Supplier diversity has come a long way over the decades. It still has a long way to go.
For the second consecutive year, we surveyed hundreds of supplier diversity professionals and diverse suppliers to get a better picture of where the industry is and where it’s headed. The result is our standard-setting 2018 State of Supplier Diversity reports.
The data from our reports tells an engaging story of the triumphs and challenges of supplier diversity. Just as engaging, if not more so, are the replies our participants gave to open-ended questions about the challenges they face and what the future may bring.
From both the data and the candid responses, we’ve identified the nine greatest challenges (in no particular order) facing the industry. Hopefully, as supplier diversity evolves and grows, companies and suppliers alike will work together to solve these challenges and whatever new challenges come their way.
1. Noble Intentions vs. Empty Talk
Many companies and their supplier diversity programs bring a great sense of purpose to their efforts, wanting to expand opportunities for diverse suppliers and improve the organization’s standing with their employees, consumers, and the community. In our survey, when asked to list the primary drivers of their programs (and respondents could pick more than one), 72 percent of supplier diversity professionals chose corporate social responsibility. Workforce inclusiveness came in at 66 percent, and mirroring the customer base was cited by 38 percent. In comments respondents gave, “opportunity” and “making a difference” continually came up.
However, diverse suppliers aren’t quite convinced. Consider this comment from one respondent in the suppliers report:
“I feel like companies advertise and market that they support supplier diversity, but in reality, they do not. It is very frustrating when they say they do and won't even take our phone call.”
Other comments drew many feelings similar to this. Diverse suppliers are skeptical that companies’ commitment to supplier diversity might be only lip service. A disconnect exists here, and bridging that gap will be a challenge for programs and suppliers to overcome.
2. The Current Political Climate
The state of politics over the past two years has been tense, to say the least. Diverse suppliers—and even some programs—are concerned that in this political climate, the gains made in supplier diversity, especially in terms of governmental efforts to promote it, will be lost. Will companies remain committed to hiring diverse suppliers if they suddenly aren’t required to do so? Will they continue to recognize the intrinsic value of supplier diversity? Suppliers are understandably nervous; overcoming this uncertainty will be key to ensuring that no matter what the future holds, opportunities for suppliers and programs will always be available.
3. Finding Smaller Suppliers
Outstanding small, diverse suppliers are out there for programs to contract—but seemingly, neither side does a great job of finding the other. Companies are still more likely to prefer larger, more established suppliers, which generally feel safer and more cost-effective. Small businesses must do more to get noticed, but they must also be patient. Not every startup is ready to work with Fortune 500 companies; time is needed for suppliers to establish themselves and become certified. That said, supplier diversity programs must also work to prove that small or diverse doesn’t necessarily mean risky or expensive. In fact, that it often times means the exact opposite.
4. Self-Classified Suppliers Are at a Disadvantage
Our report found that 53 percent of supplier diversity programs won’t consider a supplier that self-classifies as diverse. This strategy is understandable—suppliers that aren’t formally certified can be a headache when programs are attempting to track spend or confirm diverse status. The takeaway from this result is that diverse suppliers, when they are ready, should strive to become formally certified from an appropriate diversity agency. The process requireseffort but is ultimately worthwhile in the long run.
5. Reducing Costs vs. Promoting Diversity
This was an insightful comment we received from a supplier diversity professional on a great challenge companies face:
“Our procurement mission is, in part, to reduce and consolidate our supply base, negotiating global deals with suppliers that can service us globally and consistently, while giving us the best competitive advantage. This mission can be in conflict with our goal of increasing spend with diverse suppliers—which are often the smaller, more local or regional suppliers.”
Unfortunately, a more efficient supply base and a commitment to supplier diversity are often competing objectives, and in a bottom-line economy, the more apparent financial benefit of efficiency wins out. Moreover, government contracts not rooted in diversity might require companies to take the low bid over a small or diverse business. Finding the balance between straight-forward profits and diversity, and emphasizing best practices to ensure maximum cost-effectiveness, are essential to providing opportunities and still realizing a nice ROI.
6. Supplier Development May be Decreasing
One surprising trend in our latest report is that the percentage of respondents with formal supplier development programs plummeted from 35 percent in 2017 to 24 percent this year. Also, the percentage of companies with either formal or informal programs dropped from 59 to 51 percent. Is this an actual trend or just a statistical anomaly? If it is a trend, the supplier diversity industry must determine why the de-emphasis is occurring and if it will help or hurt programs and suppliers moving forward.
7. Underperforming Portals
Our survey found that 59 percent of diverse suppliers didn’t realize a single opportunity from the supplier diversity portals they registered at. The result was even worse (69 percent) for suppliers with fewer than 10 employees. Whether supplier diversity programs aren’t impressed with supplier profiles in portals or are simply ignoring the channel remains to be seen, and perhaps something inherent with the portals themselves is contributing to this number. Nevertheless, suppliers can’t rely solely on portal registration to attract partners—they should also consider other channels and strategies to complement this approach.
This comment from our diverse suppliers survey was similar to other sentiments we’ve heard:
“It's been exceedingly difficult contacting people who are directly involved in the [supplier diversity] program (most people don't know what I'm talking about), much less get any traction from companies. The programs are remarkably convoluted. In the end, it seems like the gesture has good intention, but I'm not sure if companies are following up in any substantial manner.”
In other words, communication doesn’t seem to be getting from the supplier to the supplier diversity program, or from the program to the company’s procurement department and other decision-makers. Obviously, this is frustrating for suppliers that aren’t sure who to contact to pitch their products and services.
When we see a comment such as this about suppliers’ challenges—and this was directly from our report—it’s a reminder that supplier diversity has plenty of room to grow and be relevant:
“Constantly being excluded from business opportunities because we are an LGBTBE.”
Unfortunately, in 2018, some buyers (though not necessarily in supplier diversity programs) won’t consider hiring a diverse supplier simply because it’s diverse. They might think a woman-owned business couldn’t possibly be good at manufacturing or a minority-owned business won’t understand their needs. Sometimes the prejudice runs deeper—for example, not considering an MBE because of deep-seeded corporate biases, or passing on an LGBTQ business because it goes against the company’s “values.” This challenge reinforces why supplier diversity matters: Opportunities for diverse suppliers provide an avenue to success, and repeated successes open the eyes of companies that might not have otherwise considered a diverse supplier.
What do you consider the greatest challenge the supplier diversity industry is facing in 2018?