Why a diverse supplier base is important and how to build one
- 21 Jun 2021
- Best Practice & Strategies
We all know we shouldn’t put all our eggs in one basket. Yet that’s exactly what we’ve been seeing in procurement, with the trend to consolidate buying through ever-fewer suppliers. This can have short term advantages – but it puts you at increased risk of business disruption should your core supply chain fail.
Expanding your supplier base, however, both gives you greater confidence in continuity of supply and brings fresh perspectives that can bring significant benefit to your business.
The problems of consolidating procurement through global supply chains
As globalization and cheap transportation have opened up access to suppliers in low-cost countries, organisations have consolidated procurement options to cut costs, create economies of scale, and reduce the admin burden.
Designed to be ruthlessly efficient and deliver cheap products where they are needed when they are needed, the global model is seductive. But as recent events have shown, supply chain consolidation is a risky business.
The shortage of semi-conductors is a prime example. Many electronics manufacturers had signed low-cost high-volume deals with Chinese sole suppliers prepared to undercut competitors. When China went into lockdown, supply dried up, resulting in worldwide shortages of everything from rice cookers to parts for train operating systems.
Of course, it’s not just unprecedented pandemics that pose a threat. Every day, supply chains are being disrupted because of war, politics, climate change issues, local weather conditions, technical problems and more.
Supplier diversity gives you a plan B. Where competitors might be scrabbling around to find alternatives, you have options already in place.
The opportunities of a more diverse supplier base
With diversity comes opportunity. Different types of suppliers bring different things to the table: the more diverse your supplier base, the more diverse the range of ideas and solutions you’ll get.
Inclusivity is a key concept here. In recent years, the term ‘supplier diversity’ has become industry-speak for inclusive procurement, defined by the Chartered Institute of Procurement and Supply (CIPS) as ‘a proactive activity undertaken by contracting authorities to ensure that all relevant potential suppliers have the fair and equal opportunity to compete for business within their supply chains’.
There’s a huge pool of talent out there that’s easy to miss if you look only at traditional suppliers: smaller local businesses, businesses run by people in underrepresented groups, innovative start-ups. Each will offer a fresh perspective, and could prove to be more flexible and offer better customer service than some large corporates. Keen to supply larger customers, these non-traditional businesses are in addition often more competitive.
Working with suppliers outside the mainstream may well also give insights into different demographics and open up new markets.
In addition, a diverse supplier base is an important element in corporate social responsibility. Through inclusive procurement, you demonstrate a commitment to making a positive contribution to a fairer society. This in turn can give competitive advantage when tendering for contracts.
How to build a more diverse supplier base
From understanding what’s needed through to supplier management, here are our top 12 tips for building a more diverse supplier base.
- Review and monitor your spending. Does a particular supplier dominate in a specific category? If so, look to widen your options.
- Assess capacity amongst suppliers for responding to short term increases in demand – where do you need to find more options?
- Introduce automated sourcing Tools such as master questionnaire templates and automated analysis make it easy to collect and manage responses from a wider number of potential suppliers. Simplified processes and online portals make it easier for suppliers new to you to respond, too.
- When sourcing, ask about other customers – if a supplier has significant commitments to one or more existing buyers, their needs could trump yours if you need to order at short notice.
- Check that Tier one suppliers don’t share the same Tier two and three suppliers, so you’re not caught out by problems further down the supply chain.
- Ask appropriate questions to uncover diversity and find out what the supplier can do to add value to your business.
- Review your current compliance requirements to check they aren’t putting unnecessary barriers in the way of new types of suppliers.
- Consider offering extra support (such as pre-tender workshops) to new types of suppliers who may not be familiar with formal tendering processes and corporate contract arrangements.
- Make sure that when you bring in a new supplier, you use them. If you’re not a regular customer, you can’t expect a vendor to give you priority if you need them at short notice.
- Build closer supplier relationships with priority suppliers for long term mutual benefit. The stronger the relationship, the more likely a supplier is to pull out the stops for you in an emergency.
- Choose automated tools that offer detailed reporting, so it’s easy to get the data you need to make diversity-focused decisions.
Automate routine compliance tasks with supplier information management software – make sure suppliers don’t drop off the list simply because you haven’t chased them for up-to-date metrics or compliance documents.