Adopting The New Definition of ROI For Supplier Diversity

Adopting The New Definition of ROI For Supplier Diversity

It is a known fact that companies are always improving themselves to increase value to their customers. Many have incorporated diversity and inclusion (D&I) activities to bring these enhancements.

While including diversity in a company is a first step adding inclusion activities will lead to the desired outcomes.

In the current environment, many companies are implementing Diversity, Equity, and Inclusion (DEI) into their culture and value systems. And so, it is very important that understood and used to achieve a high-performing supply chain and diverse suppliers.

What Is Supplier Diversity?

Supplier diversity refers to a company’s policies and efforts to include its supply chain and sourcing operations from smaller or deprived group vendors. A company can be considered a diverse supplier if 51% of the ownership is held by historically underserved or underrepresented people or entities like women-owned, people of color, service-disabled veteran-owned, persons with disabilities, LGBTQQIA+ individuals, and SBA-defined small businesses.

Programs to promote supplier diversity can be a component of an organization’s attempts to uphold strong moral and ethical standards. Research by The Hackett Group found that an organization with a higher focus on supplier diversity outperformed its competitors in procurement ROI by up to 133%, adding $3.6 million to its bottom line for every $1 million spent in procurement operating costs.

Who Needs A Supplier Diversity Program?

Law urges federal, state, or other public-sector organizations to meet minimum supplier diversity quotas and so creating or enhancing a supplier diversity program will also add to their corporate social responsibility (CSR) activities.

Supplier diversity program supports DEI initiatives and ESG scores, but the main advantage is that it also increases performance and profits.

Apart from this, as more organizations commit to more DEI and ESG activities, it becomes easier for smaller not-for-profit organizations and small and medium businesses to set up and manage supplier diversity programs.

The Business Benefits Of Supplier Diversity

It is obvious that Return on Investment (ROI) is crucial for all organizations, and supplier diversity supports this. Organizations that incorporated and actively managed supplier diversity have experienced a wide range of benefits, such as:
Improves suppliers’ competitive advantage

Adding diverse suppliers to the sourcing pool increases healthy competition leading to reduced costs at a higher quality. With more suppliers, the supply chain becomes more dynamic and resilient.

For instance, In Georgia, a few minority-owned businesses that had previously manufactured hair products quickly switched to producing all-purpose cleaners and hand sanitizers at the height of the pandemic.

Boost innovations

Organizations benefit from the depth and breadth of innovation that naturally comes from having a diverse supply base. They will miss this if they stick to the same vendors and traditional supply channels.

A company can access new mindsets, perspectives, ideas, and products by improving supplier diversity. According to a Boston Consulting Group study, businesses with more diverse suppliers generate 19% more revenue due to innovation. So, with higher supplier diversity, you get the advantages of innovation and cost savings and reach supplier diversity goals.

The CG Global Management’s supplier diversity data analytic solutions use an AI data-driven methodology to help the industry achieve its supplier diversity targets.

Provides multiple procurement channels for goods and services

Many channels enable an organization to compare potential suppliers’ product ranges, locations, and pricing to determine the most suitable option.

Also, for every dollar invested in operations and procurement, a formal supplier diversity program guarantees a high ROI of more than 3.5 times, per The Hackett Group’s research. This efficient business practice enables the organization, the buyer, to promote and include many new suppliers, thereby reducing the product/service cost.

Provides positive social and economic impact

Diverse suppliers are often small firms that significantly affect the communities in which they operate.

According to the National Minority Supplier Diversity Council, a minority business contributes $400 billion to the economy y creating or maintaining 2.2 million employment annually, bringing in $49 billion in taxes for the local, state, and federal governments.

Thus, engaging with different suppliers enables a company to focus on economic growth, job creation, inclusion, and economic impact.

Embracing the New Meaning Of ROI for Supplier Diversity

Many organizations are gradually moving towards the value-based model from the need-based paradigm, which has benefits like a strong ROI (>3.5x), expanded network synergies, cost reduction, and tax incentive eligibility.

As a result of this model’s success, large corporations are increasingly creating formal programs, setting targets to implement them, and monitoring their progress. By 2025, businesses anticipate that their D&I spend target will increase by more than 50%, with an average annual spend target of about 13% set aside for suppliers from various under-represented/minority-owned diversity groups.

This suggests that over the long run, greater supply chain alignment around the value-based strategy will inevitably produce significant returns. And hence, for supplier diversity, the ROI goes beyond the Return on Investment to give your company a new ROI known as Return on Inclusion.

How Can CG Global Management Help?

Major companies are progressively formalizing their D&I initiatives, diversifying their supply chains across key expenditure categories, monitoring progress, and transparently disclosing their successes. The supplier diversity program management software ‘DivedIn Tier 2’ from CG Global Management helps track and report the program to understand its impact on your company. It is a cloud-based tool that automates target settings for supply chain diversity and local content (Buy America) programs and de-risks the prequalification process.

So, contact us to explore more on the supplier diversity reporting software.
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