companies had included input from diverse suppliers, the failures mentioned, plus many others, would have been much less likely to occur.
Leveraging the diverse supply chain can produce many more advantages than improved marketing. Diverse suppliers can produce new products and services, or unique perspectives and solutions, to increase competitiveness.
An example is the San Diego Gas & Electric Company (SDG&E) and its strong supplier diversity program. The company issues a detailed annual report on supplier diversity. In the March 2018 report reviewing 2018 results, Jill Reber, CEO of Primitive Logic, one of SDG&E's newer diverse suppliers says, "We are going to change the way the world thinks about consulting. Our clients tell us 'Primitive Logic gets it – there is something different about your company.'" New perspectives and approaches are common qualities among diverse suppliers.
Contracting with suppliers who think outside the box is one way to generate continuous innovation. It is quite likely that a majority of companies with diverse supply chains are still not effectively accessing the innovation they can offer. Large corporate sourcing and procurement functions usually standardize procedures that may not provide many opportunities for input from smaller diverse-owned suppliers.
Join the Discussion
A step in leveraging the new perspectives and innovation is creating opportunities for suppliers to participate in activities like new product development, product redesigns, exploration of new markets, and problem solving. They need to join corporate discussions and not be kept on the fringes of the supply chain or other business processes.
Diverse suppliers can be instrumental in reducing costs since many younger companies have developed new cost-efficient streamlined ways of producing goods and services. While registration portals are important, companies also need to ensure the portal enables suppliers to fully describe what they can specifically offer.
Many supply chains include diversity sparked by globalization of their businesses. Diverse suppliers are key to success in different cultures. They have community connections and cultural knowledge. They are invaluable sources of information at a level market research does not provide, meaning diverse suppliers offer opportunities to explore new markets. When Chevron and Texaco merged, a diversified supply chain was a major contributor to success.
The only way to take full advantage of the information locked up in the supply chain is to infuse diverse supplier input into business processes, taking advantage of their knowledge and connections. This is quite different from simply buying products and reporting spend.
If there is one takeaway from this discussion, it is that leveraging diverse suppliers to gain a competitive advantage is not the same as buying from diverse suppliers. Large corporations have made serious mistakes in marketing, product development, and expansion efforts because they did not leverage the knowledge of diverse people and businesses. Equally important is that diverse suppliers offer innovative solutions that are at risk of being overlooked.
The two-fold advantage of leveraging diverse supply chains is a critical force for long-term business sustainability.