Supplier Diversity as a Business Practice


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Supplier Diversity as a Business Practice

  1. 1. An Assignment on:Supplier diversity as a business practice Submitted by: SudhirGoyal -11022 ChandanPahelwani -11047 Seema Shah -11073 RamdevsinhZala -11099 Submitted to: Prof. SushilChaurasia Page 1 TolaniInstitute of Management Studies
  2. 2. IntroductionDiversity is becoming very important in business strategy throughout the world. Diversity’sscope and levels of implementation differs by geographical territory, and therefore ofteninfluenced by differing local legislative regimes.Diversity’s importance cannot be underestimated. Supplier diversity has now become the mainarea of diversity that involves procurement in linking suppliers as part of the supply chain.How it fits the business agendaSupplier diversity is an integral part of corporate social responsibility and sustainability andtherefore high on the political agenda. It increases competitive advantage forbusinesses.Supplier diversity has become increasingly prominent as firms have recognized theeconomic benefits of broadening their supplier base to include minorities . The supplier diversitystrategy is highly effective framework to show an organization’s responsible procurementagenda as part of its (corporate) social responsibility ethos. Equal opportunities, greater socialinclusion, good race relations, the fostering of local economic development and thediversification of supply risk are the positive benefits of a supplier diversity strategy.DefinitionsIn its Supplier Diversity paper (2006), the Centre for Research in Ethnic MinorityEntrepreneurship (CRÈME) quotes a definition of supplier diversity put forward by the UKEnvironment Agency. It states that: “supplier diversity is a process through which equalopportunities are provided to all businesses to compete.”Already a well-established concept in the U.S. public sector, supplier diversity has become animportant part of supply chain management in corporate America. Supplier diversity involvesthe purchasing of goods and services from businesses owned and operated by visible minoritygroups. Three categories of diverse supplier bases currentlyexist: Minority Business Enterprises(MBEs), WomenBusiness Enterprises (WBEs), and Disabled Veteran Business Enterprises(DVBEs).Whereby,MBEs seems to constitute the largest percentage of supplier diversity focus; forinstance, AT&Ts supplier diversity goal is to have 15% MBE, 5% WBE, and 1.5% DVBEparticipation in its supply chain. Page 2 TolaniInstitute of Management Studies
  3. 3. United States- the beginners of supply diversityUnited States was one of the first countries to formalize a process for managing and promotingsupplier diversity. One example is the New York and New Jersey Minority Supplier DevelopmentCouncil Inc (the Council), established in 1973 as a vital link between major corporations andminority business enterprises (MBE’s). This Council is part of the network of 39 regionalaffiliates of the National Minority Supplier Development Council Inc (NMSDC). The stated aim ofthe Council is to “aggressively seek viable minority suppliers for procurement opportunitieswith its corporate membership”. The Council enables corporations to diversify their base ofcompetitive suppliers. This activity by the NMSDC increases opportunities for Council-certifiedsuppliers and helps facilitate employment and economic development.Challenges for MBE’sIn 2002, NMSDCobservesthat large firms were streamlining their operations by seeking largerfirst-tier suppliers that can deliver high volumes. So following are some of the challenges facedby MBE’s in regards to supplier diversity: Supply chain rationalization has resulted in a severe downsizing of the supply base and a preference of corporations to rely on a few preferred suppliers, often at the expense of MBEs; Since companies are buying from fewer suppliers, average contract sizes are increasing and this makes it difficult for MBEs to compete; The use of modern production systems such asJust In Time (JIT) delivery systems means thatcorporations become even more dependent on afew preferred suppliers; Greater use of electronic ordering may posesome obstacles to smaller MBEs that are competing with larger suppliers; and Higher quality standards may cause problems forMBEs because higher quality standards may require MBE to invest in upgrading theiroperational capabilities. Page 3 TolaniInstitute of Management Studies
  4. 4. Guidelines for corporations for successfully implementing supplierdiversityThere are number of key guidelines for corporations to implement supplier diversity. Theseemphasize: (1) The need for integrating supplier diversity into business goals to build competitive advantage: Supplier diversity can become a source of advantage when firms integrate the programinto their business goals and develop the capabilities to manage them effectively. Bothobjectives can be accomplished by linking supplier diversity to overall organizationalperformance. This can be done by identifying and clearly articulating the goals of the programand developing strategic plans for those goals, including defining the firms performanceexpectations for suppliers and evaluating the programs contributions to the firms overallperformance. (2) The importance of top management support: top management commitment can be defined as top management acceptance ofsupplier diversity as an operational and strategic option. It entails providing visible leadershipon this issue, including the provision of resources that are needed to accomplish the goals ofthe initiative.Top management has toframe supplier diversity in ways that facilitatetheacceptance of the practice by stakeholders. (3) The critical role of supplier diversity champions: a diversity program will benefit from thekey role of an individual whose informalleadershipcan be instrumental in building support for the idea.This sort of person has beenlabeled a champion.Adiversity champion is an individual or groupof individuals that providescritical informal leadershipfor the initiative.Champions can be instrumental in theimplementationof supplier diversity because they oftenpossess leadership qualities. Two ofthese qualitiesare especially relevant: ability to engage in influenceactivities andtransformational leadershipbehavior. (4) The necessity of building a supportive organizational culture: Culture, the sum of shared values, norms, andbeliefs of an organization, expresses afirmsorientation not only to internal stakeholdersbutto outsiders, including suppliers.acorporation shouldcreate a supportive culture in which the program can thrive. For such aculture to be developed, topmanagementneeds to clearly articulate the vision ithas for theinitiative. The business case must be laidout and explained so that employees realize it is intheinterest of the firm, and that diversity is not justsome social program. Expectations should alsobe set regarding what is expected of individualsanddepartments that are charged withimplementingthe supplier diversity program. Page 4 TolaniInstitute of Management Studies
  5. 5. (5) The significance of relationship building: Being a larger buyer does not automatically make a corporation more powerful than asupplier. Even small suppliers can be powerful when there arefew substitutes for their product,their goods and services are critical to the buyers marketplacesuccess, it costs buyers too muchto switch from onesupplier to another due to inbuilt costs associatedwith making the change,or the industry is dominated by a few large companies. Therefore, corporations need to becareful about how theytreat their suppliers. Exchange partners who see the relationship asbeneficial, fair, and equitable will continueto contribute input over the long term. The exchangeceases to exist when rewards are no longerforthcoming or inequities are perceived. Largecorporations can grow relational assets such as trust and commitment by going out of their wayto help develop the operational capabilities of suppliers.Procedure to implement supplier diversity program:Step 1. Ask for help and advice.Step 2.Appoint a supplier diversity coordinator.Step 3. Conduct a supplier survey (to establish thecurrent status and future targets).Step 4. Review your existing policies and procedures.Step 5. Formulate new procurement policy andprocedures.Step 6. Communicate with staff and existing suppliers.Step 7. Develop and implement a training program.Step 8. Communicate with ethnic minority businesses.Step 9. Develop targets and monitor your success.Step 10. Don’t be afraid to celebrate success. Page 5 TolaniInstitute of Management Studies
  6. 6. Example of 3MWe’re committed to proactively identifying small, minority-owned and woman-owned sourcesfor the goods and services 3M needs. We’re working to solicit capable firms, and executeorders and contracts with these firms as required to support 3M business needs.Here’s why 3M pursues relationships with small, minority-owned and woman-ownedbusinesses:Diversity is a business strategy for growth.The minority population is the fastest growing segment in the United States and will accountfor a significant share of future consumer growth. Diverse suppliers are one way to accessemerging diversity market segments.Diverse suppliers reenergize our business.Diversity in our supplier base helps keep 3M open to innovative ideas and new ways of doingbusiness, including offering unique strategies for reaching diverse markets.Our suppliers become our customers.Diverse suppliers not only help us market more effectively to diverse consumers – they are ourcustomers.Lower costs and faster response help the bottom line.Minority-owned and woman-owned businesses often are smaller and more cost-efficient dueto lower operating costs. They also tend to be nimble, which allows them to quickly respond tobusiness needs. Page 6 TolaniInstitute of Management Studies
  7. 7. ConclusionSupplier diversity is being implemented globally as evidenced by the legislation. Its scope variesgreatly. The development of supplier diversity ,set against a background of increasingglobalisation,the acceleration of legislation and stakeholderpressure,suggests that it will beessential for businesses and public sector organisations.Barriers to competitiveness,similar to those currently experienced by small and medium sizedenterprises,will remain.In the UK,ethnic minority businesses are still developing their capacityto enable them to take full advantage of procurement contracts.These businesses are obligedto compete in the global marketplace,where other suppliers may be better placed to meetcost,quality and deliverytargets.However,the capacity will be developed to enableorganisations to meet supplier diversity objectives in line with their organisational objectives. Page 7 TolaniInstitute of Management Studies