Businesses are planning to “dramatically expand their supplier diversity programmes over the next few years” in response to growing demands for social reform and racial equality, according to a new study.
More allocations to diverse-owned businesses
The findings come from IT service management company The Hackett Group; it covered over 100 large global and US companies and found they currently dedicate 7.2% of their spending to diverse-owned businesses. By 2025, companies project more than a 50% increase in their “diversity spend goals”, equating to an average target of 13% of their spend dedicated to companies across a range of underrepresented diversity groups.
Furthermore, top-quartile supplier diversity organisations plan to spend 54% more of their total spend with diverse-owned businesses compared to median organisations (20% goal versus 13%) by the same year.
Out of the respondents, around 30% said they are “setting formal diversity spend goals for the first time in response to the increased focus on social reform and racial injustice in 2020.”
Fewer pledges, more action
Despite these projections, organisations are still failing to proactively source diverse suppliers, where only 36% of procurement policies demand the “inclusion of at least one diverse supplier in each sourcing event.”
To change this, the study recommends that businesses “actively develop diverse suppliers” where currently only 44% of companies “allocate funds specifically for supplier development activities” while 39% of companies are planning to do so.
The study found that most organisations understood diverse supplier groups to include “minority-owned, women-owned, veteran-owned, service-disabled veteran-owned, historically underutilised business-zone located businesses, LGBT+ owned businesses and indigenous businesses.”
Supporting racial and ethnic supplier diversity
While 53% of companies reported “a greater focus on spending with specific diversity groups”, around a third of all tier-1 diversity spend currently goes to women-owned business, followed by 13% to Black-owned businesses, 11% to Asian Indian-owned, and 9% to Hispanic-owned, showing that more work needs to be done to spend with racial/ethnic as well as gender diversity in mind.
However, spending increases are expected across different diversity groups, added the report, where 77% of respondents said they plan to increase spending with Black-owned businesses, while 66% said they would do the same with LGBT+-owned businesses. Another 62% said they would increase spending with Hispanic-owned businesses and 63% said they would with service-disabled veteran-owned businesses.
The study offered practical advice for businesses looking to expand their supplier diversity programmes:
- Ensure enterprise alignment through collaboration with activities in other related areas
- Invest in supplier diversity with both budget and dedicated headcount
- Join supplier diversity organisations
- Invest in the development of diverse suppliers
- Ensure high-quality data and reporting to measure programme performance
- Measure programme ROI by going beyond diverse spend totals
- Create policies to encourage success
Laura Gibbons, Senior Research Director, Procurement Executive Advisory Programs for The Hackett Group and the study’s co-author, said: “As a direct result of the worldwide social reform movement, this has become a board-level issue. Companies are seeing calls to action from consumers and employees to invest in environmental, social, and corporate governance. It’s encouraging to see that an increased focus on supplier diversity is a clear part of this effort for most companies.”
Tarun Puri, Senior Director at The Hackett Group and a co-author of the study, added: “Starting, growing or improving an established supplier diversity programme is top of mind for many procurement programmes around the world. But to truly succeed, it’s critical for companies to set the right scope for programme activities and ensure that they have an adequate level of support.”