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The business case for investing in diverse suppliers

supply chain
(Image credit: Image source: Shutterstock/KAMONRAT)

Businesses all over the globe are being held to more than just financial success. Customers, investors, and employees are expecting them to make a more positive impact on the world and businesses have begun to respond by launching specific Environmental, Social, and Corporate Governance (ESG) programs and setting time-based goals.

ESG initiatives are so critical that many of the world’s leading brands are starting to tie CEO and executive compensation to how well they deliver on their promises and programs. From Starbucks saying it would give more shares to managers that grow diversity to McDonald's incentivizing executives to increase women and racial minorities in leadership roles, and Boohoo linking bonuses to sustainability and governance goals to Apple adding an “ESG bonus modifier” to compensation packages. Delivering ESG impact is becoming non-negotiable.

The challenge for many, however, is that ESG programs often happen in silos and their full impact has largely gone unrealized. For example, let’s examine diversity, equity, and inclusion (DEI) practices. Oftentimes businesses pigeonhole DEI to the workplace, headcount, boardroom representation, and hiring practices. These types of initiatives, while extremely important, take time and are limited in scope. It can be years before a company makes tangible progress or hits its goals. The struggle becomes about making immediate DEI impact across the business as a whole.

 That’s where business spend comes in. 

Using business spend to make DEI impact boosts overall business performance

Businesses can leverage how they spend their money to impact DEI efforts. They need to look no further than their supply base and supply chain. For example, shifting business spend to diverse suppliers can be one of the fastest ways to create impact in diverse communities and see a positive impact to their own business performance. In fact, a recent report from Bain & Company, with 2020 data from Coupa, found companies that invest in diverse suppliers do better across additional business KPIs.

Working with diverse-owned suppliers can improve business-to-business relationships. Analyzing the data, we see that diverse-owned suppliers were found to have higher annual retention rates than non-diverse suppliers - at a rate of 20 percent higher. They are working with customers longer and establishing lasting and trusting relationships. In short, they truly appreciate your business. 

The data also indicated that businesses with strong supplier diversity programs have greater control over how they spend, with a 10 percent higher pre-approved spend rate. What this means is more employees are buying from contracted vendors, getting negotiated savings, and complying with internal controls and policies. This helps ensure unnecessary spend is avoided, contributing to cash savings. It also helps reduces risk, fraud, and provides clearer visibility into how a business spends money against its budget. 

Businesses with leading supplier diversity programs were also found to be more efficient and farther ahead in their digital transformation. In fact, the data found that businesses with supplier diversity programs had a 52 percent greater use of e-purchasing orders, 7 percent greater use of e-invoicing, 18 percent faster ordering, and 46 percent faster invoice approvals. Not only do all of these factors contribute to a significant reduction in paper use (saving trees, water, oil, and reducing a business' overall carbon footprint) but going digital better ensures payments are made when due, not too soon or too late, which helps optimize working capital. 

When taking into account these added business performance benefits derived from strong supplier diversity programs, the data found that it also brought businesses savings of .7 percent. The savings being realized from having more digital payment processes; spending less on paper, printing, and mailing invoices; and requiring less manual work.

For a large enterprise with about $1 billion in spend, that .7 percent is a savings of $7 million. For a Fortune 500 company that might have about $5-$10 billion in spend, that .7 percent equates to $35-$70 million in savings. There is so much a business could do with these funds - from sharing profits across its workforce to reinvesting in additional ESG and DEI programs. Why not up investments for DEI hiring practices, provide scholarships to deserving students at historically black colleges and universities (HBCUs), or even hire trainers to help employees better understand workplace discrimination and harassment and how they can help intervene in certain situations. The options to do even more good with these savings are endless. 

Making the case to do well by doing good 

A common hurdle many businesses face is a false, preconceived notion that supplier diversity programs hurt business performance. However, we’ve just proved that is entirely false. Not to mention that leading brands like Procter & Gamble (P&G), Kroger, UPS, and more have been bolstering their supplier diversity programs for decades, and have become hugely respected for it. 

P&G has already spent $2.8 billion on diverse suppliers and is well on its way to reaching $3 billion by 2030. Grocery giant Kroger continues to launch new programs and resources for minority-owned and small-and-medium businesses (SMBs) to help it progress towards its goal of $10 billion in diverse supplier spend by 2030. And UPS, which has been recognized for its successful supplier diversity programs for years, continues to launch workshops and supplier matchmaking services that help enable the company to increase spend on diverse suppliers, which is currently at $2.6 billion and expected to continue to grow. 

The time is now for all businesses to take action with their spend to make a positive impact. This cannot happen in isolation. All teams, across a business, must align and rally together to ensure diverse supplier programs are not just prioritized, but embedded into the fabric of the business. 

Taking action to increase supplier diversity 

For those looking to make social and local impact today, here are three steps you can take to get started.

1. Examine Your Current Supply Base

The first step is taking a look at your current supplier base and understand what portion of your business spend is already with diverse-owned businesses. While there are a handful of technologies and tools that can help provide this visibility, make sure the tool has a comprehensive database. This will ensure that all current diverse-spend activity is being captured correctly. To gain even further value, you will want a tool that shows how many suppliers the business works with that might be diverse. Then, you can reach out to the supplier to verify their status, leaving no opportunity left unnoticed. 

2. Set Goals and Alerts to Increase Diverse Supplier Spend

After you understand the status of current diverse supplier spend, the next step is to set goals. If 3 percent of spend is currently with these suppliers, set a goal for how much you want to increase that by with a clear deadline. When sourcing new goods and services - such as office supplies and maintenance repairs - make a clear effort to include and invite diverse-owned businesses in these requisitions and service requests. Accountability is key.

3. Track Progress Along the Way

Regardless of your diverse spend goals, it is crucial to track and measure progress. Set a timeline that aligns with your goals - this can mean checking changes in your spend monthly, quarterly, or twice a year. If you are not progressing quickly enough, use that as a cue to reevaluate your diverse spend posture and consider making changes to the businesses you engage with to drive greater impact. 

In sum, it’s time to step up. Change doesn’t happen in a vacuum. Take control of your spend and you can start making immediate DEI impact today.

Donna Wilczek, SVP Strategy & Innovation, Coupa 

Donna Wilczek is SVP of Product Strategy & Innovation at Coupa. Wilczek is also a board member and a technology innovator who has been awarded twelve software patents.