A company’s choice of vendors is a powerful display of corporate influence, one that directs significant revenue to those vendors and, increasingly, sends a signal about the company’s values. By strategically selecting diverse suppliers such as minority-owned business enterprises and women-owned business enterprises, companies can dramatically advance equity in the broader economy. The evidence increasingly shows that companies also benefit from having a diverse base of suppliers and providers, meaning that such efforts are not just good for society but good for improving business performance as well.
While that clearly makes inclusive procurement a winning proposition, promoting diversity within the supplier base can be a complex undertaking. Companies need a clear strategy to direct spending toward businesses owned by Black people, women, and other underrepresented groups. Companies also need to allocate resources to source, vet, and build capacity among diverse suppliers, as well as the infrastructure and technology needed to track supplier metrics and diverse supplier spending targets.
Why it works
Companies that diversify their supplier bases tap into the economy’s full potential and enjoy stronger business outcomes: Those in the top quartile of spending on diverse suppliers save an additional 0.7 percentage points in total procurement expenditures. Diverse procurement can also help companies strengthen their ability to serve as well as their connections with critical growing customer bases: People of color will account for as much as 70% of the total increase in purchasing power from 2020 to 2045. Finally, when a company diversifies its supplier base, it has powerful ripple effects: Minority-owned businesses generate more than $400 billion in annual revenue, and revenue earned by business owners of color spurs critical economic development within their communities.
The adoption curve
Inclusive procurement is fairly common, especially among large companies, and is on the rise. Spending on diverse suppliers rose an average of 54% between 2017 and 2020, according to Coupa, a company specializing in business spend management. A more recent trend that more companies are likely to be adopt is the practice of requiring suppliers to have their own diversity, equity, and inclusion (DEI) initiatives. By both procuring from diverse suppliers and requiring those suppliers to meet particular DEI standards, companies can multiply the positive effect they have on economic inclusion.
How UPS took action
Launched in 1992, UPS’s Supplier Diversity Program established an annual $2.6 billion budget to do business with 6,000 small and diverse suppliers, and it set a goal of increasing the budget every year. Since its launch, the company reports having a $4.3 billion impact on the economy. These efforts also changed UPS’s recruiting practices. After a recent survey conducted for the company found that candidates are 52% more inclined to work for a company that has a supplier diversity and inclusion program, UPS incorporated information about its supplier diversity efforts into its communications with candidates.