Our most recent State of Supplier Diversity report found that supplier development plummeted in 2021. We see two likely causes for the decline: There has been an influx of newer supplier diversity programs that have not yet implemented these initiatives, and the coronavirus pandemic limited opportunities for development through traditional channels such as conferences, trade shows, and other in-person events.
If you are considering launching a supplier development program in conjunction with your supplier diversity initiative—or perhaps restarting a program after the pandemic interruption—then you will need buy-in from company leadership.
It seems like it should be easy to gain support for supplier development. After all, a company is only as strong as its supply chain. But should the C-suite need a more convincing argument, here are 10 reasons why investing in supplier development is good for your organization.
1. Improve supplier performance.
We could make this list a single bullet point with “improve supplier performance” as the only entry—it’s that impactful. All nine additional benefits below flow from this one, the first domino in a chain of positive outcomes.
Example: You might help a supplier streamline processes so they’re more efficient, reliable, and even scalable. As a result, you strengthen your supply chain, increasing your competitive edge and possibly seeing cost savings.
2. Reduce costs and increase profitability.
Supplier development programs are proven to lead to bottom-line wins for the companies that implement them. In 2020, McKinsey published the first report from its Supplier Collaboration Index (SCI), itself a collaboration with Michigan State University. The study found that among the more than 100 respondents across all industries, “companies that regularly collaborated with suppliers demonstrated higher growth, lower operating costs, and greater profitability than their industry peers.”
3. Promote innovation.
We know small and diverse businesses are leaders in innovation, but often after that initial breakthrough product, they need all of their resources to operate at their current, sustainable level. A supplier development program can provide much-needed additional support—such as education, mentoring, access to networks, access to capital, or all of the above—which allow a supplier the freedom to pursue new products and solutions.
4. Encourage collaboration between suppliers.
In the same way that small, diverse suppliers need all available resources to sustain their current level of operation, they often lack the ability to scale and compete for larger contracts on their own. Educate suppliers with complementary solutions on how to form successful partnerships with each other so they can win those larger bids, giving your company cost-effective, innovative solutions and strengthening your supply chain.
5. Develop new routes to supply.
By investing in the success of your diverse suppliers and giving them opportunities to collaborate, you’ll help grow your channels and sources. More supplier channels ultimately mean more companies competing for your business—and more options to choose from. With more options available, you can be more selective in your procurement decisions, receiving the best possible product and value.
6. Improve supplier relationships.
Establishing and nurturing longer-term relationships with small suppliers through sustained supplier development activities is strategic for both you and the vendor. They gain education and resources to grow their business while you gain a better partner for your business.
Example: Suppose one of your products goes viral thanks to a TikTok video and demand skyrockets. Not only does your supplier development program mean you have a diverse supply chain that can scale quickly, but you also have solid relationships with those suppliers to work together and meet demand.
7. Drive job creation.
When you invest in the development of your diverse suppliers, you’ll also drive job creation and economic growth opportunities in the communities where they are located. Creating more jobs strengthens the economy, which leads to more sourcing options and a stronger consumer base for your organization down the line.
8. Improve customer satisfaction.
Strong supplier relationships can pay off in increased customer satisfaction. When you have a good relationship with your suppliers, you are able to communicate with greater ease, troubleshoot issues with greater efficiency, work together to meet market demand, and ultimately provide a better-quality end product to customers.
9. Improve brand reputation.
Consumers are increasingly holding companies accountable for diversity and equity, demanding real-world examples of DEI in action. Just like supplier diversity programs, supplier development initiatives have an economic impact on surrounding communities. Our economic impact analysis demonstrates how supplier diversity spend impacts diverse businesses and the multiplier effect it has on their communities. With this data, you can talk about how your supplier development initiatives are creating jobs (reason No. 7) and driving economic growth in local communities. Integrating this information into your marketing can increase customer loyalty and encourage other local companies and entrepreneurs to bring possible solutions to your organization.
10. Meet supplier diversity goals.
Think about the quarterly and annual goals you set for your supplier diversity program. Are you making continual progress toward achieving those goals, or have you hit a plateau? A supplier development program can help you identify and handle obstacles or challenges before they become insurmountable.
Example: Your diverse spend is stagnant in one commodity area, and you’re having trouble finding a diverse supplier that can meet the company’s needs. Through your supplier development program, you can work with one or more diverse companies to increase capabilities in that commodity.
Ultimately, when you invest in a supplier development program, you are investing in your suppliers and helping them improve their performance. From cost savings to increased customer satisfaction to an improved brand reputation, supplier development benefits your company in myriad ways.
Download our e-book to learn more about establishing and growing your supplier development program.