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
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2. Introduction
Diversity is becoming very important in business strategy throughout the world. Diversity’s
scope and levels of implementation differs by geographical territory, and therefore often
influenced by differing local legislative regimes.
Diversity’s importance cannot be underestimated. Supplier diversity has now become the main
area of diversity that involves procurement in linking suppliers as part of the supply chain.
How it fits the business agenda
Supplier diversity is an integral part of corporate social responsibility and sustainability and
therefore high on the political agenda. It increases competitive advantage for
businesses.Supplier diversity has become increasingly prominent as firms have recognized the
economic benefits of broadening their supplier base to include minorities . The supplier diversity
strategy is highly effective framework to show an organization’s responsible procurement
agenda as part of its (corporate) social responsibility ethos. Equal opportunities, greater social
inclusion, good race relations, the fostering of local economic development and the
diversification of supply risk are the positive benefits of a supplier diversity strategy.
Definitions
In its Supplier Diversity paper (2006), the Centre for Research in Ethnic Minority
Entrepreneurship (CRÈME) quotes a definition of supplier diversity put forward by the UK
Environment Agency. It states that: “supplier diversity is a process through which equal
opportunities are provided to all businesses to compete.”
Already a well-established concept in the U.S. public sector, supplier diversity has become an
important part of supply chain management in corporate America. Supplier diversity involves
the purchasing of goods and services from businesses owned and operated by visible minority
groups. 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; for
instance, AT&T's supplier diversity goal is to have 15% MBE, 5% WBE, and 1.5% DVBE
participation in its supply chain.
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3. United States- the beginners of supply diversity
United States was one of the first countries to formalize a process for managing and promoting
supplier diversity. One example is the New York and New Jersey Minority Supplier Development
Council Inc (the Council), established in 1973 as a vital link between major corporations and
minority business enterprises (MBE’s). This Council is part of the network of 39 regional
affiliates of the National Minority Supplier Development Council Inc (NMSDC). The stated aim of
the Council is to “aggressively seek viable minority suppliers for procurement opportunities
with its corporate membership”. The Council enables corporations to diversify their base of
competitive suppliers. This activity by the NMSDC increases opportunities for Council-certified
suppliers and helps facilitate employment and economic development.
Challenges for MBE’s
In 2002, NMSDCobservesthat large firms were streamlining their operations by seeking larger
first-tier suppliers that can deliver high volumes. So following are some of the challenges faced
by 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.
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4. Guidelines for corporations for successfully implementing supplier
diversity
There are number of key guidelines for corporations to implement supplier diversity. These
emphasize:
(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 program
into their business goals and develop the capabilities to manage them effectively. Both
objectives can be accomplished by linking supplier diversity to overall organizational
performance. This can be done by identifying and clearly articulating the goals of the program
and developing strategic plans for those goals, including defining the firm's performance
expectations for suppliers and evaluating the program's contributions to the firm's overall
performance.
(2) The importance of top management support:
top management commitment can be defined as top management acceptance of
supplier diversity as an operational and strategic option. It entails providing visible leadership
on this issue, including the provision of resources that are needed to accomplish the goals of
the initiative.Top management has toframe supplier diversity in ways that facilitate
theacceptance 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 informal
leadershipcan be instrumental in building support for the idea.This sort of person has been
labeled a champion.Adiversity champion is an individual or groupof individuals that provides
critical informal leadershipfor the initiative.Champions can be instrumental in the
implementationof supplier diversity because they oftenpossess leadership qualities. Two of
these qualitiesare especially relevant: ability to engage in influenceactivities and
transformational leadershipbehavior.
(4) The necessity of building a supportive organizational culture:
Culture, the sum of shared values, norms, andbeliefs of an organization, expresses a
firm'sorientation not only to internal stakeholdersbutto outsiders, including suppliers.a
corporation shouldcreate a supportive culture in which the program can thrive. For such a
culture to be developed, topmanagementneeds to clearly articulate the vision ithas for the
initiative. The business case must be laidout and explained so that employees realize it is inthe
interest of the firm, and that diversity is not justsome social program. Expectations should also
be set regarding what is expected of individualsanddepartments that are charged with
implementingthe supplier diversity program.
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5. (5) The significance of relationship building:
Being a larger buyer does not automatically make a corporation more powerful than a
supplier. Even small suppliers can be powerful when there arefew substitutes for their product,
their goods and services are critical to the buyer's marketplacesuccess, it costs buyers too much
to 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 be
careful about how theytreat their suppliers. Exchange partners who see the relationship as
beneficial, fair, and equitable will continueto contribute input over the long term. The exchange
ceases to exist when rewards are no longerforthcoming or inequities are perceived. Large
corporations can grow relational assets such as trust and commitment by going out of their way
to 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.
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6. Example of 3M
We’re committed to proactively identifying small, minority-owned and woman-owned sources
for the goods and services 3M needs. We’re working to solicit capable firms, and execute
orders and contracts with these firms as required to support 3M business needs.
Here’s why 3M pursues relationships with small, minority-owned and woman-owned
businesses:
Diversity is a business strategy for growth.
The minority population is the fastest growing segment in the United States and will account
for a significant share of future consumer growth. Diverse suppliers are one way to access
emerging diversity market segments.
Diverse suppliers reenergize our business.
Diversity in our supplier base helps keep 3M open to innovative ideas and new ways of doing
business, 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 our
customers.
Lower costs and faster response help the bottom line.
Minority-owned and woman-owned businesses often are smaller and more cost-efficient due
to lower operating costs. They also tend to be nimble, which allows them to quickly respond to
business needs.
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7. Conclusion
Supplier diversity is being implemented globally as evidenced by the legislation. Its scope varies
greatly. The development of supplier diversity ,set against a background of increasing
globalisation,the acceleration of legislation and stakeholderpressure,suggests that it will be
essential for businesses and public sector organisations.
Barriers to competitiveness,similar to those currently experienced by small and medium sized
enterprises,will remain.In the UK,ethnic minority businesses are still developing their capacity
to enable them to take full advantage of procurement contracts.These businesses are obliged
to compete in the global marketplace,where other suppliers may be better placed to meet
cost,quality and deliverytargets.However,the capacity will be developed to enable
organisations to meet supplier diversity objectives in line with their organisational objectives.
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