Supplier Diversity vs. Supply Chain Diversification

Supply chains are facing challenges on multiple fronts. Geo-political conflicts, natural disasters, pandemics, and cybercrime have all forced the supply chain industry into the headlines. When disruption occurs, how well prepared is your company to get through it? 

Supplier diversity and supply chain diversification are two terms rising to the top of conversations with procurement leaders, but they are not necessarily the same thing. Supplier diversity AND supply chain diversification are vital to navigating supply chain disruptions. Both work toward a common goal to minimize the impacts of supply chain disruptions, but procurement needs to better understand supplier diversity, how it contributes to supply chain diversification, and the role of digitalization to ensure supply continuity. 

Here are two strategies to make your supply chain more resilient in an era of increasing disruptions:

1. Supplier Diversity

Procurement’s secret weapon is the power of the purse. Commonly known as supplier diversity programs or diversity in contracting, these can be mandatory requirements on behalf of state and local governments or voluntary as part of an organization’s environmental, social and governance (ESG) or corporate social responsibility (CSR) strategies. A supplier diversity program is not a quota. It is a strategic initiative that is a part of an organization’s supplier relationship management program. 

How to Find and Qualify Diverse Suppliers

When an organization commits to purchase from diverse suppliers, it typically means that the supplier falls into a category that is underserved or underrepresented, such as one of the following:

• • Minority-owned business (MBEs)
  • Woman-owned businesses (WBEs)
  • Veteran-owned or service-disabled veteran-owned business
  • LGBTQ-owned business
  • Small Business Administration-defined suppliers (SBEs)

There are two ways to find and qualify diverse suppliers:

Diverse Supplier Databases

Many suppliers who obtain diverse supplier certifications also register on databases for corporate buyers. These databases provide an extra measure of verification and are easily searchable, but they often require fees from both the supplier and buyer. It is also time consuming to follow up with suppliers.

Supplier Portals

Let your suppliers maintain their diversity status documentation in your supply base management (SBM) software via a supplier portal. You can quickly pull reports to see the number of your suppliers who are diverse, how much the organization spends with these suppliers, and where the suppliers are located. You can also issue RFPs that request this documentation.

As organizations look to find new or alternative suppliers, knowing the location of Tier 1 suppliers is of primary importance. But keep in mind that your supply base management software needs to track suppliers at the Tier 2 and Tier 3 levels to manage risk and diversify your supply chain.

2. Supply Chain Diversification

Simply put, supply chain diversification is a risk management strategy that includes a broad network of new or alternative suppliers. This ensures more flexibility and agility in the supply chain when the market faces a disruption.  

Globalization has led to an increase in outsourcing many supply chain functions in favor of the lowest-cost labor and products. This method is a driver for short-term savings, but it comes with significant risk. When coronavirus infections caused factories to shut down in China, companies that did not have a network of back-up suppliers outside of the country scrambled to fill orders. Similarly, global supply chains were pinched again when the Suez Canal became blocked in early 2021. 

Procurement leaders are beginning to turn away from consolidated supplier contracts and single sourcing to near-shoring operations and sourcing from multiple suppliers. It comes with a higher cost to the organization but also ensures supply continuity. 

Why Supply Chain Diversification is Important

Supply chain diversification is a risk management strategy. A diverse, pre-qualified supplier base is the best line of defense no matter what problem may arise. Adding suppliers introduces more complexity into the supply chain, but it’s a necessary step to make the supply chain more resilient. 

To get value from a diversified supply chain, it must be well managed. Documented processes, automated workflows, and a centralized supplier database can help handle the increase of suppliers. Sourcing, pre-qualifying, and onboarding multiple suppliers speed up the organization’s response time when an incident occurs. But keep in mind that diversification is more than just onboarding a mix of new suppliers. To bolster your risk management, you need to be strategic in the suppliers you choose.

How Digitalization Makes Supply Chains More Resilient

Digitalization is more than a buzzword. It’s now a way of life. Adopting and deploying digital technologies enables companies to be more agile and scale supply chain logistics and business operations. These technologies use artificial intelligence (AI), robotics process automation (RPA), machine learning (ML), and blockchain platforms. Technology is critical to helping companies rapidly adapt in the face of disruption.

Additional Read: How Scanmarket is Helping Clients Through COVID

Without the visibility that digitalization makes possible, key stakeholders cannot identify, analyze, forecast, manage, or monitor risk to respond to threats or capitalize on market opportunities. Visibility helps organizations proactively resolve supply chain issues, promotes compliance with changing regulations, and provides insight to optimize for maximum efficiency, performance, and profit.