Benefits of Supply Chain Diversification

Due in part to recent supply chain disruptions and societal pushes for more equality of opportunity, companies of all sizes are making supply chain diversification and inclusive procurement a business priority.

Not only are supply chain diversity programs a way to promote equity and economic inclusion for historically underserved and underrepresented communities, but supply chain diversification can also benefit companies' bottom lines.

What is a diverse supply chain?

Inclusive procurement is not a new concept. In fact, it can be traced back to the civil rights movement of the 1950s and 1960s, according to Harvard Business Review. In 1969, President Richard M. Nixon created the Office of Minority Business Enterprise—now as the Minority Business Development Agency, or MBDA—and issued an executive order requiring federal agencies to procure goods and services from businesses that are at least 51% owned and operated by individuals or groups that are traditionally underrepresented or underserved in business.

Individuals and groups recognized by the MBDA include:

• Women-owned businesses
• Minority-owned businesses
• Businesses owned by those with disabilities
• Veteran and service-disabled veteran-owned businesses
• LGBTQIA+-owned businesses
• SBA-certified small businesses

Many large companies—including Coca-Cola, IBM, UPS and Walmart—have well-publicized supplier diversity programs as well. "Supplier diversity programs can be part of a company's efforts to maintain high moral and ethical standards," Harvard Business Review noted.

Supply chain diversification reflects societal values

Today's consumers are more socially responsible than ever, and they expect their purchases to reflect their values. One recent report found that 70% of consumers prefer buying from brands that align with their values. Companies are stepping up to show their commitment to making a positive impact by looking at how to diversify the supply chain.

A diverse supply chain is also more reflective of changing demographics. According to the US Census Bureau, minority groups are poised to become the majority population by 2045 (PDF) and will be the major purchasing group and economic driver. This includes diverse suppliers themselves.

Committing to a more inclusive and equitable supply chain is an actionable step businesses can take to address deeply ingrained racial and social injustices—something that's particularly important to millennial and Gen Z job seekers.

"I can't really put into words how George Floyd and Black Lives Matter greatly, greatly affected me," one young job seeker told The Washington Post. "When it came to entering the workforce, I wanted to make my next move as meaningful as possible."

Economic benefits of a diverse supply chain

Beyond the moral and ethical benefits, fostering diverse suppliers and vendors can also bring economic benefits—both to the companies with supply chain diversity programs and to the community at large.

According to one supplier diversity study, companies that participate in a long-term supplier diversity program generate a 133% greater return on investment than using traditional suppliers—adding an additional $3.6 million for every $1 million in procurement operating costs.

Inclusive procurement also has an economic ripple effect that can be felt throughout a community. Buying from a minority business enterprise, or MBE, increases that enterprise's sales and revenue, which is then spent on creating jobs, renting and upgrading production facilities, and buying goods and services from other MBE suppliers.

If COVID-19 taught businesses anything, it's that they shouldn't be too dependent on a single-source supply chain. A diverse supply chain can be more resilient and agile than a traditional one. Because MBE suppliers tend to be smaller enterprises, they can adapt more quickly to market changes and offer faster responses to changing customer requirements.

Supply chain diversity benefits businesses

Seeking out diverse suppliers and vendors—including women- and minority-owned businesses—can bring more than just ethical and moral accolades. Supply chain diversification can also bring economic benefits that help boost profits, improve communities, create new customers and build more strategic partnerships for all businesses.