Supplier Diversity: A Past U.S. Success and Current South African Imperative

This article was contributed by Averi Thomas-Moore, SAIBL Associate

Supplier diversity is the proactive business strategy of sourcing products and services from previously under-used suppliers. This process helps to sustainably and progressively transform a corporation's supply chain to reflect the demographics of the community in which it operates.

The concept of supplier diversity started in the United States in 1968 when the first minority procurement fair brought major buying organizations and minority businesses together to explore doing business. The concept was accelerated in 1969 when the Nixon administration signed an Executive Order that required government agencies and their contractors to contract minority owned companies and report the results for comparison with pre-established targets. During the 1970s progress was slow as most corporations relegated their supplier diversity programs to their compliance, public relations, or charitable divisions for which there was little leadership support or involvement and no relationship with overall corporate strategy.

Over the years there have been several milestones that have helped supplier diversity move from a task to a core business strategy of many leading U.S. corporations. These include: the creation of the U.S. Small Business Administration authorizing loans for MBEs, the creation of the Office of Minority Business Enterprise (OMBE) now MBDA, Public Law 95-507 (procurement quotas in government contracts), the creation of minority enterprise small business investment companies, and the advent of the National Minority Supplier Development Council. As these organizations lobbied for MBE integration into corporate supply chains, the number and economic clout of American minorities continued to increase.

Today over 100 million Americans consider themselves minorities, and their total buying power is estimated at $1.86 trillion.

The availability of tools and organizations facilitating supplier diversity, coupled with minorities’ current financial clout, has changed supplier diversity from a compliance and public relations issue to a profitable business imperative. Companies that fully embrace supplier diversity (by spending over one billion dollars p/year with minority suppliers) include Procter & Gamble, IBM, Boeing and Microsoft.

The arguments for supplier diversity in the U.S. make even more sense in South Africa. Since the passage of the Broad-Based Black Economic Empowerment statute in 2003, South Africa has begun the process of incorporating previously under-used suppliers into mainstream procurement networks. However, considering that more than 75% of South Africa’s population is black, the need to create viable black-owned suppliers is even more pressing than it was in the U.S. circa 1969.

The business case breaks down as follows: Diversifying your supply base usually increases innovation and lowers costs, provided your suppliers all meet quality standards. Second, sourcing from suppliers within a target community of consumers (sourcing from black suppliers while trying to sell to black consumers) creates an important feedback loop within that target community.

Suppliers can provide real-time intelligence on consumer preferences, discretionary income levels and products needs, and might also suggest innovative products designed to service their communities. Companies vigorously pursuing procurement opportunities with black suppliers can also expect an increase in brand equity in those communities.