Four Ways to Increase and Prioritise Supplier Diversity

“Supplier diversity” is not a new concept, however, this term became a nearly universal priority last year when diversity and inclusion rose to the forefront of conversations across the U.S. The significance of supplier diversity prompted much of the corporate world to propose action on numerous fronts, from hiring to procurement to sourcing goods and services. This priority has not slowed down and has continued through 2021. Many U.S. companies have established programs that help facilitate sourcing goods and services from Disadvantaged Business Enterprises (DBE), a federal government definition where at least 51% are owned and/or operated by an individual or group that is part of a traditionally underrepresented or underserved population.

This definition of “supplier diversity” should not be confused with the initiatives focused on maintaining a multitude of suppliers for business continuity – ensuring leverage if one supplier or region could not perform its contractual obligations to deliver goods. Today, the definition of “supplier diversity” takes centre stage; the term’s focus has become more inclusive and the desire to work alongside and support more diverse businesses owned and operated by DBEs is growing. How can companies increase supplier diversity and compliance with these initiatives as the new year rolls in? Here are four ways to increase and prioritise supplier diversity across an organisation. 

1. Broaden diversity, equity, and inclusion (DEI) initiatives by including diversity requirements throughout your supply chain

To have a real impact on supplier diversity, organisations must first implement comprehensive, broad-based diversity, equity, and inclusion (DEI) policies. These companywide DEI policies have been limited to recruitment and retention of employees; however, these initiatives can have a wider impact as companies look to be more inclusive in their supply chain and other vendor relationships. The impact can be two-fold. First, companies can look at their Tier 1 suppliers to ensure that it is inclusive of companies owned and/or operated by diverse owners or leaders.  Second, companies often expand the impact of their diversity policies by requiring their Tier 1 suppliers to create their diversity initiatives to increase representation further in the supply chain and require these Tier 1 suppliers to also track those obligations and share data about DEI initiative performance.

2. Identify and manage current supplier diversity commitments

Once in place, DEI-focused supply chain policies can have a broad impact, but only if they are properly defined, implemented, and tracked. Managing contractual templates and contractual obligations will be key in a successful supply chain diversity initiative. For new or renewing supply chain relationships, companies should add contract language with vendors defining these obligations and expectations, including reporting, and tracking performance under the agreement in and compliance with these diversity initiatives. Furthermore, companies must also undertake the exercise of identifying existing agreements where diversity obligations exist and ensure delivery against these commitments.

Organisations must have visibility into which existing contracts contain supplier diversity clauses, however, this exercise when can be laborious when done manually. This is where contract lifecycle management (CLM) becomes an important solution, as these clause audits are far simpler when contracts are digitised and in a central repository. For example, CLM systems fuelled by AI can digitise and parse legacy and third-party contracts to surface supplier diversity clauses and store those agreements in a central, searchable contract repository. This allows for a deeper and more efficient audit when necessary. Once these contracts with supplier diversity obligations are earmarked, companies can then operationalise them in a consistent, repeatable, and auditable way across the organisation to ensure promises are delivered. As the supply chain becomes more diversified, CLM technology will play a critical role in tracking supplier diversity, and ultimately, ensuring that organisation DEI objectives are met.

3. Promote inclusion with simplified supplier onboarding processes

Supplier onboarding has traditionally been cumbersome, time-consuming, and may provide incumbent suppliers an advantage. When not reviewed for bias, inclusion, and diversity, onboarding processes can result in the exclusion of diverse suppliers from participating in the RFP process. Simplified processes do not mean lowered standards for suppliers; rather, it removes obstacles in the process and help support and facilitate the success of these diverse suppliers. Technology can help level the playing field for diverse suppliers. By utilising technology to simplify supplier onboarding processes, organisations can more quickly share supplier policies across their supply chain; facilitate documentation exchange and reporting requirements; monitor compliance against these diversity obligations, and gain visibility into whether suppliers meet a company’s diversity obligations.

4. Derive the most value out of contract data

While contracts are the single source of truth for supplier commitments and relationships, they have historically been under-utilised assets—treated as static documents and filed away after they have been executed. This should never be the case as contracts contain critical business information that defines a company’s supply chain and the rules by which it runs. Fulfilling supplier diversity initiatives across complex business landscapes requires organisation-wide visibility into whom a company is doing business with and on what terms and mechanisms to guarantee terms are being met. Contracts provide this data.

To derive the most value out of contracts, digitising contract processes and connecting contract data to operational systems across the supply chain with suppliers, distributors, wholesalers, and customers should be a priority. CLM will be key to surfacing data-driven insights to support supplier diversity initiatives. For example, organisations can more easily extract performance data about their diverse supplier relationships and track performance against key metrics using AI and robust obligation management technology. Additionally, digitisation and deep integration of enterprise data enable companies to execute category strategies that insert supplier diversity consideration into all their buying decisions.

Supplier diversity success in 2022 and into the future

The prioritisation of supply chain diversity is long overdue. Having a diverse supply chain and developing supplier diversity initiatives to support suppliers from underrepresented or underserved communities provide organisations with a critical advantage, helping to mitigate risk across supply chains, win new business, retain customers, and reinforce brand reputation. As organisations increasingly embrace diversity initiatives in their contractual relationships, CLM technology will play an important role in tracking supplier diversity and ensuring that these initiatives succeed.