Remembering the ‘Why’ Behind Supplier Diversity

“We’re at our best when our priorities and actions reflect the needs of the communities we serve. We’ll continue to feature the brands and trends that speak to the diversity of our customers while simultaneously offering the value, innovation, and trust they expect from the products across our aisles.”

– Andrea Harrison, VP of Merchandising, Beauty & Personal Care at CVS Health

Companies are facing multiple challenges in parallel today. The economy is slowing, supply chain disruptions persist, and labor shortages plague all industries. Remaining profitable is priority No. 1 for executive teams, and this is a natural response. At the same time, it may jeopardize the progress and commitments made to increase spend with diverse-owned businesses.

This is the moment that companies should be reminded of the “why” behind their supplier diversity programs. They need to recommit and figure out how to satisfy profitability and diversity in parallel.

According to the 2021 State of Supplier Diversity report, 65 percent of supplier diversity programs have a formal supplier diversity policy. These policies serve a dual purpose: They clarify expectations for decision makers, and they articulate the vision for the program as a whole.

Most of these vision statements take a holistic view of the advantages of supplier diversity, such as the example from CVS Health shared above. The company, its customers, and the suppliers should all benefit in clear and measurable ways.

Far from being a reason to back off from commitments to supplier diversity, slowing economic conditions go straight to the “why” established by many corporate programs.

Thirty-nine percent of supplier diversity programs measure their economic impact, but what does “economic impact” really mean?

“Economic impact is, in its simplest terms, the impact that doing business has on the economy. In the case of your supplier diversity program, it is a measurement of how doing business with small and diverse companies generates revenue, income, and jobs and how that activity impacts the local economy.”

Doing business with small and diverse-owned companies has a direct impact on their employees and community. With careful planning, the “why” of supplier diversity can be preserved despite challenges presented by the economy.

Small & diverse suppliers can thrive with predictability.

In 2021, companies spent an average of 5.9 percent with certified diverse-owned businesses. Reducing this spend is unlikely to help the buying company meet its earnings expectations or fuel future growth, but cutting or reducing it will have a substantially negative impact on those suppliers.

Supplier diversity programs always want to do more. Keeping spend the same—and making clear to suppliers that current business will be maintained—may be as valuable as increased spending in uncertain times such as these.

There are benefits to the buying company as well. By reestablishing relationships with diverse suppliers, one potential source of risk can be crossed off the list of circumstances to monitor.

Shared values lead to increased consumer loyalty.

Brand loyalty is one of the first conditions to come into question when spending power decreases. If consumer decisions are based on shared values rather than just product and service preferences, their loyalty is made stickier.

In many cases, supplier diversity programs have wisely emphasized partnering with suppliers owned by members of their core demographic. For instance, women make 70-80 percent of all household buying decisions, according to data reported on by Inc. Consumer packaged goods companies can shore up their consumer loyalty through supplier diversity, continuing to visibly partner with women-owned suppliers.

The top line and bottom line in companies are closely connected. The executive team should articulate their own “why” for supplier diversity, one that recognizes the contributions these partners make to profitability from the top line and the bottom.