Supplier Diversity-Narrowing the Gap

In the United States, minority-owned businesses represent 21 percent of all Supplier Diversitybusinesses and receive about 6 percent of all business revenue. Stated differently, a large disparity exists between the percentage of total revenue received by minority-owned firms and the percentage of all firms in the country that are minority-owned. However, this disparity has continued to narrow over time.

This narrowing is a result of major companies developing supplier diversity programs as part of their purchasing strategies. Most of these programs are intended to diversify the companies’ supplier clientele, provide new opportunities to underutilized firms and encourage Tier I and Tier II vendors and suppliers to work with minority-owned firms.  Corporations have introduced supplier diversity programs for several reasons. First, some companies recognize the importance of implementing business practices that reflect the markets they serve and, as a result, these practices promote the growth and development of minority-owned businesses.

Second, companies are increasingly recognizing the value potential, growth and market opportunities that exist in under-served minority communities and have devised programs to assist them in tapping those markets.  Third, some corporations have partnered with minority firms to pursue government contracts more successfully, especially in jurisdictions in which minorities have significant political influence or where minority business programs operate that mandate the use of minority subcontractors.  Finally, some companies are driven to adopt supplier diversity programs because of real or threatened consumer boycotts or political or economic pressure.  

By doing business with diverse suppliers, corporations make a significant statement about their commitment to support the development of minority-owned businesses, promote minority employment and enhance the state of minority communities and the general economy as a result.  Supplier diversity programs contribute to stronger corporate community ties. This builds greater brand loyalty among minorities, which translates into competitive advantages for the corporation in the fast-growing minority consumer market.  

Supplier diversity programs allow minority businesses to increase their capacity and competitiveness and thereby lower the corporation’s supplier costs and increase its efficiency and profitability.  Supplier diversity programs allow businesses to gain a competitive edge in their emerging minority consumer market and identify new business opportunities.  Several years ago, Fortune magazine found that the “50 Best Companies for Minorities” outperformed the S&P 500; this finding supports the argument that increased productivity is an important benefit of greater diversity—and valuing and managing diversity is a bottom-line issue for many corporations in today’s highly diverse marketplace.

Source: Gazelle Index