The benefits of being different

Taking on suppliers run by under-represented groups is not just a nice thing to do. It makes perfect business sense, says Beth Ginsberg.

Many companes across Europe are seeking to ensure diversity among their workforce. They recognise that it’s good for business in terms of product development, recruitment and customer loyalty. But even greater business benefits may well lie in fostering a diverse supply base.

Suppliers are the lifeline to business. Within companies’ supply bases, small and medium enterprises are tremendous assets. They are innovative, flexible and dynamic in ways that large companies can never be. They are the engine room of new ideas and have their finger on the pulse of the communities where they operate. They can help introduce big businesses to those markets.

The fastest growing sector of the economy in Europe is the SME (Small-Medium Enterprise) sector. A massive 99 per cent (23 million) of EU enterprises are SMEs. They employ 75 million people and contribute more than 55 per cent of EU GDP. This is why the EU is putting great emphasis on growing SMEs to make Europe the most competitive global economy.

Within the SME sector, under-represented businesses are currently the fastest growing group. We have found that:

• Women entrepreneurs own and manage 22 per cent of SMEs.
• Under-represented ethnic businesses account for 7 per cent of UK businesses, 62,000 of which are based in London (19 per cent of all London businesses).
• Approximately 25,000 companies in the Netherlands are owned and run by under-represented ethnic entrepreneurs
• Some 13 per cent of Swedish entrepreneurs are immigrants and 80,000 Swedish firms are run by people from under-represented ethnic societies.

Many of these businesses are not known to large multinational companies or their prime contractors. They do not come across them through their regular networks. Inevitably, these companies sometimes miss out on an untapped resource of talented suppliers. They need to find a way to include them in the bidding process.

One way to do this is through "Supplier Diversity"– a purchasing initiative which aims to offer under-represented businesses, including, but not limited to, ethnic minority- owned, women-owned and disabled-owned SMEs the same opportunities to compete to supply goods and services as other suppliers.

To sustain and grow their businesses, companies also need to meet the needs of individual and corporate clients and they need to understand changing consumer bases and spending patterns.

Declining birthrates coupled with rising numbers of immigrants in Europe is changing the demographics. The numbers speak for themselves – 5.4 per cent, or 20.4 million, of Europe’s working population is foreign-born and 9.8 per cent, 37 million, is disabled. The Netherlands, Sweden and the UK all expect their ethnic minority communities to double within the next 25 years. And, of course, women make up 52.5 per cent (198.3 million) of the working population.

Ethnic communities, in particular, have increasing spending power in Europe. In the UK, it is estimated that ethnic communities have an annual income (after tax) of well over 21.35 billion euros, accounting for more than 4 per cent of nationwide disposable income. In Germany, the Turkish community (the largest foreign population with over 2.4 million people) has a net income of around 6.4 billion euros.

Supplier diversity is also becoming more important to potential business customers. Companies are increasingly being asked by their potential clients to supply information about their supplier relation programmes as a requirement within the bidding process.

Supplier diversity programmes are considered a unique selling point – a factor which may tip the balance in a company’s favour when it comes to winning contracts. Increasingly, companies are expected to act responsibly in terms of their economic, environmental and social performance in the short and long term.

They are being asked by their consumers, employees and other stakeholders to make a positive contribution to sustainable development in line with the ideals of corporate social responsibility. Many companies see a strong link between corporate social responsibility and supplier diversity. By ensuring equal opportunities, they can demonstrate their commitment to improving their social performance. They believe it will help attract the best employees and strengthen customer loyalty.

There is one final lever which encourages companies to create supplier diversity programmes – the risk of not doing so. Since 2000, the EU has set minimum common standards for all member states with regard to discrimination on the grounds of gender, racial or ethnic origin, religion or belief, disability, age and sexual orientation.

What this means to business is that it is very possible that a potential ethnic-minority owned, women-owned or disabled-owned supplier might accuse a company of discriminating against them in the recruitment process, alleging, for example, that they were not given an equal opportunity to bid for a contract.

A supplier diversity programme would help to demonstrate that the company is actively seeking out under-represented business and is therefore not discriminating against them during the procurement processes.

But how can a company begin to develop a supplier diversity programme? The following are some key pointers which have been developed by the European Supplier Diversity Forum.

Develop a policy for supplier diversity in Europe which is communicated effectively.

Put your aspirations down on paper. Identify a visible process manager at senior level and acquire senior level sponsorship. You will need to set clear objectives with the overall procurement manager and, as appropriate, with other teams, such as your diversity team. You will also need to brief and train sourcing staff and other internal stakeholders.

Assess your procurement criteria.

It is important to review your procurement systems/criteria to ensure that there are no unjustified requirements which may impact disproportionately on under-represented businesses. Often, small and medium enterprises find the requirements to bid for contracts insurmountable. For example, is your insurance requirement too high for them and is it appropriate given the nature of the contract?

Engage with under-represented potential suppliers and intermediary groups.

Develop an understanding of the problems and challenges that under-represented suppliers face. Forge relationships with potential suppliers, government agencies and intermediary organisations. It might be helpful for your potential suppliers to brief them on your procurement process and to hold select "meet the buyer" sessions once your programme is in place. Consider setting up or linking into databases of under-represented potential suppliers for your buyers to access.

Work with your prime suppliers.

This is crucial because supplier diversity does not stop at the first tier. It must work down the supply chain to those companies that deal most closely with small and medium enterprises. Be careful not to demand that they set up supplier diversity programmes, but work with them on joint initiatives.

Communicate your approach externally.

People will need to know about your programme in order to access or support it. Activities such as posting the programme on your website, advertising it in the trade press and the under-represented business press and establishing relationships with national governments and the EU to leverage support are good starting points.

Progress your supplier diversity initiative.

It is always good to measure your own progress against yourself and others. For example, you might wish to track the amount of spend with under-represented businesses as a proportion of your total spend. How many under-represented business suppliers have bid for contracts? How many would you like to include in bids in years to come? Benchmark yourself against other companies to see how you rate.

Join with other companies that want to create supplier diversity programmes.

It is difficult to do these things alone. In such a ground-breaking, new area, it is better to join with other companies, even competitors, to build a knowledge base and to share lessons learned and best practice tips.

The European Supplier Diversity Business Forum is one initiative which promotes supplier diversity. It is a membership-driven and European-based project, which works with procurement professionals in several countries across Europe.

In the words of Gerard Voogt, regional procurement director of Citigroup Business Services and chairman of the board of the Forum: "If you and I are the same, what have we got to offer each other?"

Beth Ginsberg is programme director, the European Supplier Diversity Business Forum Migration Policy Group