The novel coronavirus (COVID-19) is impacting our world in unprecedented ways. Schools are closed. People have been asked to stay home whenever possible. Masks and gloves are common sights. Shelves in stores are empty of many basic supplies.
As the global pandemic continues to disrupt business—and life—as usual, our global supply chain is straining under the pressure to fulfill essential needs. Restrictions on importing from certain locations along with increased and new demand for certain commodities are exposing weaknesses in the supply chain.
As procurement teams search for alternative sources to fill temporary gaps, it’s time to consider new suppliers and partners in the marketplace.
Supplier diversity is a strategic solution for reducing the impact of the coronavirus on the supply chain.
What Is Supplier Diversity?
In brief, supplier diversity is the practice of building a diverse supply chain through the inclusion of diverse groups in the procurement plans for government, not-for-profits, and private industry. This means that you are proactively partnering with businesses owned by diverse individuals or groups.
The Local Advantage
When global supply chains are disrupted, think smaller. Think local.
We’ve seen a trend toward localization growing over the past few years, driven by consumer preference and technological advances. Kearney has conducted a thorough, informative study on the growth of localization and its benefits and drawbacks. What we’re seeing now, with the disruption of the global supply chain, is how a shorter supply chain can be an advantage.
For example, sourcing from a local vendor eliminates the need for warehousing, cutting costs and expediting delivery. At a time when some commodities are scarce in large quantities, you may find that local suppliers have access to multiple sources that may not be on your radar.
Here’s an example at the micro level: Big-box stores ran out of toilet paper and disinfectant wipes almost overnight. Long stretches of empty shelves were suddenly a common sight. Then the reports started coming in that consumers venturing into locally owned shops—bodegas, mom-and-pop groceries, farm and ranch supply stores—discovered that these neighborhood establishments that they may not have visited in years (if ever) carried those same supplies at similar price points, albeit in smaller quantities.
Apply that same idea—turning to local suppliers—to your supply chain and see what you may have access to nearby. While you’re looking locally, expand your search to diverse-owned businesses; they often have deep knowledge of the area and what is available.
Diverse suppliers can be found in communities across the United States. You likely have at least one qualified diverse-owned business within 50 miles of your location that could become a temporary partner.
And if you find that a shorter supply chain is something you wish to continue beyond the immediate need, consider this: Studies show that consumers, especially millennials and Gen Zers, increasingly prefer locally sourced goods and are willing to pay more for them.
The Competitive Advantage
Companies with supplier diversity programs know that partnering with diverse suppliers offers multiple advantages that help them stay competitive in the marketplace. According to the Hackett Group, "companies that allocate 20 percent or more of their spend to diverse suppliers attribute 10-15 percent of their annual sales to supplier diversity programs. Conversely, companies that direct less than 20% of spend to diverse suppliers attribute under 5 percent of sales to their supplier diversity program.”
Here’s how supplier diversity adds value to your bottom line:
- Promotes innovation through the introduction of new products, services, and solutions
- Provides multiple channels from which to procure goods and services
- Drives competition (on price and service levels) between the company’s existing and potential vendors
- Allows a company to take advantage of new opportunities for business expansion with the emergence of new consumer needs based upon shifting demographic realities
If you aren’t already working with diverse suppliers, you’re missing out on their tremendous untapped potential. We’re witnessing the innovation and agility of diverse suppliers right now as they pivot to meet emerging needs during the coronavirus pandemic.
Woman-owned Locker Lifestyle, an athletic accessories company, listened to healthcare workers who expressed that they were feeling discomfort from wearing surgical masks all day. Chafing behind the ears from rough elastic bands and pain from the tension of the elastic pulling on the ears led founder Kat Samardzija to design the Headband AID.
This innovative headband has buttons on each side of it that secure a mask’s elastic, relieving both chafing and tension. The design also includes a built-in pocket in which to stash the mask, as well as cash, keys, ID, and so on. After selling more than 500 Headband AID units in less than three weeks, Locker Lifestyle expanded into wholesale production.
This small company heard about a problem that arose from the coronavirus pandemic and immediately recalibrated itself to offer a solution. Using its original supply chain and sourcing materials that are not in high demand, they created a new revenue stream while addressing a pain point—literally.
Locker Lifestyle is just one example of the innovative, agile thinking you will find at firms that are owned and operated by diverse suppliers. Consider farmers who are offering direct-to-consumer sales to offset losses as restaurants shut down. Or the mom-and-pop restaurants that are still in operation, keeping their supply chain functioning in order to provide curbside service for the first time and offering grocery items from their surplus. Or how about the breweries and distilleries repurposing their equipment and supplies to produce desperately needed hand sanitizer?
Tapping into the wealth of potential among diverse-owned businesses can not only help you reduce the impact of the coronavirus on your supply chain, but this strategy can also give you a competitive advantage in our new economic landscape.
The Long-Term Advantage
Working with diverse suppliers to fill temporary gaps is a short-term strategic move, but companies with robust supplier diversity programs and relationships with diverse suppliers are seeing the advantages, too.
Peggy Del Fabbro, CEO of M. Davis & Sons, a woman-owned industrial construction company whose clients include AstraZeneca and Merck, tells the Women’s Business Enterprise National Council that thanks to her company’s longtime essential janitorial supplies contract with another certified women’s business enterprise (WBE), T. Frank McCall’s, she now also has access to the hygiene and safety equipment she needs to keep her operations running.
The WBE has been able to source hand sanitizer and dispensers as well as respirators for Del Fabbro’s teams in the field.
“Anytime supplies become available, our representative reaches out to us to see if we need anything, or if any of our supplies are running low,” Del Fabbro said. “During a time when there is a lot of uncertainty and apprehension, relationships like the one M. Davis & Sons has with T. Frank McCall’s are pivotal. Knowing that we have the tools necessary to keep our employees safe means that we maintain the capacity to work safely for our customers, in turn keeping their essential operations running smoothly.”
Looking outside your own supply chain, consider how partnering with diverse suppliers impacts the communities where they are located. Already at a disadvantage in our previous economy, minorities are especially vulnerable now.
For example, McKinsey & Company reports that “black Americans are almost twice as likely to live in the counties at highest risk of health and economic disruption, if or when the pandemic hits those counties.”
Supporting black homeowners and businesses is imperative, the report states. “There is an immediate opportunity to protect black Americans and their communities from the worst effects of the COVID-19 crisis. These interventions should target the places where black people live, work, and do business.”
Though this report is specific to black Americans, we can assume similar vulnerabilities across many of the segments of the population that qualify for “diverse” status. Women, minorities, LGBTQ, disabled—all of our diverse communities face higher risks of economic collapse.
Supplier Diversity Is a Strategic Solution
When we’re talking about supplier diversity, we use the term “economic impact” to measure the uplift received through job creation, increased wages, and tax revenue. As we face a period of economic recovery, our small towns and local neighborhoods will need every advantage, especially those with larger minority populations. An infusion of money through contracts with local diverse suppliers can mitigate the economic hardships of the moment and better prepare the community to rebuild.
When you’ve onboarded new suppliers and restored any disruptions, track the performance of those diverse suppliers. How did they reduce the impact of the coronavirus on your supply chain? You may find that an advantageous partnership with a diverse supplier during this difficult time turns into a long-term relationship.
Diversifying your supplier base, even temporarily, may seem counterintuitive if your company has a supply chain built on economies of scale and internal simplicity. But it is times like these when the weaknesses of those strategies are exposed. If you’re experiencing supply chain disruption, or anticipate a disruption during the aftereffects of this global crisis, take a look at what diverse suppliers can offer. You may be surprised.