Supplier diversity in Europe

IMPLEMENTING

INCLUDING

Supplier diversity

implementation supporting tool

S u p p l i e rd i v e r s i t y

Written by Alis Sindbjerg Hemmingsen

I N E U R O P E

IMPLEMENTING SUPPLIER DIVERSITY IN EUROPE- CREATING A MORE AGILE SUPPLY CHAIN AND STRONGER RELATIONSHIPS WITH YOUR SUPPLIERS

My name is Alis Sindbjerg Hemmingsen. I am a (re-sponsible) procurement thought leader and compa-ny owner of Responsible Procurement Excellence. In practice, this means that I am a professional business blogger within procurement, and expert consultant, facilitator and speaker.

My mission is to help you grow a (responsible) ap-proach to procurement and supplier innovation and achieve excellence within your own organization, by making resources and best practices accessible for the greater good. I consider supplier diversity a part of the responsible procurement agenda.

When large organisations make the conscious and active decision to diversify their supply chain, there are normally many positive payoffs. Companies that have implemented supplier diversity programs say that the payoff has come in the form of stronger relationships with their supply base, new business opportunities and a more agile supply chain.

You should read this e-book if you are a procurement or Corporate Social Responsibility (CSR) profes-sional looking for ways in which you can success-fully implement supplier diversity within your own organisation, thereby creating a more agile supply chain and stronger relationships with your suppliers.

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A STRUCTURED APPROACH TO SUPPLIER DIVERSITY CAN HELP YOUR COMPANY:

• Create stronger relationships with your suppliers

• Create a more agile supply chain

• Spread supply chain risks

• Ensure you are able to respond to the ever-changing external environment

• Give you market knowledge and market goodwill

IF YOU ARE A PUBLIC ORGANISATION, SUPPLIER DIVERSITY CAN:

• Help you meet your legal responsibilities

• Improve your dealings with diverse type of suppliers

• Contribute to local economic development

You can then make the informed decision to commit yourself to capturing the abundant business benefits of diversity in the supply chain.

By reading this e-book, you will gain a basic under-standing of what supplier diversity is all about, as well as the potential benefits not only for your own organisation, but for society at large. I will also share with you key implementation tips, as well as the chal-lenges that I have encountered while working with supplier diversity.

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TABLE OF CONTENTS

1. What is supplier diversity?

2. Why care about supplier diversity?

3. Supplier diversity: Europe vs. USA

4. Which “diverse” suppliers?

5. Key benefits “the carrots”

6. Challenges of supplier diversity

7. Implementation tips for success

8. Finding the right diverse suppliers

9. Need more inspiration?

02© Responsible Procurement I/S · www.responsibleprocurement.dk

1. WHAT IS SUPPLIER DIVERSITY ALL ABOUT?

Supplier diversity involves two companies actively working to integrate under-utilized businesses into their procurement processes, strategies and deci-sions. You could also say that supplier diversity is a broad concept, describing the inclusion of groups that have traditionally found it difficult to break into the systems that large organisations have set up to buy in goods and services.

Supplier diversity is also considered to be a proactive activity undertaken by large procurement organisa-tions to ensure that all relevant potential suppliers have the fair and equal opportunity to compete for business within their supply chains.

Typically, companies implement supplier diversity because they have to meet customer mandates or federal supplier requirements.

Supplier diversity does not guarantee work to spe-cific business groups. Rather it provides a platform of equal opportunities on which potential suppliers compete and win or lose. Neither is supplier diversity about positive discrimination, political correctness or taking action in favour of one group rather than the other. It does not involve extra bureaucracy or over-complicating procedure.

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DIVERSE SUPPLIERS COULD BE:

• Small businesses (0-50 people) or medium sized businesses, or Small and Medium Enterprises (SMEs) (50-249 people)

• Local businesses

• Underrepresented businesses (ethnic minorities, veterans, women, immigrants, disabled, lesbian, gay, bisexual and transgender people).

• Not for profit sector

• Organisations based in specific, economically disadvantaged communities

• Social enterprises

• Sheltered workshops employing disabled people

2. WHY CARE ABOUT SUPPLIER DIVERSITY?

Organisations will continue to be increasingly subject to public scrutiny of their actions, practices, policies and ethics. Pressure from social pressure groups (think tanks, trade organisations etc) will continue to be extremely influential, with a great impact on reputation. As CSR moves steadily up political and public agendas, organisations will be called upon to demonstrate their social credentials in a variety of areas. Procurement professionals can contribute to this process by considering the ethical aspect of the supply chain, including the question of guaranteeing equality of opportunity in decisions about sourcing.

The face of Europe is changing. For example, people are living longer, not only changing the age demo-graphic, but also yielding an increase in the numbers of people with disabilities. Patterns of settlement among ethnic minority immigrant populations are growing and also changing, reflecting in part the na-ture of the global economy. Society is more tolerant, which is reflected in equality legislation. Gay and lesbian people, for example, can now be more confi-dent and open about their identities, what they want, and what they aspire to. This impact on the nature of the market place and the needs and preferences of customers and consumers in relation to the goods and services they need and buy.


Procurement plays a key role in the need to respond to this changing external environment and obtain the best strategic fit. Organisations must produce prod-ucts and services that are appropriate to an increas-ingly diverse market place, as well as have the ability to find the best suppliers from a diverse supplier base. Failure to respond in this changing world may lead to strategic drift, loss of competitive advantage, as well as a drop in market share. By implementing supplier diversity procedures businesses can stay aligned with the changing market place.

As a matter of fact, the European SME community is becoming increasingly diverse. Ethnic minority busi-nesses and immigrants have become more estab-lished and are now providing products for the wider society. The number of women-owned businesses is steadily increasing. Making this link to the nature of diverse markets and accessing the widest possible pool of potential suppliers is an important part of the supply chain equation.

SMEs form a substantial proportion of European businesses. For example, they employ over 75 million people across Europe and contribute to over 50% of EU GDP. They are a vital part of the economy as creators of wealth and employment.Policy makers and politicians strongly believe that working with SMEs and diverse suppliers in general can have the spin-off effect of speeding up the inte-gration of marginalised groups, helping to regener-ate communities and encourage new entrepreneurs.Legislation is a commonly used excuse as to why supplier diversity cannot be implemented. Typically though, European and national legislation are totally compatible and therefore a poor excuse. If you want to explore your country’s legislation on that aspect, I am sure you know where to go, and so this topic will not be covered further in this e-book.

3. SUPPLIER DIVERSITY: EUROPE VS. USA

4. WHICH “DIVERSE” SUPPLIERS?

Supplier diversity is more advanced in the USA compared to Europe. Aware-ness levels are greater and practice is more widespread and more embedded in US business culture than in Europe. Also you need to be ware of the following (as described in Handbook on Supplier Diversity in Europe, published by Sup-plier Diversity Europe/Crème/Migration Policy Group):

Which type of “diverse” suppliers you should focus on depends very much on the nature of your business. You will have to develop a business case to make a proper evaluation. The business case could be qualified by organisations speak-ing on behalf of the group of diverse suppliers.

There is, however, a shift in focus when it comes to supplier diversity, from working with all types of supplier diversity “groups”, to focusing only on SMEs. The reason for this is that billions of dollars of new business opportunities cre-ated by large corporations somehow still cycles back, remaining in the hands of majority owned companies.

The argument for this effect is quite logical. Whenever diverse businesses have to hire, they usually require high technical skills, college degrees and sub-ject-matter expertise. These are not skills found amongst the unemployed, un-deremployed and under educated populations in our economically depressed communities. So there simply is no new job creation, and wealth building only goes to business owners.


• EU legislation promotes transparency, openness and equality of opportunity for all in procurement, rather than goals.

• The legislative and cultural acceptability of requesting and capturing data, particularly around ethnicity, is quite different in Europe compared to the USA.

5. KEY BENEFITS – “THE CARROTS”

There are several benefits of implementing supplier diversity.

1 STRONGER RELATIONSHIPS WITH SUPPLIERSCompanies that have implemented supplier diver-sity programs say the payoff has come in the form of stronger relationships with their supply base, new business opportunities and a more agile supply chain.

Johnson Controls who are a supplier to GM, and recognised as supplier diversity leaders, have gained business because of their supplier diversity approach. Below is a quote from Industry Week, from Chuck Harvey, the company’s vice president of diversity and public affairs:

“GM was looking to increase the minority-produced content of its vehicles. Johnson Controls was com-peting with other companies on seat design, pricing and other typical bidding points. To differentiate itself, Johnson Controls approached GM armed with consumer research that Cadillac was a popular vehi-cle in some minority communities.

Johnson Controls offered to form a joint venture with a minority-owned firm to help GM achieve its minority-produced content goals. The joint venture


became known as Bridgewater Interiors LLC. John-son Controls won the business from GM, and Bridge-water now conducts business with several other large automakers.

It was a great way for us to figure out how to do something that was important to our customers and to do it like nobody else had done it. We have a couple of joint ventures now similar to this”.

2 SMALLER BUSINESSES RESULT IN A MORE AGILE SUPPLY CHAINFederal diversity requirements mean that compa-nies such as Lockheed Martin Corp. must search for companies classified as minority-owned or small businesses to provide a percentage of their content.

“These smaller companies are often more nimble and innovative than larger suppliers, says Nancy Deskins, Lockheed Martin’s director of corporate agreements and supplier diversity.

“When you look at the passing of Steve Jobs and how he started his business in the garage of his parents’ home,” continues Deskins “what these small businesses do is really bring innovation to our corpo-ration in a much faster method to market than a real large corporation like Lockheed Martin might be able to do.”

3 ABILITY TO RESPOND TO A CHANGING EXTERNAL ENVIRONMENTLarge purchasing organisations need to respond to the ever-changing external environment and achieve the best possible strategic fit. They need products and services that are appropriate to an increasingly diverse marketplace, and to be able to find the best suppliers from an increasingly diverse candidate pool. Supplier diversity can help them achieve all of this. Increasingly, such organisations are also being asked to respond to questions referring to supplier diversity in contracts and tenders.

5. KEY BENEFITS – “THE CARROTS”

4 MARKET KNOWLEDGE AND GOODWILLSupplier diversity offers procurement organisations the opportunity to build stakeholder relations. Cer-tain consumer groups may choose to buy only from companies who are prepared, in turn, to buy from suppliers owned by people like them. Making supply chain opportunities accessible to a wider range of suppliers can also generate goodwill and market knowledge.

5 SPREAD OF RISKSupplier diversity can deliver improved organisation-al performance. Cost control and reduction of risk


PROCTER & GAMBLES CPO RICK HUGHES NOTES SOME KEY POINTS ON SUPPLIER DIVERSITY (PROCUREMENT LEADERS ARTICLE):

• It has been proven that diverse teams of employees can out-perform homogenous teams. Having a diverse employee base, which mirrors the pool of recruiting talent for a company, is an objective for any company of scale. This principle should also apply to the supply networks.

• SME’s (versus large multinationals) are often more responsive, and can innovate and iterate quickly.

• For us, supplier diversity is part of ‘responsible sourcing’, which includes other elements of supply management like stewardship, environmental sustainability and social responsibility & compliance.

• We never know when the next Intel or Microsoft is being formed, and a diverse supply base can bring new capabilities and competencies to help drive our innovation, sales, and profits.

can be achieved by widening the pool of potential suppliers. If procurers are to be sure that they are ac-cessing the widest possible pool of potential suppli-ers, they need to ensure that information about their procurement opportunities is spread through more varied routes than they might have relied on previ-ously, in order to reach the diverse applicant pool.

There might be a previously unknown supplier, a member of a business network with whom your organisation does not normally engage with, who offers you a competitive advantage. If you do not reach out, your competitor might.

Within responsible procurement only a few mention the risk associated with a less educated workforce, higher unemployment, increased poverty levels and a lowered standard of living. In reality, of course, it is a high risk.

6. CHALLENGES OF SUPPLIER DIVERSITY

1 LESS MATURE POLICY AND PROCEDUREThe use of diverse suppliers usually involves chang-ing the way you procure. Diverse suppliers as a rule are smaller, carry lower levels of insurance, may not have mature business policies and procedures, and may be put off if you ask them to participate in a complex tendering process.

2 LACK OF INFORMATIONYou should be aware of the fact that the main barri-ers to engaging with diverse suppliers are a lack of knowledge and information, from simply awareness as to the existence of such companies, to how to


THERE IS A LOT OF “BEHIND THE SCENES” WORK IN ORDER TO MAKE THIS HAPPEN, INCLUDING.

• Setting up fields in your purchasing system to accommodate supplier diversity classification.

• Identifying diverse suppliers in your system and updating their profiles with the appropriate diversity classification.

• Revising your supplier registration process so that the appropriate diversity classification is applied to new suppliers entered in the system.

• Having your information systems specialists create custom reports based on the entries in the supplier diversity classification fields.

best contact them and include them in your busi-ness. For diverse suppliers another typical barrier is that they do not have access to the information about what is being bought. It is also a challenge for many diverse suppliers to understand how to demonstrate compliance or how to market their services or competence in the procurement process. Hence, they will never have the chance to fully par-ticipate in the process.

3 DECIDING WHAT CONSTITUTES A DIVERSE SUPPLIERWhile this may seem like a no-brainer, it is actually

very important to think through the options at the very beginning. Not recognizing one supplier group as a diverse supplier can cause problems later on, such as negatively impacting your year-over-year comparison of metrics.

4 TRACKING THE USE OF DIVERSE SUPPLIERSThere’s an old business saying: “What gets measured gets done.” So to ensure the actual use of diverse suppliers, you need an easy way to determine how much your organization is spending with them.

• In addition, you must also strategize how to handle “double counting” of supplier diversity spend. Double counting can occur when doing business with a supplier that qualifies for two or more diversity classifications, such as a supplier that is both a woman-owned business and a minority-owned business.

You need to decide whether to pick one of those classifications for reporting purposes in accordance with a hierarchy, divide the spend among the classifications, or report the whole amount in multiple categories.

7. IMPLEMENTATION TIPS FOR SUCCESS

You are now ready for take off right? Here are my tips for successful implementation.

1 OBTAIN THE STRATEGIC OVERVIEWBefore you plunge into the actual “doing” of sup-plier diversity, it is well worth spending some time thinking about your organisation’s vision for supplier diversity. What would you like to achieve?

Make sure that your strategic approach to supplier diversity links with your company´s mission, objec-tives and business strategy. Engage with the senior management team (from the top down) and other stakeholders and ensure you get buy-in.

Setting up a supplier diversity approach calls for commitment of both time and resources. You can also seek advice and inspiration in forums discussing supplier diversity or with organisations which help organise diverse suppliers. See if you can get a dedi-cated person in your organisation to deal specifically with supplier diversity.

It is also a good idea to carry out a market survey of the suppliers available. The survey you should carry out should identify (for the suppliers you use today):


2 CREATE A SUPPLIER DIVERSITY POLICYMake sure that you create a supplier diversity policy which draws on the business case, and links with the organisations mission, objectives and strategy.

3 REVIEW PROCUREMENT POLICIES, PROCEDURES AND PRACTICESEnsure that the organisation reviews its procurement policies and practices in order to reduce/remove existing barriers to suppliers.

4 MAKE OPPORTUNITIES ACCESSIBLEThe organisation should provide a consistent through-flow of opportunities for which suppliers are given the chance to be acquainted with the procure-ment process.

5 MONITOR PERFORMANCEWhen monitoring performance you could:• The size of the business and the

(diverse) type of supplier

• Their percentage share of the organisation’s total spend

• The size of the (potential) business and their capabilities

• Their potential procurement opportunities

• Measure the amount you spend each year with diverse suppliers

• The percentage increase on the previous years spend

• A timeline with next year’s progression

• The number of new suppliers, and the number of diverse suppliers

Communicate with and educate your stakeholders It is important that the organisation demonstrates active commitment to supplier diversity by providing informational seminars and training to procurement professionals and other stakeholders. This to ensure, that your efforts are systematic and create organisa-tion-wide awareness. If there are good case stories then these should be communicated to the stake-holders. It is important to integrate supplier diversity thinking within the whole organisation.

8. FINDING THE RIGHT DIVERSE SUPPLIERS

Like many other companies, your challenge now is to control the number of small suppliers approaching you and controlling which ones can qualify to your definition of being a diverse supplier. Here are some tips for activities you can initiate in order to find the “right ones.”


ASTRA ZENECA ON SUPPLIER DIVERSITY:They clearly acknowledge that small and minority businesses are often at a disadvantage in finding and negotiating contracts. These smaller companies are competing with much larger companies with more resources and better access to the market.

They have realised that they can benefit from award-ing contracts to diverse suppliers. Small companies work in different ways, can be more flexible and cre-ative and they respond quickly when requirements change.

They partner with organisations that represent small or minority owned businesses to provide targeted training and advice to their members. They mentor and coach individuals in their programme with the

• Create a supplier portal. Here you can ask questions and pre-approve the suppliers

• Advertise in publications that appeal to diverse supplier groups

• Participate in networking with diverse supplier groups and belong to their organizations.

• Support suppliers in building consortiums • Arrange events where you share your expertise with your suppliers and encourage them to participate in tenders

• Provide financial support where neededWOULD YOU LIKE TO LEARN MORE?

Check out this link: http://www.astrazeneca.com/Responsibility/Working-with-suppliers/Supplier-Diversity

aim of improving their business planning and mar-keting capabilities

They clearly state that small and diverse business-es must meet the same global quality and ethical standards as any other business, in order to win work with AstraZeneca. The aim of their supplier diversity programme is to help business owners understand and meet these requirements. However, they will only award work to those that can prove their busi-ness has the necessary capabilities.

9. NEED MOREINSPIRATION?


We have now come to the end, but before I leave you on your own I would like you to remember to:

Now that I hope your appetite has been whetted,why not check out the Responsible Procurementwebsite for even more knowledge.

Got any questions?You can also contact me at:www.responsibleprocurement.dk/contact,

And remember to sign up for my newsletter and gettips and tricks delivered directly to your inbox. Youcan subscribe from the front of the webpage.

Copying or retransmission of this e-book is only permitted after written agreement with the author. Any other use, including copying, reproduction, forwarding without prior written consent is prohibited by applicable Danish copyright law. Short excerpts from this text may, however, be featured in reviews. Should you wish to share the contents of this e-book with others, please download it from www.responsibleprocurement.dk.

Responsible Procurement 2014, Version 1.0

• Develop a business case, which is visible, communicated and has senior level commitment.

• Develop a policy, which should be aligned with the company’s strategic objectives and the local legislation and culture.

• Get the full involvement of procurement professionals and other stakeholders, who are alert to barriers to under-represented businesses within their procurement processes and procedures and the organisation in general.

• Make sure to link up with relevant local part- ners and organisations, ensuring that you attract and retain the right diverse suppliers.

SUPPLIER DIVERSITY IMPLEMENTATION - SUPPORTING TOOL

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Strategic planning

Who is involved in supplier diversity within the organisa-tion at present?

Who is the high level champion for supplier diversity?

Who is going to undertake a co-ordinator role for suppli-er diversity activities?

If neither the champion nor the co-ordinator is a procurer, who from the procurement function is involved?

How much time and resources can all these people realis-tically contribute?

What resource and expertise gaps do we have? How can we fill these gaps?

Why is this organisation considering becoming involved in supplier diversity?

What are we hoping to get out of supplier diversity?

What would success for us look like?

To which existing organisational policies, strategies and similar is supplier diversity linked?

Which supplier groups are we targeting with our activity?

Geographical scope

How wide would we like the geographical scope of our supplier diversity activities to be?

What is a realistic geographical scope for our activities at the beginning?

As our supplier diversity work grows – how will we ex-pand our scope?

Our policies

Make sure our policy describes: Why our organisation is working on supplier diversity, what the organisation is seeking to achieve by doing so? How it will achieve this?

Make sure the implementation plan includes: What we intend to do, how we will achieve it, who will play which roles in doing so, where this will happen, when it will happen, risks and how to manage them, how to measure the results.

Further actions to the implementation plan

Mapping out a route for supplier diversity to be trans-ferred and embedded through the organisation.

Writing senior management statements endorsing sup-plier diversity.

Ensuring that supplier diversity is considered during high-level organisational strategic planning.

Ensuring that adequate resources, including staff time and budget are allocated for supplier diversity activity.

Presenting the organisation’s approach to external sup-plier diversity events.

Providing practical support, as required, to support the activity of those staff actively working on advancing supplier diversity.

Supplier diversity in Europe

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