The benefits of diverse supply chains for SMEs
Being less reliant on one or two companies is just the start. Discover how diversifying your supply chain can benefit your business.
As part of the SC WIN Scale-Up Support series, we asked our Head of SCM Sustainability and leader of our Supplier Diversity and Inclusion programme, Susan Tew, to talk about the benefits of supplier diversity.
What is supplier diversity and inclusion?
The importance of supplier diversity and inclusion (D&I) for larger companies builds on the broader benefits of D&I in the workplace. Having a diverse supplier base means sourcing products and services from a wide range of suppliers with different characteristics, who are often SMEs and based locally in markets.
- Supplier diversity refers to the number of diverse suppliers that a business has in its supply chains (e.g., women-owned or ethnic-minority owned).
- Supplier inclusion refers to the active steps a business takes to leverage that diversity (e.g., SME supplier development and collaboration).
Research has found that there are many benefits to diversifying supply chains, as opposed to being reliant on one or two companies.
At Standard Chartered, our supplier D&I strategy is focused on promoting economic growth for our communities as well as unlocking greater value from our supply chain due to increased innovation, competitive bidding and expansion of buying channels that supplier D&I generates.
What are the benefits for larger companies and smaller suppliers?
Supplier D&I is a truly win-win approach. SMEs incorporated into the supply chain of a large global corporate will have an equal opportunity to demonstrate how they can use their capabilities to add value, as well as the opportunity to develop new ones. This will help extend their market reach and ability to scale up, driving positive economic and community impacts in their local markets.
For a global business choosing to work with more diverse SMEs, benefits include greater access to new perspectives and solutions, as well as increased agility, responsiveness and competitiveness, due to the entrepreneurial approach that diverse SMEs bring.
Research shows that 40% of all new innovations come from SMEs, so using smaller, diverse suppliers can open up access to a wider range of products and services, improving efficiency and customer/client satisfaction.
Data from the Hackett Group from 2020 shows that for every USD1 million spent with diverse suppliers, there can be a return on investment of up to USD3.6 million. On top of this, there is a reduced risk of business interruption if one supplier runs into problems.
What are the challenges?
There can be complex requirements that need to be satisfied for an SME supplier to be onboarded by a global corporate organisation. It can be overwhelming in terms of the time, resources and the specific capabilities needed to successful pass through this process.
That’s why we work closely with supplier D&I NGO’s such as WEConnect International and MSDUK to help SMEs to build their understanding of what is required, so they know how to respond better and how to begin developing the necessary business infrastructure.
There are commonly held assumptions about the benefits of larger, global suppliers compared to local, smaller suppliers, which can be unhelpful and rooted in unconscious bias.
For example, it might be assumed that larger suppliers provide economies of scale, driving cost savings. However, this is by no means always the case – and quite to the contrary, often smaller, local suppliers are better placed to offer lower prices as well as other value adding benefits such as being more environmentally friendly or being able to reflect more closely local stakeholder or client needs. At Standard Chartered, we provide supplier D&I training to our internal stakeholders to help overcome this challenge.
How can women-owned SMEs benefit from supplier D&I policies at larger firms?
According to WEConnect research, women influence over 85% of consumer purchasing decisions and when women do better economically, they spend more money on children and families, directly helping to uplift societies. Currently 30% of all private businesses are owned by women, but less than 1% of all corporate and government spend is made with them.
Large companies such as Standard Chartered are therefore increasingly looking for ways to change this and to empower women by increasing the proportion of women-owned businesses that they source products and services from.
We’ve set a goal of becoming a leading brand in supplier diversity by 2025, with ambitious targets in relation to the numbers of diverse suppliers we onboard and level of spend we make with them. Our supplier chain management teams are implementing actions and initiatives to help us achieve this across our markets.
What can SMEs do?
Look out for initiatives and interact with firms seeking to broaden their supplier base. For example, we run and participate in seminars, workshops and events to connect with diverse SMEs.
In addition look at joining forces with NGOs in your region that provide support and guidance to diverse suppliers such as WEConnect International and MDSUK, which also bring large global corporations and diverse owned businesses together.