Authors: Sarah Doherty and Jake Brostuen
As the United States continues to reckon with long-standing afflictions of systemic racism and economic inequity, the supplier diversity initiatives of large, influential corporations are receiving more attention and scrutiny today than ever before. Interest in these programs has surged among businesses seeking to be part of solutions for advancing social progress. By increasing economic opportunities for racial and ethnic minorities, women, members of the LGTBQ+ community, and individuals with disabilities, these businesses are not only underlining their commitment to combating social ailments that debilitate societal advancement, but also making a strategic decision aiming to advance their own financial well-being. However, despite the progress taking place in supplier diversity efforts throughout various industries, many of America’s largest government defense suppliers, or OEMs, lag behind other sectors in providing a clear and comprehensive vision for their efforts to enhance supplier diversity in public spending.
This work first highlights the proven economic and social benefits of supplier diversity richness utilizing empirical evidence from contemporary scholarly research. It then describes the current state of supplier diversity within many of the country’s largest defense primes through an analysis of official content relevant to supplier diversity efforts on websites. Lastly, it underscores the need for greater clarity and transparency in supplier diversity communication efforts among OEMs operating within the public sector.
The Benefits of Supplier Diversity
According to the Council for Supplier Diversity, “A diverse supplier is a business that is at least 51% owned and operated by an individual or group that is part of a traditionally underrepresented or underserved group” (Bateman et al., 2020). These groups include businesses that are officially classified as women and minority-owned businesses, disabled veteran-owned businesses, and all other groups with designated set-aside status. While many of the largest American companies were among the first to adopt supplier diversity programs, many others have recently created their own programs or enhanced their commitments to meet the current expectations of today’s consumer base.
Fostering an effective supplier diversity program is not only the right thing to do ethically, but a commercially advantageous financial decision that will provide a business with greater resiliency, recognition, and respect within any given industry. Businesses that adopt supplier diversity programs inherently receive a comparative advantage in supply chain resiliency, as repeatedly relying on the same suppliers can lead to creative stagnation and decreasing marginal returns (Suarez, 2020). Evidence also demonstrates that minority-owned businesses develop more innovative product offerings (Robinson, 2016; Suarez 2020). Furthermore, research shows businesses that adopt and maintain strong supplier diversity programs also benefit from attracting higher quality job applicants and are provided more opportunities for partnerships with external organizations (Bateman et al., 2020). Finally, businesses can also benefit financially from increased revenue associated with being able to promote their company as an organization that prioritizes supplier diversity.
The State of Public Sector Supplier Diversity
Despite the multitude of benefits from cultivating a robust supplier diversity program, many of the country’s largest public-sector companies are still struggling to develop meaningful supplier diversity programs. Furthermore, of companies that do claim to promote supplier diversity initiatives, many are simply tokenistic or symbolic gestures with little delineation regarding their stated goals, programs, or tangible outcomes. To understand the state of current supplier diversity measures among large prime federal contractors, Public Spend Forum recently completed an audit of a handful of large key organizations to see what their supplier diversity efforts consist of and how they are publicizing them.
In the process of researching the supplier diversity programs of OEMs, several strengths and weaknesses were identified in the websites and programs. Generally, the more robust programs have a greater level of specificity and detail in their discussion of initiatives and goals.
Specifically Designated Resources Point to Program Development
While every OEM researched had an office dedicated to their diversity initiatives, these offices varied greatly in their specific relevance to supplier diversity. The least impressive programs had broad diversity and inclusion offices which encompassed efforts across the organization holistically while barely mentioning supplier diversity. Most of the OEMs analyzed were slightly more developed and had at least an office designated to subcontracting opportunities for small businesses. In addition to having a small business office, the most robust programs had separate offices dedicated to supplier diversity, which featured detailed explanations of the supplier diversity program’s goals and initiatives.
Supplier Diversity Points of Contact are Largely Difficult to Locate
The specificity of diversity offices correlated directly with accessibility to and presence of supplier diversity points of contact. OEMs with the broadest diversity offices often did not have a point of contact listed on their program’s website, making it difficult for small and diverse businesses to get information about the company’s program or to hear about subcontracting opportunities.
Most OEMs had at least one point of contact on the website, although this was often difficult to locate, as some websites had cumbersome pages connected by disorganized links. Only the OEMS that had specifically designated supplier diversity offices had easily accessible contact information for supplier diversity directors.
Specificity in Describing Goals, Initiatives, and Outcomes Proves Superior Development in Supplier Diversity Programs
While all of the OEMs listed goals for improving and diversifying their supply chain, the most effective websites incorporated specific monetary goals, such as financial commitments to the program, and used great detail to describe their initiatives. As part of their goals, all OEMs identified focus groups for their programs, although without specific financial investments provided the amount of support given to these groups is ultimately undisclosed. Regardless, most OEMs claimed to target supplier diversity efforts at small businesses and veteran-owned businesses. A majority also specified women-owned and HUBZone-labeled businesses, and some OEMs focused on disability-owned and Native American-owned businesses.
OEMS’ supply chains must include at least the federally dictated percentage of each of the mentioned focus groups. While subcontracting to a broad range of diverse companies is obviously the most beneficial for OEMs, many only target these groups. Other minority groups, such as LGBTQ+-owned and African American-owned businesses were seldom mentioned as targets, which both diminishes the ethically important inclusive aspect of supplier diversity programs and diminishes its ability to create effective and resilient supplier bases.
Most OEMs listed supplier diversity initiatives that related to their stated goals and sometimes to their focus groups. Again, specificity and detail demonstrated which OEMs had the strongest plans to effectively meet their goals, as many OEMs lacked calculated initiatives and only discussed government-run programs such as AbilityOne. The most developed programs were able to explain specifically designed initiatives that focused on meeting their goals and creating opportunities for their focus groups. For some OEMs, these customized initiatives featured mentor-protégé programs for small businesses, which too varied in their level of development. The most impressive programs elaborated upon the specific initiatives and about how many protégés are involved.
Although it is clear that some OEMs need to revamp their supplier diversity programs, all OEMs were able to provide a surprisingly extensive list of awards and other accolades relating to supplier diversity. The programs that had the most specificity throughout their website rightfully boasted the most awards and went further to discuss other outcomes of their initiatives. These results explained the percentage of their supply base that is a small or diverse business, discussed conferences attended by their program’s leaders, and stated monetary investments towards supplier diversity efforts and support for diverse businesses.
Communication is Key
As these findings demonstrate, OEMs that wish to have a meaningful impact on supplier diversity have a long way to go if they intend to convey that they are serious about supplier diversity as a priority within their business model. Moving forward, defense primes need to ensure that they are clearly articulating their goals, initiatives, and outcomes related to supplier diversity so they can deliver on their promise to expand social and economic equity.