While supplier diversity programs have historically focused on the diversity of a company’s ownership, this is not the only way to influence diversity in the supply chain. Corporations with significant procurement budgets now realize that they can use their purchasing power to influence workforce diversity in much the same way that they have historically worked to increase expenditures with traditionally underrepresented suppliers. This realization has led to the new and growing trend of companies measuring, tracking, and reporting supplier workforce and Board-level diversity as an additional – and scalable - value creation exercise.
In addition to evaluating current and prospective suppliers only for the diversity of their ownership, companies are digging deeper, looking at the diversity of the supplier’s workforce and Board of Directors as well. The advantages of this approach, shared by the company and their suppliers, take the form of increased inclusion and corporate performance.
Companies have long recognized the top-line benefits of working with high-performing suppliers, and there are multiple correlations between the level of workforce diversity and the ability of a supplier to out-perform the market. Diverse teams are associated with benefits such as:
- Making better business decisions 87% of the time.
- Higher employee retention, with 55% of job seekers saying it is very/extremely important to work at a company that prioritizes diversity and inclusion.
- Approaching facts and ideas more thoughtfully through careful consideration of all ideas at the project level.
The high level of visibility associated with Board-level positions makes it important for companies to recognize and advocate for diversity there as well as in a supplier’s general workforce. This is true for the sake of corporate performance and also for the ability of a diverse Board to further emphasize diversity in their company’s hiring, promotion, and project assignments. A 2019 analysis by McKinsey found that when companies were divided into quartiles for gender and ethnic or cultural diversity, the top quartile firms achieved 25% and 36% more profitability (respectively) than the fourth in each category.
The advantages of investing in diversity and inclusion from individual contributors up through the Board are clear, both for companies and for the suppliers they partner with. The following considerations are important if you are thinking of adding supplier workforce diversity to your existing program objectives.
Selecting Effective Metrics and Improvement Targets
Companies will have to create a scorecard to benchmark and track supplier workforce diversity at multiple levels, such as the Board, executive, and general workforce. Unless a supplier decides to make this information public, individual outreach will be required even to baseline their current workforce diversity. Many suppliers may not know the diversity percentage of their workforce and may or not have the Human Resources bandwidth to gather this information. As a result:
- Understand that increasing supplier workforce diversity will be a ‘nurture’ effort. A great deal of communication and partnership will be required to gather information - even before progress can be made. Approach this effort as a long-term investment in diversity, not a short-term way to hit diversity targets.
- The level of effort required to gather this information and partner with suppliers may be significant. Start with a small, select list of suppliers that are either already reporting or likely to be willing partners.
- Recognize that helping a supplier determine their current workforce diversity for the first time is a win. Once they see the numbers and compare them to peer or industry benchmarks, their diversity and inclusion journey has been advanced.
Working with Suppliers to Increase Diversity in their Workforce and Board of Directors
Once the reporting and benchmarking are complete, the effort can turn towards increasing diversity – a job that is never done. Employment regulations forbid companies from mandating that their suppliers hire employees based on race or gender, but companies may still track their suppliers’ employee diversity. Additionally, in situations where companies have a sufficiently large team from the supplier dedicated to their account, they can request a minimum diversity composition in their account teams. Companies can also include workforce diversity as an evaluation criterion during sourcing.
Don’t Forget to Look in the Mirror First
Remember that every company is someone’s supplier – including your own. Before setting expectations for supplier workforce diversity, understand what your own company’s workforce diversity status and goals are. If your company does not currently track diversity at the Board, executive, and general workforce levels, you will be unable to understand the effort you are asking your suppliers to make and may even be caught in an awkward spot if the supplier asks for your numbers. Pilot your intended workforce tiers and metrics by using them internally first. This will help identify any challenges that are likely to be encountered with suppliers and also ensure you speak with authority when approaching suppliers and asking them to do the same.
If a company believes in the connection between supplier diversity and supplier performance, advocating for supplier workforce diversity is a natural extension of traditional supplier diversity efforts. It may require more effort, collaboration, and communication, but the net effect is significant and lasting.
If you would like to talk to one of our supplier diversity experts on how to collect workforce diversity metrics for your supply base, help answer any questions, or get advice on starting your program, schedule time to meet with us.