For the second year in a row, we surveyed supplier diversity professionals and diverse suppliers to gain insight into the supplier diversity industry from both sides. Our 2018 State of Supplier Diversity reports include the results of more than 500 survey responses, giving us an overview of supplier diversity in the United States. Today, we want to dig deeper into the data and take a closer look at what's happening with supplier diversity in the manufacturing sector.
According to the U.S. Bureau of Economic Analysis, the United States is the world's second largest manufacturer (after China) with a record high real output of over $4.5 trillion in the first half of 2018. The U.S. manufacturing sector is also a job powerhouse, employing 12.78 million people in October 2018.
These are blockbuster numbers with huge impacts on our economy, but how do they translate to supplier diversity? Are diverse businesses part of the manufacturing supply chain? How can the manufacturing sector better include diverse suppliers, and how can diverse suppliers better serve the manufacturing sector?
Let's look at the data.
U.S. manufacturers were among the first companies to recognize the value of supplier diversity and launch programs to identify and incorporate more diverse suppliers. A hefty 61 percent of manufacturing respondents to our 2018 Reports have supplier diversity programs that are 10 or more years old, compared to 40 percent of overall respondents.
Pro Tip: If your supplier diversity program has been in place for a decade or more, it may be time to reevaluate and audit the program to see what's working, what can be improved, and what new strategies should be implemented.
Supplier Tip: Well-established supplier diversity programs often have resources—such as seasoned supplier diversity professionals—that can help you grow your business. Cultivate relationships with those professionals.
Driven by External Forces
Although manufacturers were early adopters of supplier diversity, the reason for this wasn't necessarily because these companies immediately saw how a diverse supplier base could benefit their enterprise. More than three-quarters—77.8 percent—of manufacturing respondents indicated that the primary driver behind their supplier diversity program was customer requirements. In other words, their customers mandated a certain percentage of diverse spend, which meant a supplier diversity program was necessary. One respondent shared that the primary reason they created a supplier diversity program was to allow them to partner with a “superior” company and move forward with their own company goals.
Pro Tip: Instead of viewing supplier diversity as a mandate to work with certain customers, consider other actual, tangible benefits these diverse suppliers can bring to your supply chain and your bottom line. How can they help you innovate and compete locally, nationally, and globally?
Supplier Tip: The fact that many manufacturers are required to partner with diverse suppliers to meet customer requirements is a boon to you. Leverage that opportunity to showcase your best work by over-delivering and proving that a diverse supply chain is a competitive advantage.
Still Making the Business Case for Supplier Diversity
It might seem counterintuitive that supplier diversity professionals in the manufacturing sector still have to make the business case for supplier diversity given the overall maturity of programs, but when we look at the number who started their programs due to external requirements, as noted above, it makes sense. Most manufacturing respondents—72.2 percent—don't believe that gaining market share is a primary driver of their supplier diversity program. Supplier development also plays a minor role, with a mere 17.8 percent indicating this as a primary driver of their supplier diversity program.
Pro Tip: It's time to look at diverse suppliers as real partners helping your company meet revenue goals as well as social responsibility commitments. Educate stakeholders on the benefits of supplier diversity and start changing how your company views and works with diverse suppliers.
Supplier Tip: You have little control over a company's supplier diversity program, but you can be an ambassador for why working with you, a diverse supplier, is beneficial to a potential corporate partner. When preparing pitches or following up with supplier diversity professionals, highlight what makes your diverse company superior and what value you bring to the table.
Identifying Diverse Suppliers
Our survey found that manufacturers rely heavily on word of mouth to identify potential diverse suppliers. Only half of manufacturing respondents indicated that they go through certification bodies such as the National Minority Supplier Development Council or Women's Business Enterprise National Council (WBENC) to locate suppliers. That's compared to three-quarters of overall respondents who use these entities to identify and locate potential diverse suppliers. Instead, 50 percent of manufacturers said they rely on other diverse suppliers and conferences and tradeshows to connect with diverse suppliers.
Pro Tip: Discover new suppliers with our Supplier Explorer tool, which gives you access to our Master Database of millions of small and diverse suppliers. Easily search and filter by diversity category, certification source, commodity and area of expertise, geographic location, and more.
Supplier Tip: Tradeshows and conferences can lead to contracts! Make sure you're presenting yourself and your company in the best possible light.
Manufacturers spend significantly less on diverse suppliers than other sectors, according to our survey. Only 53 percent of manufacturing respondents reported diverse spend in the 5-15 percent range, while 78 percent of overall respondents have diverse spend in that range. A possible reason for this is the difficulty for diverse suppliers to scale and increase capacity to meet demand.
Pro Tip: Consider expanding into supplier development to help current and potential suppliers scale up to meet your needs. A Tier 2 program can also provide a huge boost to diverse spend, allowing diverse suppliers to enter the supply chain in a more manageable capacity.
Supplier Tip: Ask your supplier diversity professional about their company's upcoming needs, including possible Tier 2 partnerships, and develop a strategic plan to be ready when bid opportunities are posted.
We heard over and over that one serious issue manufacturers have with diverse suppliers is unmet expectations. Manufacturers responded that diverse suppliers met or exceeded their expectations just 58 percent of the time, compared to 80 percent of overall respondents. A whopping 42 percent of the products or services provided by diverse suppliers underwhelmed or disappointed manufacturers.
Pro Tip: A supplier registration portal allows you to vet potential diverse suppliers through customized data retrieval, putting you one step closer to finding the right supplier.
Supplier Tip: Being certified as a diverse supplier is not enough to win and retain contracts—you must deliver on your promises. Talk to your supplier diversity professional or purchasing manager about expectations, be realistic about your capabilities, and develop a plan to meet or, even better, exceed expectations.
Diverse suppliers appear to be a largely untapped resource for the manufacturing sector. By shifting their perspective from supplier diversity as a necessity for meeting customer requirements to seeing diverse suppliers as a pool of innovation and potential, manufacturers could reap tremendous benefits.