By Lamont Robinson, CEO, Robinson LaRueCo Consulting

Building a supplier diversity program is a great way for corporations, private equity firms and other companies to support the economy while reducing costs. Lamont Robinson outlines how these programs work and how to measure their success.

Companies and organizations use supplier diversity programs to focus on purchasing products and services from for-profit companies that are at least 51% owned, operated and controlled by people from historically underrepresented groups and from companies classified as small businesses by the Small Business Administration. The initiative started in 1969 through an executive order signed by President Richard Nixon, who was seeking ways to strengthen the economies of predominately African American neighborhoods, in addition to improving the support of Black voters for his re-election campaign. Since then, corporations have adopted supplier diversity programs to improve their supply chains by adding viable procurement options. The benefits of supplier diversity on the overall economy are profound. But how do these programs benefit business owners and is there a way to measure their success?

The benefits of supplier diversity, or the “6 Cs,”¹ focus on costs, competition, customers, community, customization and compliance. As corporations continue to build supplier diversity programs, they expect their largest vendors to subcontract to diverse businesses. Because of this, vendors establish supplier diversity programs to strengthen their relationships with customers.

Having a successful supplier diversity program is often a differentiator for the retention or recruitment of customers, especially those that focus on supplier diversity. If a company’s competitors are obtaining customers through supplier diversity, that company must establish its own program to stay competitive. If competitors are not focusing on supplier diversity, a company could secure opportunities by building a program and targeting customers focused on the initiative to comply with government contracts.

Small and diverse businesses are typically nimbler than their larger competitors and can make decisions faster.² This flexibility often allows those businesses to introduce innovation at a faster rate. Small and diverse businesses are also often hungrier than larger companies, which allows them to customize solutions that would take longer for large, bureaucratically impacted organizations.

MEASURING SUCCESS
Many companies, large and small, struggle with how to measure the success of a supplier diversity program. The best question to ask is how you want to measure performance. The most popular metric is calculating a
company’s percentage spend with diverse suppliers versus its overall spend. While those are valuable numbers, additional key performance indicators (KPIs) are important, including:

1. The number of viable diverse suppliers
2. Cost reduction initiatives and savings realized by diverse suppliers
3. The number of diverse suppliers awarded opportunities
4. Time savings through innovation from diverse suppliers Understanding what and how success will be measured is critical to the success of a program, as the KPIs will motivate employees.

Ultimately, these goals represent the values of a company, so ensuring the alignment of KPIs and values is essential. Once those measurements are published, competition will begin to measure in the same areas.

INCREASING SUPPLIER COMPETITION
Corporations can apply the “6 Cs” of supplier diversity to find many competitive advantages. Knowing a corporation must meet its diverse supplier spend goals raises all competition because it requires all viable
competitors to get aggressive and think outside the box by either offering savings or engaging in affordability initiatives to reduce their own costs to better compete with diverse businesses that may be more agile. Supplier diversity also forces people to get creative, which helps the company, diverse suppliers and, ultimately, communities.

Completing a full cost reduction analysis is an important aspect of lowering costs. To accomplish this, companies should analyze their current diversity spend, identify areas where it could be increased and find areas for spend opportunities. This analysis can suggest areas for competition and/or alternative suppliers. This can help a company identify opportunities for cost reduction initiatives, such as process flows or material changes, or help a company create a competitive environment in which bidding suppliers are forced to maintain lean systems.

HOW IS SUPPLIER DIVERSITY IMPACTING THE FINANCIAL SECTOR?
The murder of George Floyd in 2020 sparked a movement that galvanized diverse groups in unforeseen ways. A significant increase in corporations launching supplier diversity programs led to an increase in memberships with diversity advocates such as the National Minority Supplier Development Council (NMSDC), the Women’s Business Enterprise National Council (WBENC), the National Gay & Lesbian Chamber of Commerce (NGLCC), Disability:IN, the National Veterans Business Development Council (NVBDC) and others.

While this movement was somewhat tempered by an anti-diversity effort from a group of attorneys general in 2023, corporations continued to move forward in finding ways to utilize supplier diversity to increase jobs in underserved communities. This resurgence in supplier diversity has impacted the financial sector. Multinationals such as JPMorgan Chase made commitments to increase their spend with Black, Hispanic and Latino suppliers, while large minority firm Ariel Capital launched a fund to create minority businesses of scale. These efforts will help to expand diverse businesses to better support global companies and communities. An increase in diverse suppliers supporting the financial sector will lead to greater innovation in the types of products and services created by those diverse suppliers.

Private equity firms could greatly benefit from focusing on supplier diversity whether for their own usage or to support their portfolio companies. As previously stated, engaging with diverse suppliers increases cost savings. Since private equity transactions typically involve debt, supplier diversity can become a platform and strategy to increase profits for private equity firms as they assist portfolio companies with integrating supplier diversity into their supply chains. Building supplier diversity programs also would allow private equity firms to establish ready-made solutions for future acquisitions. In addition, having
formal supplier diversity programs would provide positive community and public relations for private equity firms while introducing innovation to their portfolio companies. High growth, innovative diverse suppliers also could provide acquisition targets for private equity firms.

Over the next few years, more Fortune 500 companies will launch supplier diversity programs while increasing requirements for their largest suppliers to partner with diverse businesses. It will be vital for companies to invest in building supplier diversity programs. Corporations must budget for tools to identify spend with diverse suppliers, create a registration portal for prospective diverse businesses and source for diverse businesses to meet its supply chain needs. An increase in the investment and awareness of supplier diversity will produce greater financial returns for all parties involved while building stronger, dependent communities in historically underserved areas across the world. •

¹ Lamont Robinson | The Six C’s of Supplier Diversity – Una
² Small Company vs. Big Company: What’s the Difference? | Indeed.com

Lamont Robinson is CEO of Robinson LaRueCo Consulting (RLC), a company that helps corporations create supplier diversity programs