Building diversity into the supply chain

Pro­cure­ment teams have bulging to-do lists. Improve sus­tain­abil­i­ty. Ensure con­ti­nu­ity of sup­ply  in the face of new waves of Covid-19. Is it rea­son­able to add yet anoth­er demand – to spend more with diverse busi­ness­es or social enter­pris­es?

The answer from a vir­tu­al round­table host­ed for this sup­ple­ment was a  resound­ing ‘yes.’ Helen Coop­er, vice pres­i­dent for pro­cure­ment excel­lence  & cor­po­rate ser­vices for IHG Hotels &  Resorts, which man­ages almost 884,000  hotel rooms world­wide, says: “We have brands that appeal to every­one, so it’s  impor­tant that our sup­ply chain reflects  that diver­si­ty as well.”

Angela Qu, chief pro­cure­ment offi­cer,  Lufthansa Group, adds: “We have a  diverse cus­tomer base. We have glob­al oper­a­tions. It fol­lows that our sup­ply  base should be diverse by default. This  makes our sup­ply chains more resilient  and agile.”

Social rea­sons, though, are just part of the pic­ture. Par­tic­i­pants attest­ed to the  busi­ness ben­e­fits of work­ing with sup­pli­ers whose founders are women, eth­nic minori­ties, LGBTQ, have dis­abil­i­ties or are from oth­er groups under-rep­re­sent­ed in busi­ness. A sur­vey pub­lished by bank­ing trade body UK Finance in March report­ed that  com­pa­nies with founders from minor­i­ty  eth­nic groups are “very ambi­tious, report  high growth rates and inno­vate more than non-eth­nic minor­i­ty SMEs.”

Mayank Shah, founder and CEO of  MSDUK, a non-prof­it organ­i­sa­tion that helps large com­pa­nies pro­cure from busi­ness­es found­ed by eth­nic minori­ties, says: “Diver­si­ty brings dif­fer­ent ideas, dri­ving inno­va­tion and mak­ing the sup­ply chain more com­pet­i­tive.”

How­ev­er, few com­pa­nies could say that their spend­ing with diverse busi­ness­es  match­es these groups’ rep­re­sen­ta­tion  in soci­ety. They face bar­ri­ers. The UK  Finance study found that com­pa­nies with non-white founders were refused bank  loans at twice the usu­al rate, even when  adjust­ing for fac­tors such as their short­er trad­ing his­to­ry. (The report said it did not have the data to explain this.)

Shah says new and diverse busi­ness­es  also lack net­work and con­nec­tions.  “That’s where we as an organ­i­sa­tion work to remove those bar­ri­ers, giv­ing them a plat­form where they can meet pro­cure­ment peo­ple and deci­sion-mak­ers in  large organ­i­sa­tions.”

Raphael Fadio­ra-John­son, region­al man­ag­er at pro­cure­ment plat­form Avet­ta, not­ed that ten­der doc­u­ments are often writ­ten with large sup­pli­ers in mind.  “Small­er, diverse sup­pli­ers don’t have  the abil­i­ty to meet, say, £10m indem­ni­ty  claus­es,” he says. “Your organisation’s  pro­cure­ment direc­tors have to find a way of ask­ing dif­fer­ent types of ques­tions.”

Claire Costel­lo, chief pro­cure­ment offi­cer of Co-op, which oper­ates insur­ance and funer­al busi­ness­es as well as its dis­tinc­tive blue-logo food shops, says her organ­i­sa­tion is address­ing this head-on. She says: “We’ve spent quite a lot of time over the last 18 months, look­ing at where can we flex? How do we coach? Where do we need to be open-mind­ed?”

Imran Rasul, chief pro­cure­ment offi­cer at Nation­wide Build­ing Soci­ety, notes his organ­i­sa­tion, like Co-op, is a mutu­al that answers to mem­bers, not share­hold­ers, and that sourc­ing from diverse or social  busi­ness­es is seen as organ­i­sa­tion­al­ly impor­tant: “We’ve got a wide ambi­tion with­in our organ­i­sa­tion to build an inclu­sive cul­ture, and we want to repli­cate that with­in the sup­ply chain, in the com­mu­ni­ties we serve.”

As a high­ly reg­u­lat­ed organ­i­sa­tion, he  says there can be addi­tion­al bar­ri­ers to  becom­ing a sup­pli­er. Yet it has a long his­to­ry with some sup­pli­ers that are run for social good. It has been buy­ing braille ser­vices from Scot­tish Braille Press, part of char­i­ty Sight Scot­land, for two decades.

How­ev­er Nation­wide is deter­mined to give diverse sup­pli­ers a chance to  com­pete for its infor­ma­tion tech­nol­o­gy spend, one of its largest cat­e­gories but  also one where reg­u­la­to­ry require­ments can be par­tic­u­lar­ly chal­leng­ing for  small­er play­ers. It has signed the Fin­tech Pledge, an indus­try frame­work that helps new sup­pli­ers by pro­vid­ing clear com­mu­ni­ca­tion lines, guid­ance and feed­back.

Par­tic­i­pants agreed that top-lev­el back­ing is vital. Fadio­ra-John­son says:  “It’s not enough to do a forum on sup­pli­er diver­si­ty with half the mem­bers of the pro­cure­ment team and then ask six  months lat­er about how it’s get­ting on. It has to be con­tin­u­ous.”

It is help­ful to be able to high­light the ben­e­fits. Coop­er reports, for instance, that diverse sup­pli­ers showed inge­nu­ity and flex­i­bil­i­ty when the com­pa­ny was  urgent­ly search­ing for pro­tec­tive equip­ment in the first weeks of the pan­dem­ic. She says: “It is a great exam­ple of where  we have used diverse sup­pli­ers and  small­er sup­pli­ers to solve crit­i­cal prob­lems for us as a busi­ness.”

As for the dif­fi­cul­ty of find­ing diverse or social sup­pli­ers, Qu recalls the sus­tained efforts made by some pro­cure­ment teams in the 90s to find qual­i­fied  sup­pli­ers in Asia. She asks why com­pa­nies couldn’t use those cre­ative sourc­ing skills to find diverse suppliers.“We have all this expe­ri­ence; we  shouldn’t for­get it when it comes to sup­pli­er diver­si­ty,” Qu says, adding that diverse firms that lack scale but are oth­er­wise excel­lent could be intro­duced to tier one sup­pli­ers and thus inte­grate into the sup­ply chain.

Diverse busi­ness­es are not ask­ing  for spe­cial treat­ment – just an equal chance. The eth­nic-minor­i­ty mem­bers of MSDUK, Shah says, debate among them­selves whether they should men­tion it in ten­der doc­u­ments. Each CPO round the vir­tu­al table has  a dif­fer­ent approach to mea­sure­ment, a  sign that every organ­i­sa­tion has to tai­lor  its approach. Some com­pile detailed num­bers. Oth­ers opt for the big pic­ture, aggre­gat­ing spend across diverse firms, social enter­pris­es, and sus­tain­able sup­pli­ers – and aim to make that aggre­gat­ed num­ber increase.

Coop­er says data is essen­tial but needs to be seen in con­text: “It is so much more than just num­bers on a page; it is mak­ing the change that is right for the busi­ness.”

Costel­lo adds though, that it’s impor­tant not to get too focused on nar­row  cat­e­gories. For Co-op and oth­ers, there is a sub­stan­tial over­lap between encour­ag­ing diverse sup­pli­ers, encour­ag­ing SME sup­pli­ers and encour­ag­ing inno­v­a­tive  sup­pli­ers. “I think of it as being inclu-sive with new sup­pli­ers. But with a social lens,” says Costel­lo. “It all comes back  to hav­ing that open­ness of spir­it, about doing the right thing and coop­er­at­ing for a fair­er world.”

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Pro­mot­ed by Avet­ta