Background
It is common for a more prominent provider to choose a smaller supplier when deciding which companies it will deal with. This is due to the perception that larger suppliers are better equipped to handle substantial order quantities and are more reliable than smaller ones (Porter, 2019). There is less probability that a large, financially secure provider will go out of business than a smaller, less economically secure supplier.
The Potential Advantages to Firms of Having a Diverse Supplier Base
Better Quality Services and Faster Communication
Suppliers with fewer customers tend to provide better service. This makes consumers more receptive to improvement suggestions and flexible regarding financial incentives like rebates (Porter, 2019). Expand your supplier base to obtain a competitive advantage and better collaborate. This will minimize command hierarchies, improve communication with top decision-makers, and speed up change. A collaborative platform eliminates long email threads, simplifying communication.
More Opportunities to Innovate and Favorable Contract Terms
Expanding a firm’s supplier base can help it offer new products, boost price competition between existing and potential new suppliers, lower net costs, and increase profitability. Firms that use the same vendors run the danger of becoming stale (Porter, 2019). Smaller suppliers might differentiate themselves from bigger rivals by providing a narrower product. Dealing with a significant supplier may result in more restrictive contract terms and a refusal to accept even modest adjustments. On the other hand, smaller suppliers are keen to negotiate better rates as they expand their supply base.
The Impediments Firms Need to Overcome to Achieve a More Diverse Supplier Base
The “token” agencies may not have a place at the procurement table, restricting their ability to influence purchase choices. The apparent remedy to “tokenism” is prioritizing programs in procurement decisions (Porter, 2019). Finding minority-owned providers that can fulfill a buyer’s procurement guidelines may also be problematic. If a company is looking for small, multiple suppliers that require assistance with the certification program, it may look for mentorship and coaching programs to help them meet the criteria. Therefore, consider partnering with businesses that use these support networks.
How Firms Can Implement Changes in Their Operating Methods and Procedures to Achieve Greater Diversity in Their Supplier Base
Implementing a supplier diversification program in a highly specialized industry like the military may be rugged. For most significant firms, this is an opportunity to fight racial prejudice while simultaneously offering new economic prospects. By engaging with certifying groups, conducting supplier events, and learning about your company’s suppliers’ needs, you can make change more straightforward to implement (Porter, 2019). Reduce the administrative burden of refund processing so that paying particular attention to smaller suppliers is worthwhile.
In conclusion, supplier diversity initiatives positively influence the economy because they encourage the growth of small businesses owned by underrepresented groups of small suppliers, which benefits the economy. Starting and maintaining a varied firm is complex, and there are several obstacles to overcome (Porter, 2019). Additionally, supplier diversity has a favorable influence on the communities in which the enterprises are located, resulting in creating employment, rising wages, and generating tax revenue.
Reference
Porter, K. K. (2019). The state of supplier diversity programs.Implementing Supplier Diversity, 121-130.