The coronavirus pandemic is continuing to take a severe toll on the U.S. economy and businesses, from large corporations to small local shops. But the secret to getting businesses back on track may be a tool they have already been encouraged to utilize for other business benefits like inclusion and innovation: supplier diversity.
When large corporations purchase goods and services from small suppliers — many owned by minorities, women, LGBTQ+ people, people with disabilities and veterans — it becomes a mutually-beneficial relationship, Forbes reports. Local suppliers accounted for more than 17 million jobs in 2016, according to a MIT Sloan and Harvard Business School study. The study’s data suggests supply chain economy leads much of the U.S.’s innovation.
Some of the benefits of diverse suppliers lend to large corporations are that they provide innovative products; increase competition leading to better prices and service; and demonstrate their dedication to diversity, inclusion and community involvement. In short, supplier diversity increases companies’ bottom lines.
According to a 2006 study by the Hackett Group, organizations that have a higher rate of supplier diversity programs generate 133% grater return on the cost of procurement operations than those with average levels of diverse supplier procurement. For every $1 million they spend, they earn $3.6 million on their bottom line. Additionally, according to 2019 CVM Solutions data, 47% of consumers say whether or not an organization with a supplier diversity program influences whether or not they will buy from them. Thirty-five percent say it has a slight influence.
In 2019, research company Hootology developed a survey to allow corporations to measure the impact of programs on their bottom line. On average, supplier diversity lifted scores for various metrics by 25–70%.
When a corporation invests supplier diversity, it thrives while helping small businesses — and communities — do the same. A Supplier Lifecycle Management report by D&B highlights that investing in supplier diversity helps deliver economic benefits to typically underserved communities and stimulates local economies. Additionally, it points out that the Census Bureau estimates that “minorities” will account for nearly 90% of the total U.S. population growth by 2050. Entrepreneurship within these communities is growing. In 2018, there were 8 million recorded minority-owned small businesses.
JP Morgan and Chase Co. also reported that small businesses accounted for over half of net job creation in 2014. As the U.S. recovers from a pandemic that has left a record number of people jobless, small businesses and diverse suppliers have the potential to play an integral role in stimulating the economy — that is, if large corporations continue to champion supplier diversity during this critical time.
For more statistics and tips on beginning your own supplier diversity program, read our Supplier Diversity Meeting in a Box, a learning tool exclusive to DiversityInc benchmarking customers and Best Practices subscribers.