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The aim of the paper is to explain the advantages on corporations expanding on their efforts in choosing diverse suppliers and creating programs to include more minority-owned, women-owned, LGBT-owned suppliers in order to increase their supply base thus providing the best quality products for the best price available.
Diversity and Inclusiveness in Procurement
Over the year’s supplier diversity has quickly evolved from a corporate social responsibility initiative to a strategic enabler. Companies are increasingly realizing the competitive advantage of better supplier diversity programs when it comes to market shares, increasing customer bases, and improving stocks.
Many corporations such as AT&T and Wal-Mart for example are investing in minority-owned, women-owned, LGBT-owned and so forth small business. So why are corporations now realizing the importance of diversity when selecting suppliers for their business? Procurement is about fostering innovation, understanding customer needs and business wants, outperforming the competition, and increasing productivity. If a new business begins the process of choosing the best supplier available and want to research the benefit of having a clear strategy for bias-free supplier diversity they should consider a four key factors.
Supporting businesses that are women-owned can improve the general collaboration and communication between men and women inside the business world that is very important to level the field for corporations for closing the gender gap. the advantages of sourcing from additional women-owned businesses transcend more than women themselves.
The World Economic Forum has found that gender equality is related to the country’s gross domestic productivity and competitiveness. Corporations like AT&T attributed about $4 billion of revenue to the engagement of women suppliers in 2014 and have reported a bigger return on investment when using additional diverse suppliers. Corporations such as Kraft and Miller Brewing Company have records of spending more than $1 billion with minority and women-owned firms.
The companies believe that by reaching out to these smaller firms strengthens the communities and it the cornerstone of their business. They have a dedicated team under the Board of Directors under Affirmative Action and Diversity. The team meets every six months and sets specific goals to buy competitively priced high-quality goods from women-owned business.
There are generally numerous reason women-owned business are left out of the competition by bigger firms looking for suppliers. Women-owned business usually tend to lack financial capital and have less experience when handling larger scaled operations. Other factors such as culture and social climate could have an effect as well as women are generally expected to take care of the housework and children. The UN women reports a few recommendations for firms looking to invest in women-owned suppliers such as limiting bundles contracts making it easier for smaller business to enter the supply chain and decreasing the risk of supply disruption.
As state previously, procurement is about fostering innovation and increasing productivity. Corporations can achieve even greater success when engaging suppliers from all people of various stages of life from young to old with different work styles and career stages. With the inclusion of suppliers from everyone would lead to an environment can be involved in actionable decision making.
With every advantage there are some disadvantages to this approach. Within one generation, during which beliefs and ideals are formed by similar influences, communication typically share similar meanings and definitions. Adding a new generation to the mix, and the tone begins to vary as words and delivery tackle new meanings. The easy exchange of communication might become overloaded with misunderstandings, thus causing communication breakdowns and widening age gaps.
Different Cultural Identities
In the early 2000s minority business sold more than $50 billion in goods and services to US companies, according to a report in the National Minority Supplier Development Council. It was then when companies truly began seeing the benefit of expanding their supplier base to include the minority-owned companies to purchase the best quality products for their customers with more 70% of purchasing power between now and 2045, the market growing more rapidly than expected. Over the past 10 years minority business have grown at double the rate.
With the currently climate of today economy customers is now more than ever searching for company that support minority business. Corporations that understand the importance of supplier diversity drives competition and allows the company to take advantage of new opportunities for expansion while also satisfy customer needs.
It also showcases the company’s interest and the commitment to the economic growth of the community. Often the problem arises when minority-owned company must prove they are able to speed up their production times in order to compete with other organizations and be able to win contracts from bigger firms overcoming both internal and external barriers.
The support of minority-owned companies in a report published in 2014 by the NMSDC the National Minority Supplier Development Council that nearly 2.2 million jobs were created while generating more than $49 billion in tax revenue for the local, state, and federal government. When companies select minority-owned firms it benefits everyone and creates an opening for sharing information, resources, expansion, and development of the industry thus building a stronger community with stronger diverse businesses.
Companies like Wal-Mart spending more than $3.9 billion with nearly 200 minority-owned suppliers in 2007 and help develop more suppliers by hosting a community outreach program.
Innovation and Different Abilities
When working with different groups of people there are bound to be different opinions to each situation with each employee or supplier having unique abilities and skills and providing an environment that stimulates innovation. To eliminate any barriers to creative thinking it is important for companies to accommodate each concern from the employee with the firm to the employees at the contracted suppliers’ firm in some cases.
In 2014 the National Minority Supplier Development Council recognized Johnson & Johnson with a corporate innovation award. The award was given to J&J for implementing a new method designed to accelerate and positively impact minority supplier development by branding strategy to enhance communication and foster engagement with minority businesses. The company’s diverse spending has expanded to more than 5% in the last three years since the program was put in motion.
Cost of Using Minority Suppliers
We’ve stated all the advantages for companies exploring diverse suppliers, but will it cost the company more in the long run to work with those companies? The answer being no, it won’t cost firms anymore money than it would take to work with the usual suppliers in the US. In some cases, it may just cheaper for a corporation to work with a minority-owned firm. Normally a company will spend about 8% of the budget for their spending on minority and women-owned businesses. Some companies contribute more while others do the bare minimum, either by choice or by way of government regulation.
When it comes to working with various group of different backgrounds there are many advantages. While there maybe difficult time when working out the complication of creating a new program in order to actively work with minority-owned business along with women-owned business. It is the best interest for companies to expand, as customers want to shop with a company that has diverse management. As a consumer I would want the company I shop with to look the everyday society that I see daily.
- Theodorakopoulos, N. (2013). A management tool for developing the relationships between large purchasing organizations and small ethnic minority suppliers. The Journal of Management Development, 32(1), 113-126. doi:http://dx.doi.org.library3.webster.edu/10.1108/02621711311287071
- KLOCEK, P., DAYIB, H., MUKHERJEE, R., & CRESPO, E. (2014). Supplier Diversity: From “Checking the Box” to Developing a Trusted and Valued Partner. Journal: American Water Works Association, 106(9), 30–36. https://doi-org.library3.webster.edu/10.5942/jawwa.2014.106.0138
- Retrieved from https://www.procurementleaders.com/blog/guest/the-benefits-of-a-diverse-supply-base–682793
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- Marshall, J., & Huffs, E. M. (2006). Diversifying Suppliers Isn’t Costly: Hackett. Financial Executive, 22(9), 12.Retrievedfromhttps://library3.webster.edu/login?url=https://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=22989935&site=ehost-live
- Ford increasing women-owned suppliers. (2014). Lake Erie West Manufacturing & Construction News, 17(12),11.Retrievedfromhttps://library3.webster.edu/login?url=https://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=118719238&site=ehost-live
- Martinez, M. (2002). Stateside companies looking for minority-owned suppliers. Caribbean Business, 30(41),19 Retrieved from https://library3.webster.edu/login?url=https://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=7526872&site=ehost-live
- Vollmer, M. (2016, November 30). Procurement Without Bias: Taking Supplier Diversity Beyond A Spending Goal. Retrieved from https://www.digitalistmag.com/finance/2016/11/30/procurement-without-bias-takes-supplier-diversity-beyond-spending-goal-04700446
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