How Procurement Can Strengthen Diversity and Inclusion

As we emerge from the pandemic, broad interest in socially responsible companies is accelerating. Investors are pouring their money into funds designed to promote social good, and one company after another is announcing initiatives to encourage diversity and inclusion. Until now, driving economic growth and confronting social equity haven’t necessarily gone hand in hand. Today, companies can not only meet both requirements but also combine them into a competitive advantage by procuring more from diverse suppliers — defined as small businesses or companies owned by minorities, women, veterans, members of the LGBT community, or people with disabilities.

Supplier diversity and inclusion initiatives can make a significant difference to companies’ revenues and to communities. First, customers are three times more likely to purchase a product or service from a brand they perceive to be committed to diversity and inclusion. Second, directing $1 million in procurement spending toward diverse suppliers can create as many as 10 new jobs, according to research conducted by diversity analytics provider Proximo. These jobs drive at least $124,000 in economic impact through tax revenues, helping to build local communities where the suppliers operate.

Yet even though 85% of Fortune 100 companies in the United States have such initiatives, only 59% of these companies report how much they source from diverse suppliers, according to our research. These companies procure on average only 10% of their supplies and services from diverse suppliers. Moreover, much of this spending is directed toward small businesses, regardless of whether members of underrepresented groups own them.

Few industries are well positioned to use their supply chains proactively to encourage diversity and inclusion. Telecommunications, health care, and pharmaceutical companies source the most from diverse businesses, in part because the government is a large customer and they have developed the infrastructure to do so over decades. These are followed by manufacturers and automotive companies, which pioneered supplier diversity and inclusion initiatives in response to the civil rights movement in the 1960s. Energy, financial services, and technology companies source little from companies owned by members of protected classes. (See “Percentage of Procurement From Diverse Suppliers, by Industry.”)