Supplier Diversity Program. Supplier Development Program. While these two programs work in conjunction with each other, they serve different purposes. Let's take a quick look at each program separately, and find out how they complement each other.
Supplier Diversity Programs have a mandate to incorporate more diverse or minority-owned businesses into a company's supply chain. These programs proactively seek out and level the playing field for suppliers who may not otherwise have the opportunity to work with larger organizations
There are approximately 16 categories used to identify diverse businesses. Common examples are minority-owned, woman-owned, veteran-owned, LGBT-owned, service-disabled veteran-owned and/or historically underutilized business. In order for an organization to record and report diverse spend, it is important to ensure its suppliers are certified through third-party certification bodies.
To be certified under one or more of those categories, at least 51 percent of the company must be owned by someone who meets the diverse qualifications. Third-party certification entities, such as the National Minority Supplier Development Council, Women's Business Enterprise National Council, National Gay & Lesbian Chamber of Commerce, and U.S. Business Leadership Network, review applicants thoroughly to ensure they meet criteria before granting their nationally recognized diverse business certifications.
But why put forth the extra effort to partner with diverse businesses at all? Why have a Supplier Diversity Program? The answer goes far beyond the concept of social responsibility, although that is certainly relevant—just look at the emerging data on the economic impact of supplier diversity programs.
Incorporating diverse suppliers breeds innovation, often results in cost reduction, and is an effective part of a risk-management strategy.
Research shows that companies that embrace diversity are more profitable than companies that don’t: "On average, supplier diversity programs add $3.6 million to the bottom line for every $1 million in procurement operation costs,” writes Lindsay Clark, referencing a 2015 study by The Hackett Group.
Launching a Supplier Diversity Program can be as simple as using a Supplier Locator tool to find relevant companies within a diversity category and inviting them to register through your supplier portal. Communicate upcoming bid opportunities with these diverse suppliers and begin building relationships that lead to mutually beneficial partnerships.
Mature Supplier Diversity Programs expand to include supplier development, which leads us to our next topic.
Supplier Development is defined by the Chartered Institute of Procurement & Supply as “the process of working with certain suppliers on a one-to-one basis to improve their performance and expand capabilities for the benefit of the buying organization.”
Supplier Development is NOT about taking over a company or its operations. It's about generating a new capability or competency in suppliers through guidance and support, resulting in a competitive advantage for both entities.
Supplier Development comes in many different forms, from informal efforts to a formally structured program. The right structure depends on factors like available budget and resources, corporate goals, and what makes sense for your organization.
Chances are you're already engaged in some form of Supplier Development without labeling it as such. When you introduce prospective customers and suppliers, that's Supplier Development. When you set up matchmaker meetings or give suppliers access to networking events, that's Supplier Development.
In reality, most Supplier Diversity Programs already have some form of Supplier Development occurring within their procurement organizations. As supplier diversity and procurement professionals interact with diverse suppliers, they are often teaching, guiding, and offering mentoring and development, as well as other resources to help foster growth. Although the two programs are different, they are complementary.
When Supplier Diversity and Supplier Development work together, the results can be profoundly beneficial to everyone involved, including your customers.