Leaders integrate supplier diversity goals into their procurement strategy.
Supplier diversity has become a top priority for corporate boards in the US. The wave of national protests against systemic racism in 2020 prompted leadership teams to increase their engagement with businesses owned by Black people, women, and other underrepresented groups.
New commitments are broadening efforts launched in the 1960s by a number of large US companies to support supplier diversity. Spending on diverse suppliers rose an average of 54% between 2017 and 2020, according to Coupa, a company specializing in business spend management. And the pool has grown substantially. Minority-owned businesses—a large subset of the base of diverse enterprises—make up 18% of all US businesses, according to the US Census Bureau’s latest Annual Business Survey. The National Minority Supplier Development Council reports that certified minority-owned businesses generate more than $400 billion in annual revenue.
There’s no question that a diverse supplier base is good for society, but a growing number of executives confirm that it improves business performance too. UPS, Target, Pacific Gas and Electric, and other leaders have been building more diverse supplier pools for decades, a move that benefits their bottom lines and reduces supplier turnover. Companies that make up the top quartile in percentage of spending on diverse suppliers generate more procurement savings than the average company engaging diverse suppliers, Coupa’s research shows (see Figure 1).
Many companies assume that working with diverse suppliers will make them less efficient, but the data from Coupa shows that doesn’t seem to be the case. The leaders in supplier diversity rely to a greater degree on electronic purchase orders and invoicing, and they benefit from doing a higher volume of work with contracted vendors. They also are faster at invoice approval and order processing (see Figure 2). Diverse suppliers have an annual retention rate that is 20% higher, on average, than nondiverse suppliers (see Figure 3).