Corporations are increasingly focused on diversity and inclusion when procuring goods and services from suppliers.
By George N. Saliba, Contributing Writer On Jul 28, 2023
Although corporations in recent years have increasingly been ensuring that the suppliers supporting them are minority-, women-, LGBTQ+- and veteran-owned businesses, the underlying concept and practice of supplier diversity is not new: In the aftermath of Detroit’s 1967 and 1968 riots, General Motors launched programs aimed at including diverse suppliers, as did IBM, and programs at these and other companies have only grown since then.
What is arguably new – especially at large companies – is an abiding intensity toward growing the number of diverse-owned corporate suppliers as part-and-parcel of broader DEI (diversity, equity and inclusion) and ESG (environmental, social and governance) practices which have become pronounced following George Floyd’s infamous May 2020 murder.
Cases in point: Global management consulting firm McKinsey & Company’s research notes that in 2021, select Fortune 200 US publicly traded companies had committed $29 billion to supplier diversity spend, that those commitments will swell to $41 billion in 2024, and that they will ultimately grow to a staggering $50 billion in spend commitments by 2030. McKinsey also reported that as of March 2022, 82% of Fortune 200 US publicly traded companies had formal supplier diversity programs.
Supplier Diversity Advantages
There are many benefits to supplier diversity. “[Whether] it’s an individual or diverse supplier, anyone will do better if they’re faced with competition,” explains Deena Cooper Williams, senior supplier diversity program lead at American Water, of which New Jersey American Water is a subsidiary. “Incorporating diverse suppliers into the mix with non-diverse suppliers creates competition, and it gives any organization an opportunity to find unique talent. Diverse suppliers have unique abilities to problem-solve.”
Various data support this general concept. A 2015 McKinsey report found that companies in the top quartile for racial and ethnic diversity are 35% more likely to outperform median industry financial returns, and that companies in the top quartile for gender diversity were 15% more likely to exceed median industry financial returns.
Supplier diversity can likewise bolster entire communities. Merck’s Director of Global Economic Inclusion and Supplier Diversity Raul Suarez-Rodriguez tells New Jersey Business that for every $280,000 the company spends on supplier diversity, the income in associated local Black and Hispanic communities increases by $10,000 and $5,000 respectively, which leads to improvements in social health determinants such as residents’ ability to afford health insurance or higher quality food, for example.
“Not only that, [but] if we are holding a contract from three to five years, we saw the [residents’] life expectancy increase [by] a year,” Suarez-Rodriguez says. His company has been engaged with overall supplier diversity initiatives since 1985; it became a Merck strategic priority in 2005, and, in 2007, the pharmaceutical giant began requesting that it’s prime (Tier One) suppliers have a similar level of diversity commitment when hiring their suppliers. This creates a supply-chain diversity ripple effect. Over the years, Merck’ overall supplier diversity has become notably global in its reach.
Atlantic City Electric (ACE) is another company with like-minded sentiments and outcomes: It spent $129 million with diverse suppliers in 2022, which was 37% of the company’s total yearly purchases, and an increase of $10 million from 2021. It is the most ACE has ever spent with diverse suppliers since the utility’s inception more than 100 years ago.
Driving these numbers is a commitment not only to diversity, but, again, to community, explains Rodney Oddoye, senior vice president of governmental, regulatory and external affairs for Pepco Holdings, which includes Atlantic City Electric. “Our position as an anchor institution can help elevate some of the communities that have been harshly impacted by the pandemic. … It starts with our position as an anchor institution, and our commitment and responsibility with essentially creating economic vitality with our contract partners. Ultimately, that leads to sustainable careers/jobs.”
He adds, “Those individuals can then put what they earn back into the communities, and it creates this circular reference. It’s a process that we’ve seen play out in a lot of the communities we serve. We’re very committed to it in New Jersey, and more specifically in Atlantic City’s jurisdiction.”
That said, no meaningful, broad societal change has ever occurred without at least some controversy: Certain US corporations have faced reverse-discrimination lawsuits surrounding their particular supplier diversity programs, at times over accusations that their individual programs violate Section 1981 of the Civil Rights Act of 1866 (42 U.S.C. § 1981), which that year aimed to vindicate former slaves’ rights by promising that “all persons” have the same rights to make and enforce contracts. At the state level, New Jersey’s Law Against Discrimination specifically forbids private companies from discriminatory contracting decisions.
How can companies potentially avoid such accusations? Some experts assert that antidotes may include, for example, avoiding using a “point system” that would provide prospective diverse suppliers with competitive advantages based on their minority statuses alone. Creating relationships with diversity and other organizations is reportedly another means for deterring unnecessary challenges to supplier diversity programs.
An overall example of a company meeting its suppliers via associations is American Water, which is a member of the National Minority Supplier Development Council, Women Business Enterprise National Council, National Veteran Supplier Development Council and National Gay Lesbian Chamber of Commerce, and African American Chamber of Commerce of New Jersey, for example.
“A lot of times, [diverse suppliers] find us because of our affiliations,” explains American Water’s Cooper-Williams. “I … as well as other members of the organization, on an almost daily basis [have] some type of outreach from a diverse supplier, [and] they are requesting to do business with us, wanting to learn more, or wanting to schedule an introduction meeting.” Workshops and events can also be a means for connecting.
Once suppliers and corporations meet, it can be important that diverse suppliers are certified as minority- and/or women-owned businesses: “When people come to us and say, ‘Hey, I’m a minority-owned business,’ one of the first things we ask is: ‘Well, are you certified?’” explains Lawrence B. Wooten, senior manager, supplier diversity at American Water. “We want to be able to stand behind the [diversity] numbers that we put out on a regular basis. That affiliation with those organizations [mentioned above] helps us there too, because we rely on them to certify those businesses.”
Since New Jersey is among the most diverse states in the nation, it remains fertile ground for supplier diversity initiatives. American Water’s Cooper-Williams says other states, such as Iowa, for example, don’t have as much diversity, which makes locating suppliers there challenging.
That said, widespread progress is clearly being made on the supplier diversity front both nationwide and in New Jersey. Wooten concludes, “If I’m talking to leadership, I always say: ‘Look, we’ve made a number of strides, but we’ve got a long way to go.’ This is not ending. It’s going to continue to grow. As the browning of the country continues, as I call it, more and more people are opening their own businesses. We need to take advantage of that.”