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Why Addressing Diversity in Your Supply Chain Can Pay Off

As the fashion industry faces calls for more inclusivity, retailers are responding with plans to make their vendor bases more representative.

Prompted by movements including Black Lives Matter and #MeToo, brands are showing their support through goals for greater supplier diversity. As part of its response to the Black Lives Matter movement, Nordstrom has committed to generating $500 million in retail sales from brands owned, operated or designed by Black and/or Latinx individuals by the end of 2025. Earlier this year, Brother Vellies designer Aurora James launched the nonprofit organization Fifteen Percent Pledge, asking retailers to allocate 15 percent of their total shelf space to Black-owned businesses. Since it was founded, the Fifteen Percent Pledge has gathered support from Rent the Runway, Vogue and West Elm, among others.

“We’ve seen most large enterprises making significant commitments to review their business practices, and to start identifying more concrete ways to better support diversity inclusion as opposed to simply making statements or making policies—which are a great way to start and a great way to frame your CSR management system in terms of addressing those issues. But I think the push now is really what can we tangibly do to ensure to our customers that we are making movements, making changes to address and improve diversity and inclusion, both internally and with our trading partners,” said Maureen Loman, senior sustainability analyst at sustainability ratings firm EcoVadis.

By focusing on their own supply chain makeover, companies can also influence broader positive change. “All these actions can cascade in a way that will not only improve your own supply chain but push other companies to think differently about how maybe they manage their own internal systems,” Loman added.

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According to Daryl Hammett, the former chief operating officer at supplier management software company ConnXus and current vice president of global supplier solutions at ConnXus’ parent company Coupa Software, supplier diversity and inclusion is the top conversation he sees happening in procurement organizations right now.

“Our supply chains should reflect our consumers that we directly or indirectly are doing business with, so I think that is one of the major forces that are driving organizations to really step up and have more inclusive and diverse supply chains,” said Hammett.

Outside of achieving a brand mix that is more representative of a retailer’s customer base, growing supplier inclusion also makes good business sense. Research from McKinsey found that companies in the top quartile for gender diversity were 25 percent more likely to outperform their peers financially than those in the bottom quartile. In ethnic diversity, the difference between the top and bottom quartiles’ likelihood of outperforming is even higher at 36 percent.

“Demographics tell us that diverse owned businesses are growing exponentially every year, so leveraging these businesses in their supply chain is critical to ensuring they remain market leaders,” said Jennifer Ulrich, senior director, advisory at Corcentric, a procurement and finance solutions firm. “While this shift might start as a way to improve corporate image, businesses are finding that expanding their horizons with supplier diversity is providing a lot of other great benefits.”

Because companies owned by women, people of color and other diverse groups tend to be small businesses, they come with operational benefits. Per Hammett, these include lower overhead and more innovation. “By having an inclusive, diverse supply chain, you’re going to drive competition, you’re going to drive innovation, new ideas,” said Hammett. “And then your supply chain will be healthier.”

While there are business benefits to supplier inclusivity, there are also risks to not taking action. With both consumers and employees wanting to support companies that have strong corporate responsibility, Ulrich noted that retailers could face a loss in market share. Inclusivity also plays a large role in employee attraction and retention. Making the business case for diversity efforts to top management is one key element of success, since these plans need support from leadership.

Action plan

Experts agree that the first step in any supplier inclusion process needs to be an examination of the current state of diversity within the company’s partnerships. “You can’t manage what you don’t measure,” noted Loman.

ConnXus, part of Coupa, can run a company’s data through an automated system to determine who among their suppliers has been certified or classified as diverse, and who has not.

Investigating supplier diversity can also mean more metrics than just company ownership. EcoVadis’ tool digs into the sophistication of vendors’ diversity practices, looking at factors including their policies, how they report data and whether they have a whistleblowing process set up. “Just because you have a person of color or a woman running a business, there’s probably a high correlation that the rest of that company is doing a lot in terms of management for diversity and inclusion, but it’s not necessarily a causation,” said Loman. “And so that’s why we want to go deeper besides ownership to see what kinds of objectives and targets and goals a company has in relation to these issues.”

Since governments can vary in their guidelines for reporting on diversity, EcoVadis’ aim is to create a global standard for measuring maturity of these programs. A study conducted by the firm of thousands of companies across sectors found that about half had no policies or measurement plan in place, leaving room for growth.

Diversity and inclusion also have different meanings around the world. For instance, in a nation where ethnicity is more homogenous, companies would be more apt to seek out characteristics such as female or veteran-owned businesses for inclusivity.

Once companies figure out where they stand, they can use that to inform their strategies and goals.

For retailers that do wish to engage new suppliers, there are a number of resources and platforms available to find diverse vendors. Coupa’s platform hosts a directory of diverse businesses, which is accessible for free to companies.

According to Hammett, before making pledges, companies need to make sure that their goals are achievable. This means investigating whether there are actually enough certified or classified diverse vendors to reach a percentage of spend. In retail, if there aren’t enough brands that are a fit, companies can look at other behind-the-scenes vendors, such as marketing agencies and website management.

Even if suppliers have the right documentation, retailers still need to do due diligence to ensure that a vendor has the infrastructure and logistics needed.

“You don’t want to set a business up for failure. So, you set realistic goals based on the suppliers being available to meet those goals,” said Hammett.

Rather than simply adding suppliers, a retailer can reach their goals by engaging existing suppliers. If a current supplier is not meeting diversity standards now, that doesn’t necessarily mean that they need to be cut off in support of social responsibility goals. Companies should look at whether the vendor already has a plan in place to reach acceptable goals over the course of time. If they don’t already have an outline established, the retailer could come up with a corrective action plan. However, sometimes supplier relationships may need to end if a partner is unwilling or unable to change.

Raising diversity also doesn’t need to revolve around a retailer’s direct spend. As an alternative, retailers can engage their vendors and stipulate diversity benchmarks in their contracts or supplier codes of conduct to achieve a specific target, targeting tiers two, three and beyond.

Supplier side strategies

Since diverse-owned businesses are also small businesses, sometimes it can be a challenge to build up awareness since their energy and resources are focused elsewhere on day-to-day management.

Many inclusive suppliers that would qualify for certification or classification don’t apply for this documentation. This creates a missed opportunity for both retailers and would-be vendors. One strategy that Ulrich has seen is a retailer mentoring a vendor to guide them through the certification process, including paying any needed fees.

There are also opportunities for vendors to directly reach out to retailers that are sometimes left on the table. Retailers such as Walmart and Target have portals where diverse-owned businesses can register to be considered as a new supplier. Merchants like Dollar General also have fairs where inclusive suppliers can seek out an audience

The important thing is to not be shy. “If you’re a diverse-owned business, raise your flag, don’t hide,” said Ulrich. “Use it as a lever to get more business.”