Supplier Diversity Will Be A Primary Goal for CPOs in 2021
This year, COVID-19 has disrupted businesses and global economies in extraordinary ways, unmasking a lack of resilience in our global supply chains. In fact, supply chains are being severely tested as they respond to the disruption of the pandemic, which has shone a light on under-investment in supply chain tools, technology, processes and people.
Likewise, a heavy dependency on single sourcing from suppliers and countries has created a scarcity of products or parts for many organisations. For example, the pharmaceutical industry struggled to source the active ingredients in vaccines and drugs because many had been single-sourced from China and India. But these issues extend way beyond the pharmaceutical industry and are far larger, for example, in the tech world, the Apple supply chain has also been affected as parts are manufactured in China. This has forced companies, and industries, to rethink and transform their supply chain models – for good.
Squeezing suppliers has removed the buffers to respond in a crisis
Historically, businesses have focused on supply chain consolidation, often resulting in suppliers being squeezed. However, the effect of these measures is that they have removed buffers and flexibility to absorb disruptions like COVID-19. While there is hope on the horizon with various positive tests of vaccines completed, organisations still need to build long-term supply chain resilience into their operations.
Likewise, in the future, there will be multiple years of effort to either repatriate supply chains or, at the very least, a requirement to make them more durable. At the same time, supply chain leaders must adapt to the uncertainty of an economic downturn – in a world that has woken up to not only the post-pandemic healthcare issues but also the social, economic and environmental legacy of the pandemic. This is putting pressure on where and how organisations source their goods.
Therefore in 2021, CPOs will be under social pressure to ensure supplier diversity: buying from firms with wider diversity and purpose that avoids conditions such as modern slavery and protects human rights. They will also be under increasing environmental pressure with global warming and demand for organisations to reduce their carbon footprint and ensure sustainable procurement. And without a doubt, there will be significant economic challenges facing the CPO, including helping to deliver growth through local sourcing, supporting fair employment whilst also being acutely aware of sanctions.
Adopting a more inclusive approach
How do CPOs ensure they have an inclusive approach to their supply chain?
First, let’s look at what we mean by supplier diversity. This, in effect, is about building a strong commitment to creating and maintaining a supply chain that ensures the inclusion of diverse groups in procurement plans, including women- and minority-owned businesses. Supplier diversity is considered the proactive activity undertaken by contracting authorities to ensure that all relevant and potential suppliers have a fair and equal opportunity to compete for business within their supply chains.
The most successful businesses know that by creating diversity in their supply chains, they can unlock innovation and agility whilst improving their ethical credentials. Procurement plays a role in such diversification, creating the economic and moral value that will result from the opportunities a more flexible, more creative supply base brings. In fact, according to Nedra Dickson, global supplier and sustainability lead at Accenture “When you leverage a small diverse business, they are more nimble and able to ramp up faster in many cases than the bigger suppliers.”
Supplier diversity programmes can also be part of a company’s efforts to maintain high moral standards. Kris Oswold, vice president of global supplier diversity at UPS, says that her company’s supplier diversity programme, which started in 1992, grew out of its deepening desire to be more inclusive and do what is right. The company now spends $2.6 billion annually doing business with around 6,000 small and diverse suppliers with a goal to increase that spend amount year over year.
The economic impact is real
Not only does supplier diversity benefit underrepresented businesses, but it also uplifts the communities where those businesses are located through job creation, increased wages, and tax revenue. This is called economic impact, a metric that demonstrates how valuable supplier diversity is to local economies and communities.
More and more organisations are measuring the economic impact of their supplier diversity programmes to gain a clearer picture of what diverse spend means for the communities they reach. For example, CVS Health reported that its 2018 diverse spend contributed $5.5 billion to the U.S. economy and sustained 31,095 jobs.
But as well as social issues, there are also clear economic benefits to supplier diversity for the organisation. An inclusive procurement strategy widens the pool of potential suppliers and promotes competition in the supply base, which can improve product quality and drive down costs. And by providing more sourcing options, inclusiveness can make supply chains more resilient and agile — an increasingly important advantage in today’s uncertain times. That’s because diverse suppliers can respond quickly and are now considered for contracts that they would not have been otherwise due to the imperative for flexibility.
Creating a more purpose-led ecosystem
The rise in demand for supplier diversity is all part of a drive for CPOs to create more purpose-led supplier ecosystems, to not only meet certain ethical and moral goals but also to deliver real competitive advantage for all of the reasons outlined above. Companies such as Unilever are embedding purpose at the heart of everything they do, from their brands all the way through to their Partners With Purpose program which takes purpose-led partnerships to a new level to protect and regenerate nature, fuel market-leading innovations and make sustainable living commonplace.
Amidst a myriad of operational issues that organisations need to prioritise in 2021, they must put diversity and social, economic and environmental principles into practice when managing supply chain impact, adopting a ‘Procurement with Purpose’ approach to boosting resilience, from both a profit and planetary perspective. Likewise, with today’s public more socially conscious than ever, businesses must align themselves with this shift towards a diverse and inclusive supply chain or risk losing business as a result of inaction.
