Accelerate the ESG impact: Enterprise leaders, embrace supplier diversity now

Enterprise leaders must prioritize the environmental, social, and governance (ESG) criteria within procurement to remain competitive and relevant in a changing market. Companies are increasingly adopting sustainable practices to achieve these ambitious goals. Procurement can play a strategic role in advancing these initiatives by implementing sustainable practices, such as measuring spending on diverse suppliers and evaluating the impact of this spending on the economy, environment, and ecosystem. Neglecting to diversify suppliers means missing the opportunity to track and report on your ESG objectives effectively.

Companies have created measurable ESG strategies to meet customers’ and investors’ demands. Procurement accounts for most of an enterprise’s spending. Hence, it plays a crucial role in fulfilling these ESG commitments, especially in tracking and reporting on diversity, equity, and inclusion (DEI) metrics.

Supply chain disruptions, changing consumer expectations, and sustainability are key challenges for the enterprises

Managing procurement spending by diversifying suppliers enables organizations to address global macro-environmental challenges (see Exhibit 1), such as supply chain disruptions, changing consumer behavior, and the need for enhanced diversity and inclusion. Procurement teams must evaluate how spending with tier-1 (direct) and tier-2 (indirect or subcontract) suppliers can positively impact society.

Exhibit 1: What are the top-pressing macro-environmental factors currently affecting your organization’s goals?

Sample: 257 business services leaders
Source: HFS Pulse Data, April 2024

When the spending of procurement functions is directed to small, minority, and women-owned business enterprises (SMWBEs), they reduce the risk of supply chain disruption, enhance business reputation and innovation, and ultimately benefit the economy. This is another way to contribute to the United Nations Sustainable Development Goals (SDGs) and promote inclusivity and equality.

Focus on supplier diversity to create a positive impact on spending

Supplier diversity has become a crucial board-level priority after COVID-19. Leaders now recognize it as a significant driver of social and business value, beyond just an ESG initiative. The Billion Dollar Roundtable (BDR) consists of over 40 large companies that each spend at least $1 billion annually on diverse-owned suppliers. BDR shares best practices and manages the supplier diversity ecosystem, providing impact metrics and supporting members in their initiatives.

In 2023, BDR members achieved an impressive economic impact of $320 billion through $122.7 billion in spending on diverse suppliers. This significant investment created approximately 1.8 million jobs and contributed $93 billion in wages. According to BDR and its research partner, the Consulting and Business Development Center (CBDC) at the University of Washington, every dollar spent on diverse suppliers generates an economic impact ranging from $2.21 to $2.99. It adds value between $1.26 and $1.55 to the supplier. Additionally, every million dollars spent on diverse suppliers creates between 8 and 20 jobs, with wages between $516,500 and $924,000.

Market leaders are raising the stakes in supplier diversity initiatives. Procter & Gamble (P&G), a strong advocate for this cause, plans to increase its spending with diverse suppliers from $3 billion annually to $5 billion by 2030. To achieve this ambitious goal, P&G will continue to onboard diverse companies into its supply chain and assist suppliers in diversifying their networks in the US and globally. This includes partnerships with organizations such as the National Minority Supplier Development Council (NMSDC), the Women’s Business Enterprise National Council (WBENC), and Disability:IN. P&G has committed to spending a cumulative total of $300 million by working with women-owned and women-led businesses across the Asia Pacific, Middle East, and Africa from 2021 to 2025. Similarly, in 2023, Unilever allocated $1.2 billion to SMWBEs across 25 global markets, part of its total spending of $36 billion. Around 85% of its spending now goes to suppliers that meet the Responsible Partner Policy (RPP) requirements, an increase from 76% in 2022.

HFS Research recommends key steps to adopt supplier diversity in procurement

Market leaders have proven that solid supplier diversity programs deliver multiple wins, including reducing the risk of discrimination claims, gaining a competitive advantage, increasing the likelihood of attracting new business, and improving customer and community relationships. But capturing these benefits requires more than good intentions—it demands systematic execution (see Exhibit 2).

Exhibit 2: Key steps for enterprises in adopting diverse suppliers; the advantages and impact

Source: HFS Research, 2024

• Focus on the right communities: Procurement should align with enterprise ESG goals to empower communities with the most significant impact and can be effectively reported. This alignment can be based on existing supplier diversity and impact metrics on various communities. Enterprises can expand their outreach to new communities and geographies based on their target markets. For instance, P&G focuses on women-owned/led businesses globally and black-owned businesses in South Africa.
• Leverage ERP and ProcureTech: Enterprises should utilize their existing enterprise resource planning (ERP) systems and invest in easily integrated technologies for their supplier diversity programs. Various platforms can automate the request for information (RFI) process and improve the supplier marketplace while supporting ESG goals and spending metrics. For instance, Supplier.io enhances ESG efforts by increasing year-over-year spending with diverse suppliers by an average of 25%, impacting over 90% of procurement categories. Meanwhile, Globality, an AI-driven platform, automates the RFI process and introduces three new diverse suppliers for 70% of sourcing events.
• Partner with purpose in reporting: Standardized reporting enables companies to benchmark their progress, enhance transparency, and improve accountability. Collaborating with ecosystem partners for a common purpose establishes a strong foundation for achieving ESG objectives while building trust among end customers, suppliers, and investors. For example, EcoVadis, a global sustainability rating platform, enables procurement teams to monitor and report on the ESG performance of their suppliers, impacting over 100,000 companies across 200 sectors. Using standardized scorecards, it helps increase supplier diversity by 30% and reduces supply chain carbon emissions by an average of 25%, promoting transparency and sustainability on a large scale.

The Bottom Line: Procurement leaders must diversify their suppliers, align with enterprise ESG targets, utilize existing ERP and innovative ProcureTech platforms, and collaborate with ecosystem partners to benefit society and the economy.

Enterprise Leaders must demonstrate their value to enterprise ESG goals and acknowledge their responsibilities to society and ecosystem partners. They should focus on becoming responsible procurement professionals by identifying key communities to maximize impact using existing ERP and procurement platforms.

A robust supplier diversity program not only enhances brand reputation but also tackles global challenges such as supply chain disruptions and shifting consumer demands for sustainability, diversity, inclusion, and equality.