Building diversity into the supply chain

Businesses increasingly look to reflect the diversity in their customers andu0026nbsp;employees throughout their supply chains. Experts, taking part in a virtualu0026nbsp;roundtable, consider practical ways to make it happen

Procurement teams have bulging to-do lists. Improve sustainability. Ensure continuity of supply  in the face of new waves of Covid-19. Is it reasonable to add yet another demand – to spend more with diverse businesses or social enterprises?

The answer from a virtual roundtable hosted for this supplement was a  resounding ‘yes.’ Helen Cooper, vice president for procurement excellence  & corporate services for IHG Hotels &  Resorts, which manages almost 884,000  hotel rooms worldwide, says: “We have brands that appeal to everyone, so it’s  important that our supply chain reflects  that diversity as well.”

Angela Qu, chief procurement officer,  Lufthansa Group, adds: “We have a  diverse customer base. We have global operations. It follows that our supply  base should be diverse by default. This  makes our supply chains more resilient  and agile.”

Social reasons, though, are just part of the picture. Participants attested to the  business benefits of working with suppliers whose founders are women, ethnic minorities, LGBTQ, have disabilities or are from other groups under-represented in business. A survey published by banking trade body UK Finance in March reported that  companies with founders from minority  ethnic groups are “very ambitious, report  high growth rates and innovate more than non-ethnic minority SMEs.”

Mayank Shah, founder and CEO of  MSDUK, a non-profit organisation that helps large companies procure from businesses founded by ethnic minorities, says: “Diversity brings different ideas, driving innovation and making the supply chain more competitive.”

However, few companies could say that their spending with diverse businesses  matches these groups’ representation  in society. They face barriers. The UK  Finance study found that companies with non-white founders were refused bank  loans at twice the usual rate, even when  adjusting for factors such as their shorter trading history. (The report said it did not have the data to explain this.)

Shah says new and diverse businesses  also lack network and connections.  “That’s where we as an organisation work to remove those barriers, giving them a platform where they can meet procurement people and decision-makers in  large organisations.”

Raphael Fadiora-Johnson, regional manager at procurement platform Avetta, noted that tender documents are often written with large suppliers in mind.  “Smaller, diverse suppliers don’t have  the ability to meet, say, £10m indemnity  clauses,” he says. “Your organisation’s  procurement directors have to find a way of asking different types of questions.”

We have a diverse customer base. We have global operations. It follows that our supply base should be diverse by default. This makes our supply chains more resilient and agile

Claire Costello, chief procurement officer of Co-op, which operates insurance and funeral businesses as well as its distinctive blue-logo food shops, says her organisation is addressing this head-on. She says: “We’ve spent quite a lot of time over the last 18 months, looking at where can we flex? How do we coach? Where do we need to be open-minded?”

Imran Rasul, chief procurement officer at Nationwide Building Society, notes his organisation, like Co-op, is a mutual that answers to members, not shareholders, and that sourcing from diverse or social  businesses is seen as organisationally important: “We’ve got a wide ambition within our organisation to build an inclusive culture, and we want to replicate that within the supply chain, in the communities we serve.”

As a highly regulated organisation, he  says there can be additional barriers to  becoming a supplier. Yet it has a long history with some suppliers that are run for social good. It has been buying braille services from Scottish Braille Press, part of charity Sight Scotland, for two decades.

However Nationwide is determined to give diverse suppliers a chance to  compete for its information technology spend, one of its largest categories but  also one where regulatory requirements can be particularly challenging for  smaller players. It has signed the Fintech Pledge, an industry framework that helps new suppliers by providing clear communication lines, guidance and feedback.

Participants agreed that top-level backing is vital. Fadiora-Johnson says:  “It’s not enough to do a forum on supplier diversity with half the members of the procurement team and then ask six  months later about how it’s getting on. It has to be continuous.”

It is helpful to be able to highlight the benefits. Cooper reports, for instance, that diverse suppliers showed ingenuity and flexibility when the company was  urgently searching for protective equipment in the first weeks of the pandemic. She says: “It is a great example of where  we have used diverse suppliers and  smaller suppliers to solve critical problems for us as a business.”

As for the difficulty of finding diverse or social suppliers, Qu recalls the sustained efforts made by some procurement teams in the 90s to find qualified  suppliers in Asia. She asks why companies couldn’t use those creative sourcing skills to find diverse suppliers.“We have all this experience; we  shouldn’t forget it when it comes to supplier diversity,” Qu says, adding that diverse firms that lack scale but are otherwise excellent could be introduced to tier one suppliers and thus integrate into the supply chain.

Diverse businesses are not asking  for special treatment – just an equal chance. The ethnic-minority members of MSDUK, Shah says, debate among themselves whether they should mention it in tender documents. Each CPO round the virtual table has  a different approach to measurement, a  sign that every organisation has to tailor  its approach. Some compile detailed numbers. Others opt for the big picture, aggregating spend across diverse firms, social enterprises, and sustainable suppliers – and aim to make that aggregated number increase.

Cooper says data is essential but needs to be seen in context: “It is so much more than just numbers on a page; it is making the change that is right for the business.”

Costello adds though, that it’s important not to get too focused on narrow  categories. For Co-op and others, there is a substantial overlap between encouraging diverse suppliers, encouraging SME suppliers and encouraging innovative  suppliers. “I think of it as being inclu-sive with new suppliers. But with a social lens,” says Costello. “It all comes back  to having that openness of spirit, about doing the right thing and cooperating for a fairer world.”

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