Supplier diversity: A guide to inclusive procurement

Supplier diversity can serve as a key component to achieving your responsible purchasing and compliance goals. But the process of researching, contacting, and vetting vendors can quickly become time- and labor-intensive for procurement teams of any size, which makes the execution of a supplier diversity program feel overwhelming.

Despite the challenges, achieving supplier diversity is within reach—your team just needs a solution and strategy to power your diversity program. With both technology and data on deck, you can build a network of diverse business partners who are equally committed to scaling operations and maximizing their impact.

Keep reading to learn how to create a foundational, data-driven strategy that elevates diverse businesses in your network.

What is supplier diversity?

Supplier diversity is a procurement strategy that intentionally includes businesses owned by underrepresented groups in your sourcing processes and purchasing decisions. These groups can include diverse businesses, woman-owned businesses, veteran-owned businesses, LGBT-owned businesses, and disability-owned businesses.

A supplier diversity program sets organizational targets, defines qualifying supplier categories, creates processes for certification verification, and tracks diverse supplier spend as a percentage of total procurement.

Supplier diversity is both a values-based practice and a business strategy. Organizations with mature programs report stronger supply chain resilience, more competitive pricing, and improved relationships with the customers, employees, and investors who prioritize inclusive business practices.

Types of diverse suppliers

Diverse suppliers fall into several certified categories, each defined by ownership and a recognized certifying body.* Here are the main types you can include in a supplier diversity program:

• Diverse businesses (MBE): Businesses at least 51% owned and operated by members of a racial or ethnic minority group, certified through the National Minority Supplier Development Council (NMSDC) or state-level programs.
• Woman-owned businesses (WBE/WOSB): Businesses at least 51% owned and managed by women, certified through the Women’s Business Enterprise National Council (WBENC) or the SBA’s Women-Owned Small Business (WOSB) program.
• Veteran-owned businesses (VOB/SDVOSB): Businesses at least 51% owned by veterans, with a separate certification category for service-disabled veteran-owned small businesses (SDVOSB) through the VA and SBA.
• LGBT-owned businesses: Businesses certified through the National LGBT Chamber of Commerce (NGLCC) as at least 51% owned, operated, and controlled by LGBTQ+ individuals.
• Disability-owned businesses (DOBE): Businesses certified through the SBA as meeting small business size standards and owned by socially and economically disadvantaged individuals.
• Small and disadvantaged businesses (SDB/8(a)): Certified through the SBA as meeting small business size standards and owned by socially and economically disadvantaged individuals.

Responsible sourcing refers to procurement practices that consider environmental, social, and ethical factors alongside traditional metrics such as cost, quality, and delivery performance.

Supplier diversity can entail maintaining a network of vendors of all sizes and ownership, including small, minority, women, LGBT, and veteran-owned businesses. It's a growing priority for organizations across industries. The National Minority Supplier Development Council, which connects certified MBEs with corporate members, reports that certified businesses in its network generate $599.7 billion in annual economic output.

Benefits of supplier diversity

By expanding your supplier network to include minority-owned businesses, your organization can help support economic growth in local communities and bolster your resilience to supply chain challenges.

Below are some ways that these factors can transform supplier diversity into a critical part of your operations:

Enhance resilience and reduce risk

If your procurement operations rely on just a few primary vendors, you face a greater risk of disruptions should one fail. That's because you don't have a backup vendor to turn to if your primary is suddenly unable to meet your organization's needs. In this situation, a resilient network means your team can quickly pivot in an ongoing interruption or in recovery from one.

Supply chain resilience and risk reduction are especially crucial for modern procurement teams that face disruptors like a pandemic or geopolitical shifts. The best way to mitigate these potential disruptions is by planning ahead and building a contingency plan if your supply chain runs into a barrier. A diverse supplier network can help you do this.

With a diverse supplier network, your team can swiftly recover after an interruption by accessing a large base of vendors. If one supplier has to stop its operations, you can switch to a secondary vendor to reduce the impact your primary supplier's setback has on your network.

Uncover SRP and reputation benefits

To achieve your socially responsible purchasing (SRP) goals, you need supplier relationships that align with your values. Say, for example, your team sets a goal to maintain a supplier base that contains 30% locally owned small business vendors. A diverse supplier network helps you maintain this percentage because you have a wide range of vendors and can prioritize local ones.

In addition to your internal SRP objectives, it's important for your team to monitor expectations from external partners. Investors, regulators, or prospective suppliers often expect inclusive sourcing transparency as they most likely have their own internal responsible purchasing goals. Being transparent with your responsible purchasing mandates make it easy for these external parties to see how your SRP goals line up with their objectives.

However, to demonstrate this level of transparency, your team must first have in-depth visibility into your suppliers, their diversity qualifications, and how these factors impact your SRP goals or requirements.

For some industries, supplier diversity is a compliance requirement, not just a nice-to-have. That said, it's a good idea to familiarize yourself with the rules your organization must follow to comply with these regulations.

Attract suppliers and customers with inclusivity

Because an organization's purchasing practices and supply chain network can impact everything from the environment to an individual's health, supplier diversity initiatives are becoming an increasing priority for many industries. However, this means your potential procurement counterparts must have responsible purchasing mandates, just like you do.

By building a reputation for prioritizing underrepresented suppliers and backing up your advocacy with data, your organization may attract high-value,long-term relationships. As a result, your contracting opportunities can expand, giving you more options for operational growth, resilience, and financial security.

Common challenges with supplier diversity

It's easy to identify the benefits of supplier diversity, but executing on your strategy to build a diverse supplier network can prove to be more challenging. Here are the most common obstacles your team may face when initiating a supplier diversity program:

Manually tracking supplier certifications

No matter the size of your network, relying on manual workflows to track and maintain a record of supplier certifications is prone to error and time-consuming. The process can be even more difficult when certification requirements change or a supplier qualifies for a new one, shifting how they align with your goals and values. Managing all this by hand for one vendor is complicated enough. But attempting to do so for a wide network of diverse suppliers is often frustrating at best.

Sluggish approval chains

Without automation, most approval workflows are slow and cumbersome. Additionally, small suppliers often have tight budgets, which means they could be less inclined to seek procurement opportunities with your organization as it could pose a greater risk to their operations and finances.

On your side of the procurement process, lengthy and tedious approval workflows don't have the flexibility to compensate for delays or provide enough time to establish a new supplier connection. If your team doesn't feel like it can spare time or resources to find new diverse vendors, it could make them gravitate toward sticking with known suppliers. However, doing so doesn't necessarily mitigate risk since you could still experience delays due to a primary vendor failure.

Missing or inaccurate supplier data

A supplier diversity program depends on accurate data regarding your suppliers' certifications and your organization's purchasing habits. However, if you use fragmented systems, your dataset could be missing information, containing duplicates, or presenting errors, which makes it untrustworthy.

Inaccurate supplier data also makes managing your network harder because your team lacks the critical insight it needs to make good decisions and achieve your diversity goals. Without accurate data, routine tasks like reconciling supplier lists, invoices, and spend categories are more likely to be error-prone or experience costly delays.

Tools that simplify supplier diversity programs

Understanding common supplier diversity pain points and how they appear in your network is the first step in diversifying your vendor base. Once you pin them down, consider the following digital tools and procurement systems integrations to simplify your supplier diversity program:

Supplier tagging and certification tracking

Your team can simplify strategic sourcing by leveraging digital tools that tag certified suppliers as minority-, women-, LGBT-, or veteran-owned, which makes it easy to find and track these vendor certifications. That way, your buyers can quickly consider their options and purchase from a supplier that meets your organization's diversity goals.

Auto-matching buyers with certified diverse suppliers

Automation technology can use rule-based tools to connect buyers to qualified, diverse suppliers by setting purchasing guidelines that nudge them toward those preferred vendors. This type of software can reduce the pain points that manual processes create, such as delays or accidental errors. Auto-matching buyers and certified diverse suppliers also helps you better manage tail spend.

Reporting dashboards for stakeholders

Robust reporting dashboards shed light on your suppliers and their certifications, which helps your team get more control over which suppliers you purchase from and how to select new ones. A dashboard is also a straightforward way to demonstrate to stakeholders the impact of your supplier diversity efforts. That way, you can show real-time return on investment (ROI) and maintain support for the program.

Best practices for supplier diversity

The following best practices can help you operationalize your supplier diversity plan:

Empower buyers with training

For buyers to purchase in compliance with your supplier diversity program, they need to know its goals and conditions. When buyers understand these areas, they may be more likely to make purchases that help your organization achieve its goals.

However, it must also be simple for buyers to comply with diversity purchasing guidelines. Overly complex or tedious purchasing processes can dissuade buyers from sticking to your purchasing guardrails.

Your team can use procurement technology to curate a positive experience for your buyers and make compliance possible.

Take Amazon Business' Guided Buying as an example. It provides buyers with prompts and filters that surface approved and certified suppliers that meet their purchasing needs. This feature also saves teams time and reduces confusion that could arise from sourcing vendors without guidance.

Amazon Business also aggregates purchasing data within a shared dashboard. This data fosters alignment among procurement, finance, and SRP teams, which is crucial to the continued success of any supplier diversity program.

Simplify supplier diversity with integrations

A quick win for your organization can be replacing manual tracking and spreadsheets with technology that identifies and sources diverse suppliers.

Buyers can filter product results by certifications, which makes it easier for them to comply with internal purchasing goals and regulations. Both of these features automatically update supplier certifications, which reduces your administrative workflow when verifying a vendor and ensures your team is moving toward organizational goals.

Another key part of simplifying diverse supplier selection is monitoring their performance. Amazon Business Analytics helps your team identify the diverse suppliers so you can consider their reliability when choosing one to work with. Vendor performance also indicates the potential for a long-term relationship. From the data, your team can understand if the potential supplier maintains operations that promote scalability and collaboration in a way that supports organizational growth for both parties. Analytics provide insight into a vendor's preparedness for this kind of operational acceleration and long-term collaboration potential.

Use transparent reporting to track progress

Analytics provide concrete proof that your supplier diversity program is making a positive impact. These insights give you crucial visibility so you know where to make adjustments to your strategy and when. But visibility is also important for maintaining leadership support and proving ROI, both of which are critical to gaining executive buy-in on the program.

To have this data on hand, your team will need robust technology that's able to extract spend insights from across your operations and consolidate it. To help teams accomplish this, Amazon Business offers Spend Visibility (a Prime Business feature). This feature automates diversity spend tracking and collects the data across categories and business units into an easy-to-read format. That way, you know precisely how you use every dollar and if that spending aligns with your supplier diversity objectives.

As a general rule of thumb when setting these goals, focus on measurable KPIs, such as percentage of maverick spend, number of certified suppliers that you onboard, and Tier 2 supplier participation. Each KPI illuminates part of your process and program maturity.

For example, by tracking your Tier 2 suppliers, you'll gain insight into your Tier 1 suppliers' supply chain. This knowledge enables you to extend diversity expectations to your prime contractors, thereby instilling responsible purchasing guidelines from a product's origin to destination for every purchase. To make sure this information is readily available, your team can record it in a robust reporting dashboard. Doing so simplifies sharing your progress with leadership, SRP boards, and auditors, which builds accountability and helps sustain momentum.

Assess maturity and scale your program over time

A supplier diversity program grows with your organization. Yet, as your plan ahead for program long-term growth, you must first know your organization's current maturity. You can do so using this three-stage maturity model:

• Foundational: As a baseline, your team needs to implement procurement technology to record supplier performance, monitor spending, and improve network visibility.
• Developing: Once you have a firm grasp on your network, the next step is leveraging automation to streamline processes. Automation makes enforcing your purchasing mandates easier.
• Advanced: The final stage includes fully integrating all your procurement systems and implementing Tier 2 tracking. These two steps will grant you even more control and visibility over your operations.

As you determine your network's current maturity, it's important to think of supplier diversity as a long-term, scalable journey. For it to grow with your organization, your team needs to monitor, track, and assess diverse supplier data often. That way, you can make sure it always operates in a way that supports your organization's maturity objectives and adheres to compliance mandates.

Build supplier diversity with Amazon Business

With the right approach, a supplier diversity program can help you achieve your responsible purchasing goals and build a more resilient supply chain. Your team can increase the odds of a successful supplier diversity program when you connect your strategy with an agile procurement solution.

The key is implementing a solution that simplifies supplier diversity rather than adding complexity. From real-time supplier certification tracking to robust analytics dashboards, Amazon Business can support your supplier diversity program while remaining flexible as you scale your operations.

Supplier diversity doesn't have to be complex. With the right technology, your team can make inclusive sourcing second nature. To learn more, contact Amazon Business.

* Note: Amazon is not a certifying body, and does not assist in obtaining certifications. Sellers determine their own eligibility for a certification and are responsible for obtaining the appropriate supporting documentation. Any purchasing preferences or decisions are your responsibility and are set by your organization's administrators and reflect your organization's purchasing policies - not Amazon's. Amazon does not make purchasing or contracting decisions on behalf of buyers.