VALUE OF SUPPLIER DIVERSIFICATION

The Value of Supplier Diversification in Procurement Contracting

By Matt Monaghan

Chemeketa Community College

BA 236 – Winter 2018

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Introduction

The effort to seek out and contract with diverse vendors has become an important trend
among procurement professionals and corporate executives over the past decade as both private
companies and public agencies look for ways to not only meet federal spend requirements but
also enhance their bottom line.

In short, supplier diversity is a proactive business approach that encourages the sourcing
of goods, services and supplies from minority-owned businesses and others owned by
disadvantaged segments of the population such as service-disabled veterans (Jaegger, 2015).
While the concept has been around since the 1960s, it was not until the turn of the century that
procurement professionals and management saw that it offered something beyond the feeling of
being charitable (Lazarus, 2017). Since then, studies have shown that the more a procurement
team invests in supplier diversification, the more it increases competition, drives down cost,
promotes innovation and enhances a firm’s public image (Jaegger, 2015).

In the state of Oregon, the Office of Contracts and Procurement for the Department of
Human Services and the Oregon Health Authority recently did an examination of its own
supplier diversity. The goals of this study were twofold: 1) to create a database of the more than
1,500 for-profit vendors that contract business with the agencies and determine how many are
owned and operated by minorities, women, and service-disabled veterans; and 2) to identify
ways to improve DHS/OHA supplier diversity of for-profit vendors through increased marketing
and outreach.

Findings

Perhaps the greatest insight into the current state of supplier diversification within the
procurement industry comes from a comprehensive 2016 study by the Hackett Group, a strategic
business consultancy that conducts and publishes research on business trends and best practices.

Among the many findings from the study, two data points more than any others drive
home the value of a diverse supplier network. First, among more than 100 firms surveyed,
ninety-nine percent reported that their diverse suppliers meet or exceed their expectations
(Procurious HQ, 2016). Second, for every one million dollars invested in procurement supplier
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diversification, an organization sees a return of nearly four million dollars to its bottom line
(Procurious HQ, 2016).

These findings are even more eye-opening when coupled with census data and
forecasting that project enormous growth in minority- and women-owned businesses in the
decades to come. According to a U.S. Department of Commerce study, the minority population
will account for an increase in buying power of nearly seventy percent through the year 2045
(Roseburgh, 2015). The U.S. Census Bureau and the Minority Business Development Agency
also note that the number of new minority-owned businesses continue to outpace those of newly
established majority-owned firms (Roseburgh, 2015). From 2007 to 2012, minority-owned
businesses increased thirty-nine percent to a total of eight million overall, a rate of growth three
times that of majority-owned companies (Roseburgh, 2015).

The growth potential of women-owned businesses is equally robust. According to the

National Association of Women Business Owners, there were 9.4 million women-owned
businesses accounting for $3.6 trillion in sales as of 2015. Yet the vast majority of those dollars
are not being targeted by procurement professionals. WEConnect, a global network that connects
women-owned businesses to suppliers, reports that women-owned businesses represent less than
one percent of all domestic suppliers to corporations and governments (D&B Supply
Management Solutions, n.d.).

In considering minority- and women-owned businesses alone, of the more than 22,000
certified by the Women’s Business Enterprise Council and the National Minority Supplier
Diversity Council, they have a combined total economic output of $400 billion (Roseburg,
2015). That number can only grow when adding in businesses owned by other minority
demographic groups such as veterans and LGBQTs, as well as those who meet the conditions for
minority certification but are not.

Certification with one of these membership groups is one of the easiest ways for
governments and private sector companies to initiate a supplier diversification program, yet it is
a lack of certification awareness among these specially designated businesses that is one of the
greatest hurdles facing procurement professionals. In Oregon it is no different. In the DHS/OHA
study by the Office of Contracts and Procurement, only two percent of the agencies vendors
designated as either minority-owned, women-owned, or owned by service-disabled veterans
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were found to be certified by the state’s Certification Office of Business Inclusiveness and
Diversity (COBID). In addition to offering services and support for all businesses in Oregon,
COBID also specifically has certifications and resources that specifically benefit non-majority-
owned firms.

Impact on Procurement

While utilizing the aforementioned certification bodies can be a starting point for
procurement professionals to expand their organization’s contacts with diverse suppliers, it is far
from adequate. Instead, governments and businesses are taking steps to reach out to specially
designated firms. In Oregon, this has spurred the creation of an annual event called Governor’s
Marketplace.

Sponsored by the Governor’s Office of Diversity, Equity and Inclusion/Affirmative

Action, the two-day expo invites Oregon businesses – particularly those owned and operated by
minorities, women and service-disabled veterans – to learn about the opportunities and
procedures of competing for state contracts. Procurement representatives from various state
agencies can meet and discuss potential business opportunities specifically related to their needs,
and vendors can attend presentations on both the general and specific processes of the public
contracting process such as understanding terminology and important documents (Requests for
Proposal, Invitations to Bid, etc.)

In the case of DHS/OHA, the Office of Procurement and Contracts looked at its roughly
1,500 business partners, identified those which met the conditions of being owned and operated
by women, minorities, or service-disabled veterans, and contacted them directly with an
invitation to attend. The hope is that this event will encourage them to continue their relationship
with DHS/OHA, and by maintaining their business, they also become more likely to
communicate their experiences with other diverse businesses that may not know about potential
partnership opportunities with state government.

More than ever, outreach is vital to a procurement professional’s success because

competition and markets have changed. Global markets evolve rapidly and as business
ownership grows among these diverse populations, their value within the supply chain will only
increase. Customers are also more diverse than ever, as well as conscious about where their
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products and services come from. As a result, procurement professionals must rise to meet the
diversity demands that encompass a highly segmented market.

Recommendations

There are several components of a successful supplier diversity program, all of which are
equally as important as the others. Procurement professionals wishing to enhance their supplier
diversity should implement the following recommendations to ensure that their organization
reaps the greatest rewards possible.

 Achieve buy-in from upper management. It is imperative that executive leadership be

committed to supplier diversity and set objectives for procurement professionals to aspire
toward (Lazarus, 2017).
 Establish diverse supplier systems based on industry standards (Suarez, 2016). Executive
management should work with the procurement team to set the foundation of program.
Part of achieving this is examining how other firms, both inside and outside the industry,
work to expand their supplier diversity. Who are the leaders and what systems and
practices are being used to succeed? Those best practices can then be adapted to fit into
the firm’s structure.
 Look for opportunities to diversify supplier spend. There are a number of ways this can
be done, but one of the easiest is by looking at a firm’s expiring contracts and inviting
diverse suppliers to bid (Suarez, 2016). This not only encourages competition among
suppliers, but it also exposes the company to new consumers.
 Engage directly with diverse suppliers by hosting events that showcase the kinds of
products or services the organization is looking to procure (Agee, 2011). Most diverse
businesses are also small businesses, and they often do not have the time or resources
available to seek out new business opportunities. The easier that procurement
professionals can make the contracting process, from A to Z, the likelier they are to grow
their supplier diversity program.
 Set realistic goals and benchmarks by which a firm can measure its success. Consider the
metrics used to satisfy stakeholders and report data, such as total diverse spend and
number of diverse suppliers added, at least annually although quarterly is more typical
(Suarez, n.d.). These frequent updates will not only keep the initiative fresh, but also
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quickly alert management to weaknesses that need improvement. Regular reports also
drive home the value of the initiative, especially when goals are met, and reinforce
overall commitment.

Executive Summary

The trend of courting contracting opportunities among businesses owned by minorities,

women and service-disabled veterans has never been stronger. Government agencies and private
sector companies realize that supplier diversity is no longer just about compliance or appearing
charitable, but rather an initiative that offers real economic gains.

No groups are growing in population and starting new businesses faster than minorities,
and the rate of growth of businesses owned by women and service-disabled veterans continues to
be strong. Together, these factors project to pump billions of dollars into the economy over the
coming decades and procurement professionals understand the potential to reap the benefits of
that growth. Those benefits include reduced costs due to increased competition and product
innovation.

To achieve greater supplier diversification, procurement professionals – with the support

of executive management – are implementing programs aimed at targeting these diverse
businesses. To do this, successful firms are identifying best supplier diversity practices and
adapting them to their own organizations. They are also reaching out to diverse suppliers by
hosting events and conferences that educate suppliers about procurement opportunities and how
to navigate the bidding process.
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Works Cited
Agee, E. (2011, Dec. 15) Tips for improving supplier diversity. Retrieved from
http://www.diversityjournal.com/7052-tips-for-improving-supplier-diversity/

D&B Supply Management Solutions. (n.d.). The growing business imperative for supplier
diversity. Retrieved from http://www.dnb.com/content/dam/english/dnb-solutions/supply-
management/the_growing_business_imperative_for_supplier_diversity.pdf

Jaggaer Staff. (2015, Sept. 1). 5 advantages of having a diverse supplier base. Retrieved from
https://www.jaggaer.com/5-advantages-of-having-a-diverse-supplier-base/

Lazarus, S. (2107, Feb. 21). Hackett research proves supplier diversity is more than just about
getting the warm fuzzies. Retrieved from http://spendmatters.com/2017/02/21/hackett
-research-proves-supplier-diversity-just-getting-warm-fuzzies/

Procurious HQ. (2016, June 9). How to realise and unlock the benefits of supplier diversity –
procurement news. Retrieved from https://www.procurious.com/procurement-news/supplier
-diversity-new-markets

Roseburgh, F. (2016, Jan. 9). What is supplier diversity and why is it important? Retrieved from
https://blog.cvmsolutions.com/what-is-supplier-diversity

Suarez, J. (2016, June 14). How to increase supplier diversity spend. Retrieved from
https://blog.cvmsolutions.com/how-to-increase-supplier-diversity-spend

The 2017 state of women-owned businesses report. (2017). Retrieved from

http://about.americanexpress.com/news/docs/2017-State-of-Women-Owned-Businesses
-Report.pdf