Manager walking and talking with a worker in a warehouse.

Man presenting project to a group of managers.

Diverse team of people working in greenhouse.

Figuring out the answer to a very difficult question.

DTE Energy Co. isn’t the first Detroit-based business to create a supplier diversity program. That distinction belongs to General Motors, whose program was launched nearly 50 years ago. But while those earliest efforts emerged in response to Detroit’s 1968 race riots and the U.S. civil rights movement, DTE’s incentives today for providing opportunities to diverse suppliers extend far beyond promoting racial equity.

“Supplier diversity is a win, win, win,” says Karin Cozzi, a senior supply chain manager responsible for overseeing supplier diversity at DTE Energy. “It’s a win for our company, our suppliers, and the community.”

These wins include strong economic incentives. According to a 2021 survey conducted by TealBook and JAGGAER, the biggest tangible benefits of supplier diversity efforts cited by respondents include supplier innovation (46%), greater supply base competition (44%), and organizational agility (38%). Partnering with diverse suppliers – companies that are at least 51% owned and operated by an individual or group that is part of a traditionally underrepresented or underserved group, such as women, Indigenous people, minorities, visible minorities, LGBTQ+ people, people with disabilities, and veterans – is good business.

“Supplier diversity has moved from being a nice thing to do to being a business imperative,” says Pauline Gebon, executive leader of the National Minority Supplier Development Council (NMSDC), which reports a 40% membership growth in the past two years.

Of course, there are challenges to sustaining a successful program. Finding certified minority-owned companies with the capacity required to handle large contracts can be a difficult endeavor. Fortunately, many organizations are discovering how investment in the suppliers themselves, paired with strong program leadership and data-driven insights, can overcome these obstacles to reap long-term commercial value.

Advantages that span from customers to employees

Supplier diversity now sits near the top of most corporate agendas: Today, 92% of organizations allocate funds toward supplier diversity, according to The Hackett Group’s 2021 Supplier Diversity study. And 70% of organizations consider supplier diversity a high or medium priority, reports the TealBook survey, although this varies considerably by region. In Europe, for example, the majority of respondents regard supplier diversity as a medium (33%) or low (26%) priority. However, there are signs of increasing commitment there, such as DiversityInc.’s recent ranking of two UK-based companies, Ernst & Young and PricewaterhouseCoopers, among the top 15 companies for supplier diversity.

The growing commercial appeal of supplier diversity is easy to understand. For one, the pandemic highlighted the need for organizations to react quickly to changing circumstances and emerging business needs. Diverse suppliers are often ideally suited – and sized – to be “more nimble and agile” than their enterprise-size counterparts, says Karmell Thomas, director of supplier diversity for Eaton Corporation.

“Whether it’s using a new material or adding a new process, we’ve had to change how we create products,” says Thomas. While large suppliers can be resistant to overhauling long-held business practices and processes, small diverse suppliers can “pivot in ways that a large supplier may not be able to,” she says. For example, Eaton’s diverse suppliers have helped the Dublin-based power management company “tap into different ways of manufacturing our products” and can change facilities in response to changing circumstances, from rising geopolitical concerns to weather-related events.

A well-established supplier diversity program can also help organizations recruit and retain top talent – a key advantage in today’s tight labor market.

Another advantage of supplier diversity is its effect on a company’s reputation. More than half (52%) of respondents cite “positive reputational impacts” as a key benefit of supplier diversity efforts, according to TealBook’s survey findings. In Asia-Pacific countries, reputational impact ranked as highly as agility, at 60%.

“Consumers have become much more educated,” says Gebon. “They’re asking, ‘Is this a minority-owned business? What’s the company’s commitment to minority business? What’s the company’s commitment to communities of color?’” Companies that show they place real value on diversity earn consumer loyalty, she says, particularly among younger demographic segments and minority communities known for prioritizing diversity and inclusiveness. Conversely, a recent Accenture research report shows that a majority of consumers would stop buying from companies if they do not “take visible actions for a positive social impact,” including issues of inclusion and diversity.

A well-established supplier diversity program can also help organizations recruit and retain top talent – a key advantage in today’s tight labor market. In fact, a survey by Hootology, a market research and consumer insights company, found that 52% of job applicants surveyed would prefer to work for an organization that has a supplier diversity and inclusion program in place.

In addition to attracting consumers and employees, a supplier diversity program can increase a company’s chances of acquiring new business. Eaton illustrates the point. By emphasizing its diverse supplier spend, Thomas says, Eaton has gained favor in the bidding process with potential customers, many of which prioritize doing business with companies that exhibit strong performance in supplier diversity.

Understanding the challenges

To get the payoff, a diverse supplier program does require a commitment in terms of time and resources. Building and maintaining this part of a supplier roster has its own particular challenges.

Despite spending US$698 million with suppliers owned by minorities, women, veterans, LGBTQ+ people, and people with disabilities last year, Thomas says identifying and onboarding diverse suppliers that fit Eaton’s criteria can be a challenging undertaking. “It takes time to find the right supplier,” she says. “Not only do you have to find a qualified company, but you have to find a tangible area of the business where that supplier can grow and provide a mutual benefit.”

Complicating matters is the fact that for some companies, such as DTE, suppliers are brought on to perform high-risk work. “Some of the work we require, such as tree trimming around high-voltage power lines, is specialized and dangerous,” says Cozzi. “There aren’t many companies that perform this type of work.”

Even once a qualified supplier is identified and onboarded, an organization must determine whether a supplier has the proper certification. Any company can describe itself as diverse, claiming that at least 51% of ownership is by an individual or group with a diverse background.

Yet many purchasing organizations require proof of certification before partnering with a diverse supplier. These certifications are often administered through a third-party agency, such as the NMSDC, the Women’s Business Enterprise National Council, or the National Gay & Lesbian Chamber of Commerce. Yet there’s a problem: there isn’t a single, consolidated database of certified suppliers.

As a result, says Cozzi, “If we’re conducting a request for a proposal, we have to check as many as five different databases to make sure that suppliers’ certifications are current or to see if ownership has changed.”

Regarding ownership changes, Cozzi notes that when an individual decides to sell a minority-owned business, there’s a possibility that it “will end up being sold to a nondiverse buyer,” says Cozzi. “This can cause us to lose progress in diversifying our supply chain.”

Last but not least among the challenges, while diverse suppliers’ typical size aids in agility, it has a clear drawback too. Smaller companies often aren’t equipped to handle large contracts. Even suppliers with ambitious growth and expansion plans can struggle to access the necessary financial capital.

Strategies for diverse supplier success

Employee education, strong leadership, reliable metrics – these are all tools for organizations to create a strong, diverse supplier program . Perhaps most important is to think in terms of supplier development, not just diversity. Here’s how to build a lasting program with real business payoff

Educate employees on the business value of diversity.

Last year, DTE spent $747 million on diverse suppliers, a 288% increase since 2010 and almost a quarter of the company’s total spend for the year. Investment is only growing: By 2026, DTE plans to reach $1 billion in annual spending with diverse suppliers.

To ensure company-wide support for investments in supplier diversity, Cozzi says employees must understand the process and feel as if they have an important role to play in it. “Whenever possible, we spread the word about supplier diversity and help our employees understand that they can influence the suppliers we select,” she says.

Similarly, Thomas says Eaton raises awareness of its supplier diversity program through lunch-and-learn sessions; through Eaton University, the company’s internal continuing education center; and by working with employee resource groups – voluntary, employee-led groups focused on diversity and inclusion – to educate talent on the value of supplier diversity.

Invest in long-term relationships with suppliers.

Employees aren’t the only ones who can benefit from obtaining greater knowledge of a company’s supplier diversity efforts. Cozzi recalls a time when DTE’s chief procurement officer mentored a minority-owned business owner on how to prepare his business to partner with the energy company and take advantage of upcoming opportunities. “The supplier worked hard, embraced our input, and really focused on taking their business to the next level. As a result, that company is now one of our top five suppliers in terms of spending. Our willingness to build these relationships with our suppliers, to talk to them, to help them, and to act as a mentor makes a difference.”

The same rules apply to existing suppliers. “We make sure that we’re managing our supplier relationships and that we’re being intentional,” says Thomas of Eaton. “For example, I make sure that when I talk to our veteran-owned or disabled-owned businesses that I understand the unique challenges that those businesses may face. It’s important to take a step back and ask how our company touches all of these groups in today’s environment.”

Measure and share progress.

DTE maintains a digital scorecard that tracks each purchasing group’s commitment to diverse supplier spend. This is accomplished by assigning each supplier a vendor code indicating its diverse status and storing this information within the company’s purchasing systems. Purchasing groups share these metrics with DTE’s senior-level executives on a weekly basis, which are used to evaluate progress. These supply chain metrics are also part of performance reviews.

Easy access to program data is valuable. By creating a searchable database of its diverse suppliers, Eaton has found a way to tap into a valuable treasure trove of information. Using a combination of tools, from enterprise resource planning to data visualization, Thomas says, the company’s “database administrator helps us capture, chart, understand, and look at trend lines, all the way down to the location of our suppliers” for a comprehensive snapshot of Eaton’s supplier roster. The result is fast and easy access to information that Eaton’s executives can use to improve the program and ensure goals are being met. For example, says Thomas, “If I want to know how many woman-owned businesses are part of our diverse supplier program, I can actually pinpoint exactly where they are, what I’m using them for, and how that relationship qualifies for the program. All of these metrics are important.”

Find the right model for program leadership and executive support.

Executive endorsement is imperative, says Gebon of the NMSDC: “The companies that we have seen with the most successful programs have a high degree of C-suite support.”

But while senior executives can evangelize the merits of supplier diversity, Thomas says employees across the organization must work together to ensure continued support for a diverse and inclusive supplier environment. “At Eaton, everyone owns supplier diversity,” says Thomas. “This includes anyone who is purchasing, who is spending, who is influencing purchasing decisions – all employees must come along the diverse supplier journey, from the top down. A program can’t be successful if only one team is leading the charge.”

Cozzi of DTE agrees. “If you don’t have everyone on board, you’re not going to be successful,” she says. To accomplish this feat, Cozzi says each of DTE’s seven purchasing groups has a supplier diversity champion who serves as “an advocate” for partnering with minority-owned businesses. What’s more, all of these purchasing groups meet monthly to discuss upcoming opportunities for engaging diverse suppliers.

Partner wisely

Educating employees, fostering C-suite commitment, and tracking program performance are all important strategies for building and maintaining a successful diverse supplier program. But it’s not enough to simply invest in a carefully crafted program. For these strategies to be effective, organizations must also invest in the suppliers they want to work with.

“Corporations must focus not just on supplier diversity but on supplier development,” says Michael Verchot, director of the University of Washington Consulting and Business Development Center. Doing so entails a three-pronged approach that consists of “improving management skills, providing access to money, and providing access to markets,” he notes. For example, he says, by “supporting the development of strategic partnerships and investing in them so that they can build out their management team,” organizations can increase these suppliers’ stability and capacity.

Some industry leaders are already taking these next steps. For example, in 2021, Walmart teamed up with C2FO, an online platform for working capital, to create a program that allows diverse suppliers to select the invoices they would like to request early payments on, resulting in faster access to capital at lower rates.

After all, says Thomas, “The pandemic has taught us that we can’t always rely on the old way of doing things. We have to be more future-ready and able to pivot when we see something coming.” For many organizations, this not only means partnering with diverse suppliers to explore new approaches to business, but also finding new and innovative ways to support and nurture the diverse suppliers.

The post How to Build – and Benefit from – a Supplier Diversity Program appeared first on SAP Insights.

Advantages that span from customers to employees

Understanding the challenges

Strategies for diverse supplier success

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Partner wisely