Supplier Diversity is the Present and the Future

While conversations about economic justice often focus on marginalized individuals most directly impacted by systemic barriers, data shows that these barriers have broad economic consequences that hurt economic growth for everyone. Citigroup found that since 2000, the U.S. economy has lost $16 trillion in GDP due to systemic discrimination against Black people in the United States. It estimates that if public policy were to adequately address discriminatory practices, the economy would experience $5 trillion of growth during the next five years.

But, companies do not need to wait for government action. One of the most tangible and value-additive methods of tackling economic inequality is through supplier diversity. A range of data makes an overwhelming business case for embracing a diverse supplier base to improve business performance.

According to the National Minority Supplier Development Council (NMSDC), certified minority-owned businesses generate more than “$400 billion in annual revenue and economic output that leads to the creation and preservation of 2.2 million jobs and $49 billion in annual revenue for local, state, and federal tax authorities.” It’s also found that companies with diverse supplier bases show a 133% greater return on procurement investments than those without supplier diversity.

NMSDC recently partnered with the Global Black Economic Forum’s Academy for Advancing Excellence to work alongside companies to deconstruct barriers to access for Minority Women Business Enterprises (MWBEs) as a strategy to advance robust and comprehensive supplier diversity programs.

Investing in supplier diversity programs can also impact a company’s talent recruitment and retention. In a survey conducted by Hootology on behalf of UPS, 52% of respondents said they consider a company’s supplier diversity and inclusion programs when seeking employment. As ESG investments become more important to potential recruits and companies with robust initiatives addressing their ethical footing have a better chance of attracting more diverse and talented candidates.

Corporate leaders with diverse supplier bases, like Microsoft, Target, and UPS, have more efficient procurement processes and higher supplier retention rates. According to Marketplace, supplier diversity’s economic impact derives from representing a company’s increased market share, offering more sourcing options with higher-quality products and lower costs. Supplier diversity also provides a broader scope for innovation within the supplier base, resulting in a competitive advantage for the company.

Research from Bain and Coupa concluded that diverse suppliers have an annual retention rate of, on average, 20% higher than other suppliers. This same study found that the top quartile of companies engaged in supplier diversity initiatives have a 10% higher rate of preapproved spending, 52% greater use of electronic purchase orders, and 18% faster requisition to order processing. These values demonstrate how corporate supplier diversity investments make tangible returns in the form of more efficient business performance.

The Billion Dollar Roundtable shows that as of 2022, 28 leading companies have committed to spending $1 billion annually with minority and women-owned suppliers. UPS, for example, partners with multiple third parties to support programming that encourages increased spending with diverse suppliers. In 2019, UPS reportedly spent $2.4 billion with over 5,400 small and diverse suppliers. The company also partners with organizations to support local education programs and to aid minority-owned businesses in the certification process for becoming diverse suppliers.

Corporate legal departments and general counsels can help advance supplier diversity by deeming supplier diversity as an organizational strategic priority. Legal departments can encourage transparent tracking and reporting on diversity progress through their role in determining an organization’s measurable goals using external diversity benchmarks.

One example of an external diversity benchmark is the Diversity Lab’s Mansfield 4.0 Rule for sourcing law firms. The rule measures whether law firms have considered at least 30% of women, lawyers of color, LGBTQ+ lawyers, and lawyers with disabilities for leadership roles, promotions, and other growth opportunities.

Legal departments can advocate for supplier diversity in several additional ways:

1. By acting as a liaison between a company and its suppliers, they can ensure that companies are onboarding suppliers in ways that embrace ethics, diversity, and sustainability.

2. They can conduct routine assessments of suppliers’ diversity efforts and hold them accountable if they do not meet a company’s core values and meaningful steps toward diversity.

3. They can include diversity requirements in requests for proposals (RFP) to prospective suppliers. For example, an RFP may require supplier law firms to provide diversity data.

Supplier Diversity is a responsible and deeply profitable business decision. But data shows there is still lots of work to do. The 2023 Supplier Benchmarking Report concluded that 80% of companies still conduct less than 5% of their purchases with diverse suppliers. The business case has been made for years. CEOs, CROs and CFOs interested in improved business performance should take heed. And for those who need help, we are here to support increasing your market share.

About the author:

Alphonso David is President & CEO of the Global Black Economic Forum. He previously served as chief counsel to the Governor of New York and has served as an adjunct professor of law at Fordham University Law School and Benjamin N. Cardozo School of Law.

About The Global Black Economic Forum and the Academy for Advancing Excellence

The Global Black Economic Forum is an international enterprise focused on advancing the economic interests of the Black Diaspora and other marginalized groups through global summits, workplace training and leadership development, policy advocacy, and thought leadership. The Academy for Advancing Excellence is a subsidiary of the Global Black Economic Forum. The Academy is a global leadership development company dedicated to reimagining equity, equality, and inclusion. The Academy provides solutions that drive behavioral transformation through coaching, consulting, thought leadership, and research. The firm has earned a reputation for advancing inclusion through innovative and positive disruptive solutions that address policies, systems, and culture. At the core of the work is a focus on building accountability so real results can be sustained. The Academy seeks to shift how the workplace is experienced by ultimately shifting how institutions address and are held accountable on issues of equity and equality.

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