Is supplier diversity really that important? (Part 1 of 3)

As highlighted in the above image from the Cigna website, supplier diversity is important because the company believes that . . .

“the success of minority- and women-owned businesses and other under-represented suppliers adds to our success and to that of the communities we serve. Minority- and women-owned businesses are often in neighborhoods that benefit greatly from the commerce and employment opportunities the businesses provide. By partnering with these suppliers, we can foster the growth of these businesses while ensuring the long-term growth of Cigna. They can provide the best combination of total cost, quality and service, which ultimately provides a healthy competition and level playing field for all potential and existing suppliers.”

Sounds great, but here is the question; have these benefits been quantified beyond the feel good, hug a tree sentiments expressed in the Cigna text?

I know that some of you may be shaking your head in disbelief that such a question should even be posed let alone be worthy of a response.

However, and as summed up in a simple observation by Colin Cram during a January 2011 panel discussion on the subject, while organizations should be “applauded” for such an undertaking, they need to “zero in on what they want to accomplish through a supplier diversity initiative.”

This is where a recent study by University of Manitoba Professor Paul Larson is worth reading.

According to Professor Larson, “companies’ suppliers should be as representative of their customer base as the employees they hire.  Larson then stresses that “it’s worth corporations’ while to make a priority of doing business with suppliers owned and operated by a minority majority.”

He then concludes with the statement that visible minorities “are the future customers, employees, investors and taxpayers” in a given region so “now is the time to prepare for this future, the time to embrace supplier diversity.”

The professor then offers up the seemingly perfunctory mantra that “Diversity in the supply chain can help organizations access new markets, enhance their reputations and improve their bottom lines.”

Once again this all sounds good, but other than responding to changing demographics, what are the sink your teeth into it results (i.e. the numbers) that herald the true impact of a supplier diversity initiative?

Certainly the significant gaps between big business in Canada and the U.S. in terms of the implementation of supplier diversity initiatives could be addressed and bridged by the provision of such data.  For example, there has to be a reason why as Larson lamented in his study, that unlike  Chicago in which 77 percent of that city’s biggest businesses had supplier diversity programs in place, only 23 percent of comparable Toronto enterprises have embraced supplier diversity.

In an effort to find the ammunition that would propel Toronto businesses to catch up with their Chicago contemporaries, I turned to Professor Larson’s November 2012 study (Supplier Diversity in the GTA: Business Case and Best Practices).

Zeroing in on the section titled The Business Case (pages 13 and 14), I expected to finally see the actual data that would clearly demonstrate the bottom line impact that a supplier diversity initiate would have on an implementing organization.  Unfortunately no such data was provided.  Hmmmmm . . . perhaps there is a reason why only 23 percent of Toronto’s big businesses have established a supplier diversity program.

Now one might be inclined to point to the Case Studies that were included in the study featuring organizations such as Walgreen’s, W.W. Grainger and The City of Chicago as proof that supplier diversity initiatives work.  However, you have to consider the following critical points when reviewing the information:

• The cases were based on the review of company websites and other reports with only a limited number of interviews conducted with what are referred to as being “key personnel” from the actual organizations.  While there is no reference made to the position of these individuals, it would be reasonable to assume that they were in some way champions of their respective company’s diversity initiatives.
• Beyond listing overall profits and revenues as well as Fortune 500 rankings where applicable, there is no attempt to correlate or quantify the impact that supplier diversity had on these numbers.  In short, would the level of profitability and revenue have somehow diminished had a program not been put in place?  If not, then what percentage of the profitability and revenue referenced was the direct result of a supplier diversity initiative.

Like the classic Wendy’s commercial in which the elderly woman asks “where’s the beef,” it would appear that a similar question can and should be posed relative to the actual financial impact of a supplier diversity program.

In Part 2 of this 3-Part series, I will examine the collective impact of supplier diversity programs.

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