The Importance Of Prioritizing DEI In Supply Chain Management

This article was originally posted on Forbes.com.  

As of 2021, over 80% of U.S. enterprises had implemented some sort of diversity, equity and inclusion (DEI) initiative, with nearly 97% of those organizations reporting that they had either established a strategy specifically targeting those initiatives or were actively working on creating one. However, many of those strategies are internally focused, focused on hiring, promotions, pay equity and other priorities and targets within the company itself; far fewer are creating DEI objectives around supply chain management. Moreover, among supply chain-focused organizations, not even a fourth are prioritizing larger DEI strategies, according to a 2021 Gartner survey.

The result is that while these enterprises and their stakeholders may perceive that ground is being gained in DEI metrics—and in some visible ways (boardroom composition, salary equity and advancement of under-represented groups) there may indeed be concrete improvements—these changes are largely lacking when it comes to areas such as production, transport and distribution of the goods and services in these organizations’ ventures.

Broadening The Pool

Leaders may not know what DEI even looks like from a supply chain perspective. To apply a DEI strategy to supply chain, leaders need to look carefully at their vendors to make sure they are utilizing the best suppliers of services and products for their organization. Many organizations assume that the large suppliers or producers can deliver everything for them—that these organizations are “safe” or reliable, and present less risk—when in fact, they might actually get better quality and pricing from smaller vendors.

Consequently, organizations concerned about supply chain DEI should take steps to actively broaden their pool, with a focus towards infusing their supply chain with more diverse businesses such as those owned and led by women or ethnic minorities. It may help to view supply chain through the same lens as talent acquisition, asking, “How can we broaden the pool to make sure we are getting the best value for our organization?”

Combating Cost Problems

Particularly in bigger organizations, cost (or perception of cost) may be an obstacle to broadening the pool. Procurement teams often find that if they utilize fewer vendors who can provide a wider array of products or services, they will gain financial benefits and pay less for their needed products and services because they have given larger or more frequent contracts to those select vendors—a sort of “bulk buy” mentality and a cost saving that many companies would encourage. But that’s not the full story, and circumventing this mentality is important for ensuring the best suppliers and producers, including possibly overlooked, smaller vendors, are being considered and utilized.

With global organizations, it may be helpful to allocate a percentage of spending—be it 1%, 5% or 10% of total budget—to spend with diverse owned suppliers. It may be that the best vendor to supply a certain service or product is not located within the same country as that organization. These vendors should still be considered. To the same end, global businesses should also look to small, local suppliers for their services and products, rather than the global giants that make up the “usual suspects.” In doing so, they may have a valuable opportunity to feed the local markets and economy.

Asking Hard Questions

There are some questions that companies looking to implement DEI-focused changes to their supply chain need to ask to gain realistic data about their supply chain.

1. How much do we know about our supply chain and the diversity within it?

For the majority of organizations, the answer will regrettably be, “We have no idea.” Some companies may chart whether their company is 51% or higher female or ethnic minority-owned, but very few keep track of the level of diversity within their supply chain, or even what percentage of their spend goes to diverse owned organizations.

2. What questions do we ask in our procurement process?

Some organizations do ask potential vendors questions such as, “Do you have a modern slavery policy?” Or, “Do you have an equal opportunities/diversity policy?” Often, if the vendor ticks that box, then the organization feels they have done their due diligence and they don't always explore further. But just having a policy doesn't actually mean that this vendor is doing anything meaningful. Therefore, organizations must become diligent about what they are actually asking of the vendors in their supply chains, as well as how they measure their responses.

3. How important is the DEI agenda within our supply chain, and where does it fit within our broader ESG agenda?

This is a question organizations must ask internally, as increasingly, investors want to know how they are spending their money. As an example, we are increasingly asked about the amount of travel that we undertake for each client, because our carbon footprint applies to these clients when we travel on their behalf. Companies must therefore ask themselves how a wider, inclusive supply chain can respond to their ESG agenda, and how steps taken towards supply chain diversity and equity can contribute to ESG metrics as a whole.

4. Given our targets and commitments around procurement (cost-cutting or streamlining supply chain) what are the areas we can commit to, as far as diversifying the supply chain?

The answer to this question may be in a commitment to a percentage of spending with diverse vendors, or an agreement of the ability to use local suppliers to feed the local economy. Concrete measurement and reliance on data are key to meeting these targets; so is acknowledgment that, in some situations, goals such as cost reduction or efficiency may not be perfectly aligned with DEI objectives, and committing to finding and utilizing diverse suppliers regardless. There has to be consideration for all these factors.

Facilitating Diverse Partnerships

Lastly, companies need to be mindful that they are not creating obstacles for diverse vendors to work within their supply chains, such as refusing to work with companies that don’t have a multi-million dollar yearly turnover, refusing to pay for services or products until they’ve been entirely received, or setting net 90 or net 180 payment terms. These types of protocols may be untenable for small businesses, shutting out a large pool of potential vendors even for companies with earnest intentions to expand diversity in their supply chain.

Ultimately, companies that are truly mindful of implementing DEI initiatives within their organizations must take a twofold stance: They must look carefully at their partnerships, knowing their vendors and those vendors’ needs, challenges and goals, and at the same time, must do the hard internal work of holistically examining their own operations, spending and policies. It is hard work, but it is the only way forward.