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Debunking the Myths of Supplier Diversity: Myth #3: Diverse Suppliers Are Expensive

hands piled on top of each other with the headline, "Are Diverse Suppliers Too Expensive"

In the final post of our myth busting supplier diversity series, we explore Myth #3: Diverse suppliers are expensive, and cost is the bottom line.

One persistent myth that has lingered in the business world is the notion that diverse suppliers are more expensive than their non-diverse counterparts. This misconception has hindered the progress of supplier diversity initiatives, preventing organizations from fully realizing the benefits that come with a diverse supply chain. In this post, we will debunk the myth that diverse suppliers are too expensive and explore the tangible advantages of embracing diversity in the supply chain.

Can diverse suppliers be more expensive than your current supplier? Sometimes, sure; however, generalizing that ALL diverse suppliers are not the cheapest solution feeds into a general bias that all diverse-owned companies charge more for their goods or services. In fact, a 2022 McKinsey & Company study found companies who use a diverse set of suppliers gain an 8.5% savings year-over-year. Oftentimes, diverse suppliers are the best value providers, delivering the same goods and services but with more options and benefits like the ones listed below.

1. Foster community growth

One of the primary ways in which supplier diversity fosters community growth is by creating economic opportunities for businesses owned by minorities, women, veterans, and other historically excluded groups. By diversifying the pool of suppliers, businesses contribute to the economic development of a broader segment of society. This, in turn, leads to the creation of jobs, the expansion of local businesses, an increase in disposable income within the community, and re-investment in the community by those diverse businesses. For example, the arrival of a large chain store to a neighborhood can quickly put a small, diverse-owned supplier out of business unless the community supports their business. Chances are that the large chain store takes its profits elsewhere, while the small, diverse-owned supplier invests their profits right back into their community.

2. Strengthen customer relationships

Working with more diverse suppliers allows businesses to expand their reach by better understanding and connecting with customers they may not have in the past while also increasing brand loyalty within the community. Many customers today prioritize diversity and inclusion. They prefer to support businesses that demonstrate a commitment to these values. By showcasing a diverse supplier base, a company tangibly demonstrates that it shares similar values with its customers. It shows that the company understands and respects the varied needs and preferences of those customers. This inclusivity contributes to a positive perception of the brand among customers, which builds trust and strengthens the customer’s connection with the brand. For example, with women accounting for 85% of all consumer-buying decisions, the possibilities as more women start impacting your products, services, and supply chain makes a company more appealing to their end customers.

3. Encourage a healthy, competitive landscape and innovation

Encouraging a healthy, competitive landscape and fostering innovation are crucial aspects of supplier diversity that can result in various benefits for businesses and the economy as a whole. When large, traditional suppliers only compete against one another, pricing is often well-established. When smaller, diverse owned suppliers are intentionally included, it can shake things up and often inspires more competitive pricing and customized approaches. Diverse suppliers bring different perspectives, experiences, and ideas to the table. By engaging with a variety of suppliers, companies can tap into a broader range of innovation. Different backgrounds and experience can lead to creative solutions, new product ideas, and improved processes. Supplier diversity also fosters an environment that encourages creativity and out-of-the-box thinking. Diverse suppliers may approach challenges and problem solving in unique ways, contributing to a more dynamic and creative supply chain. A diverse supplier can often have insight into markets that may be overlooked by traditional suppliers – untapped markets. Engaging with a diverse range of suppliers can provide access to new and emerging markets, helping businesses expand their reach and customer base.

Because diverse-owned suppliers are generally smaller and able to be more experimental, responsive, and agile, innovation flourishes and they can challenge the status quo to help larger companies move to the next level.

Supplier Diversity is a multifaceted strategy that goes beyond the walls of businesses, reaching into the heart of communities. As businesses embrace the principles of supplier diversity, they not only drive their own success but also become agents of positive change, contributing to the well-being and prosperity of the communities they call home. It's an investment in the future that helps build stronger businesses.

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