The Role of Subcontracting in Supplier Diversity


By: Danielle Hinz

As organizations look to set diversity, equity and inclusion (DEI) goals in 2021, a supplier-diversity program can help achieve those goals. But sourcing supplies through diverse sellers can be challenging, considering many are small businesses without the capacity to take on complex procurement contracts. Danielle Hinz, public sector leader at Amazon Business, discusses how organizations can set up an effective supplier-diversity program.

What is a supplier-diversity program?
A supplier-diversity program is a proactive initiative set up within organizations to source supplies through diverse sellers, such as small-, minority-, women-, veteran-, and LGBT-owned businesses. These sellers can receive a supplier diversity certification from a third-party agency, such as the Small Business Administration (SBA).

When a large B2B buyer deliberately seeks out alternative sourcing options from a diverse supplier, it can have a significant, positive impact on the growth and success of a diverse sellers’ business. Coca Cola, for example, is spending more than $800 million annually on diverse suppliers.

What benefits does a supplier-diversity program provide organizations?
Organizations across nearly every industry are ramping up their DEI efforts. In 2020, Nasdaq filed a proposal requiring its listed companies to have at least two diverse board members, and Hewlett Packard Enterprise now requires all managers to attend DEI training. These types of diversity initiatives are becoming increasingly important across the board; however, it’s just as important to invest in DEI externally. Setting up a supplier-diversity program can help to ensure that organizations committed to ramping up their DEI efforts are demonstrating those values outside of their organization by investing in businesses they otherwise might not. And it’s a win-win for the organization looking to divert spending to support small and diverse businesses, as well as a win for the seller who is gaining a large client and achieving new growth.

For government organizations, specifically, larger procurement contracts may mandate that a certain amount of their spend goes toward underrepresented and small businesses. An established supplier-diversity program can help them meet compliance and set more ambitious goals to earn a higher score on the SBA’s Annual Small Business Procurement Scorecard, which measures federal agencies’ success in meeting their overall small business contracting goals.

What are the biggest challenges to setting up a supplier-diversity program?
The first hurdle many organizations face when trying to set up a supplier-diversity program is a difficulty finding diverse sellers to source from. And small businesses typically don’t have the necessary resources available to expand their market reach, so organizations have a hard time identifying them among their supplier options.

How can organizations overcome these challenges to create an effective supplier-diversity program?
To work around these barriers, organizations can require subcontracting as part of their procurement process. Breaking up bigger contracts into smaller pieces enables small businesses to participate in larger deals. Not only does this open the door for more minority-owned businesses to bid on contracts, but it also enables organizations to increase the number of diverse suppliers they use.

However, splitting up procurement into separate parts to attract more diverse sellers can complicate the process—especially considering it’s difficult to find diverse sellers in the first place. To open the search pool, organizations can digitize their procurement process. Some online B2B stores have supplier diversity search and filtration features that provide buyers with features to directly source and buy inventory from small and diverse businesses. Online stores can also provide organizations with capabilities to search for products based on certification type and to track certified supplier diversity spend to simplify goal reporting.

For example, Johns Hopkins University was committed to increasing contracts with minority- and women-owned businesses. By leveraging an online store, JHU’s procurement team can filter search results by seller certifications to ensure they’re discovering and purchasing from businesses with a variety of different diversity certifications. Considering the university spends around $1 billion a year on procurement, its supplier-diversity program makes a significant impact for the sellers whose businesses JHU supports.

Danielle Hinz, public sector leader at Amazon Business


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