Spending on diverse suppliers has increased more than 50%, says Bain report

03 June 2021 Consulting.us 2 min. read

Corporate spending on diverse suppliers – including women- and Black-owned businesses – increased an average of 54% between 2017 and 2020, according to research from Bain & Company and Coupa.

Following protests over systemic racism in 2020, many corporations accelerated their commitment to diversity initiatives – including efforts to increase supplier relationships with businesses owned by women, Black people, and other underrepresented groups.

According to an analysis of procurement spend by more than 350 companies across global industries, spending on diverse suppliers grew significantly in the last three years. But rather than simply being viewed as a moral choice, boosted supplier diversity can also improve business performance.

According to the Bain report, companies in the top quartile of diverse supplier spending had an average 0.7 percentage points more savings on total procurement expenditures. The research also noted other tangible benefits, such as higher annual retention rates (20+ percentage points).

Annual savings as a percentage of procurement spending

Top quartile firms had a more efficient procurement process overall, with greater use of electronic purchase orders (+52%), faster requisition to order processing time (+18%), and faster invoice approvals (+46%) than their peers.

“It's high time we put to bed the myth that diversifying a company's supply chain means sacrificing business results," said Radhika Batra, an expert partner in Bain's performance improvement practice. "The data conveys quite the opposite. A well-managed ecosystem of diverse suppliers, including businesses owned by women and people of color, can be a strategic differentiator for companies, generating meaningful returns."

Bain’s report also identified typical roadblocks to boosting spend on diverse suppliers. A crucial area is positioning supplier diversity as a long-term strategy instead of as short-term, standalone sourcing events. This is important since it can take from 12-to-18 months to fully qualify a new supplier, according to Bain.

"When companies stop thinking of diversifying their supply base as a standalone initiative and start to recognize the benefits of investing in underrepresented groups, we see meaningful business improvements," said David Schannon, co-leader of Bain's procurement practice in the Americas.

It’s also important to maintain organizational alignment, from the board on down to business units. The former need to make strong commitments, while the latter should understand how diversity goals compare to other priorities via clear mandates.

Successful supplier diversity programs also require adequate resources. Many initiatives stall out or fail because firms underinvest in capabilities needed to support new suppliers, including onboarding, risk mitigation, and mentoring.