The Benefits of Supplier Diversity

In the United States, minority-owned businesses represent 21% of all businesses and receive about 6% of all business revenue.

Stated differently, there is a large disparity between the percent of total revenue received by minority-owned firms and the percent of all firms in the country that are minority-owned.

The disparities that exist for minority business owners are rooted historically in the unequal treatment they experienced in all spheres of life; including economic, social, political, and legal.

The various forms of inequality have been documented, to  greater or lesser extent, in the exclusion of minorities from equal access to government contracts, private sector markets, corporate supply chains, and most frequently in access to financing, credit and bonding.

One particular area of concern is the legacy of discriminatory treatment in business-to-business relations.  In the United States, the constitutional principles have helped to guard against wide disparities in the treatment of minorities in government contracting.

As a result, disparities in the award of government contracts have narrowed over time.  However, these constitutional provisions do not apply to all business-to-business transactions in the private sector.

As a result, there continues to be large disparities in the use of minority-owned businesses in the private sector, although the gap has narrowed over time.

This narrowing is because major companies have developed “Supplier Diversity Programs” as part of their purchasing strategies.  Most of these programs are intended to diversify the companies’ supplier clientele, provide new opportunities to under-utilized firms, and encourage Tier I and Tier II vendors and suppliers to work with minority-owned firms.

Corporations have introduced supplier diversity programs for several reasons.  First, some companies recognize the importance of implementing business practices that  reflect the markets they serve and as a result, promote the growth and development of minority-owned businesses.

Second, companies are increasingly recognizing the value potential, growth and market opportunities that exist in under-served minority communities and have devised programs to assist them in tapping those markets.

Third, some companies are driven to adopt supplier diversity programs because of real or threatened consumer boycotts or political or economic pressure.

Fourth, some corporations have partnered with minority firms to pursue government contracts more successfully, especially in jurisdictions where minorities have significant political influence or where minority business programs operate that mandate the use of minority subcontractors.

Why is it important to establish supplier diversity programs?

  • By doing business with diverse suppliers, corporations make a significant statement about their commitment to support the development of minority-owned businesses, promote minority employment and enhance the state of minority communities and the general economy as a result.
  • Supplier diversity programs contribute to stronger corporate-community ties.  This builds greater brand loyalty among minorities, which translates into competitive advantages for the corporation in the fast growing minority consumer market.
  • Supplier diversity programs allow minority businesses to increase their capacity and competitiveness and thereby lower the corporation’s supplier costs and increase its efficiency and profitability.
  • Supplier diversity programs allow businesses to gain a competitive edge in their emerging minority consumer market and identify new business opportunities.
  • Several years ago, Fortune Magazine found that the “50 Best Companies for Minorities” outperformed the S&P 500; this finding supports the argument that increased productivity is an important benefit of greater diversity, and valuing and managing diversity is a bottom line issue for many corporations in today’s highly diverse marketplace.