We supplier diversity folks like to talk about what’s going well in supplier diversity. The wins, the success stories, the tools and strategies and initiatives that help us reach our goals, the economic impact, the benefit to the bottom line. But what about areas that still need improvement? It’s difficult to look at our peers, our colleagues, or ourselves and admit that we aren’t doing enough.
Today, we are going to do just that.
Last year, we talked about some of the industries lagging behind the curve when it comes to supplier (and workforce) diversity. The healthcare industry is one that faces significant challenges to widespread supply chain inclusivity. Healthcare is also an industry that could make a major impact—and reap serious benefits—by making supplier diversity a top priority. With annual revenues of $3.5 trillion and now the United States’ largest employer, the healthcare industry is a major driver of the U.S. economy and only expected to grow. Supplier diversity should be part of that growth, yet the industry struggles to include diverse suppliers in a meaningful way.
Let’s take a deeper look at the challenges and benefits of supplier diversity within the healthcare industry, and how we can start including more diverse suppliers now and in the future.
While this article covers how to improve supplier diversity within the healthcare industry, we do want to note that there are healthcare organizations that already have very effective programs.
The healthcare industry faces unique challenges with supplier diversity.
According to a recent study by the Healthcare Group Purchasing Industry Initiative (HGPII), about 60 percent of supply chain contracts within the healthcare industry are made directly with the manufacturers of branded pharmaceutical medical devices.
A major challenge for the healthcare industry when it comes to embracing inclusive sourcing is that it is heavily regulated. Clearing regulatory hurdles while gaining approvals requires significant investments of time and money, often more than small, minority-owned, and women-owned businesses can support. As a result, it’s easier to maintain the status quo and contract with the larger, established companies that have the means to operate during the years long process of obtaining regulatory approval for products.
“Historically, minority and women-owned companies have been challenged with developing the human capital, financial capital, technological or legacy relationships that would allow them to manufacture branded and patented pharmaceutical devices in any substantial way,” the HGPII report notes.
Beyond that 60 percent, another 20 percent of supply contracts are for routine supplies. In this realm, diverse suppliers are up against offshore manufacturers that can offer more competitive prices. As hospitals across the country face budget cuts, cost savings become even more important to sustaining these critical services.
For the above reasons, this industry will be slower to change. The number of diverse suppliers in healthcare does not necessarily reflect the amount of effort that’s being given to this issue. Supplier diversity in healthcare requires a more gradual and consistent change, and mandates for immediate results are not always realistic. We’ll see how a company in another highly regulated industry is working toward long-term results in supplier diversity later.
Why should the healthcare industry care about supplier diversity?
We know supplier diversity promotes innovation. Diversity of thought leads to fresh ways of looking at problems; new techniques, products, and solutions; and the ability to see gaps or redundancies that are overlooked when we stick with the status quo. All of these benefit not just the bottom line through cost savings but also the people who rely on the healthcare industry for relief and solutions.
By now, it should be common knowledge that by 2045, the United States will have a majority-minority population. Diversity is the new normal, and our country’s largest industry and employer should reflect that. Embracing supplier diversity helps healthcare companies promote a more positive brand identity and increase local awareness, particularly within more diverse communities.
HealthTrust, which specializes in supply chain and workforce solutions for the healthcare industry, has a long history of valuing supplier diversity. Matching diverse suppliers with Tier 1 and Tier 2 contractors makes sense on many levels, including reflecting the diverse patient and provider communities they serve.
“Supplier diversity gives healthcare entities a way to show that they’re supportive and representative of the communities in which they’re located,” says Joey Dickson, assistant vice president of supplier diversity at HealthTrust.
Take steps now for the future of supplier diversity.
We’ve talked about some roadblocks to inclusive supply chains within the healthcare industry as well as the benefits of a robust, diverse supply chain. So how can we improve the state of supplier diversity in healthcare? Here are a few ideas:
Create a more structured supplier diversity framework that allows healthcare companies to partner with diverse suppliers long term. A continuing partnership has a more profound effect on both businesses and helps strengthen the diverse business so it can be more viably compete with non-diverse suppliers.
In 2016, Kerma Medical Products, contracted with TriMedia, a woman-owned graphic design firm, to design its 25th-anniversary logo. The experience and outcomes were so positive that the partnership has continued for a total of 13 contracts, from online digital designs to tradeshow material.
Rather than awarding a diverse supplier one small contract and then moving on, build the relationship, invest in supplier development, and form a strategic partnership that benefits both entities.
Focus on building a pipeline for diverse suppliers. Pacific Gas & Electric is a good example of this in the energy industry, another heavily regulated sector. It struggled to find diverse suppliers with the scale and capability to meet the company’s needs, but instead of reducing its spend goals because the suppliers weren’t out there, the company implemented initiatives to identify and develop potential diverse partners. Through mentorship, strategic networking, outreach to local minority chambers of commerce, and training for PG&E’s line-of-business decision makers and prime suppliers, the company is actively providing access for minority-owned businesses of all classifications.
Educate healthcare industry professionals on the benefits of supplier diversity and the importance of partnering with diverse suppliers for longer periods to catalyze industry change and combat the challenges listed above. We frequently discuss the importance of stakeholder buy-in for supplier diversity here on the blog because it is such a crucial factor in a program’s success. You’ll find ideas for gaining support from within your company here and here.
No one expects huge gains in supplier diversity within the healthcare industry overnight, but steps can be taken now to create more inclusive sourcing opportunities for the future. What are you doing to promote and support supplier diversity?