Inclusive Procurement: More than an ESG goal, a sound business strategy with broad social and economic benefits.

(Photo by Clay Banks on Unsplash)

Social and environmental concerns are at the heart of today’s ESG commitments made by organizations. That is nothing new, but what is promising is the fact that reducing social inequalities and caring for our environment also show real business benefit – even if all one cares about is increasing profit.
One such strategy is inclusive procurement, or the deliberate act of supporting minority-owned businesses by incorporating them into the supply base. When successfully implemented, inclusive procurement can bring resilience to a supply chain, foster supplier-innovation and even cost-savings. The economic benefits are evident as well: reducing inequalities helps foster stronger consumer markets and increases an organization’s attractiveness as an employer.

The benefits of a diverse supply base range from social-economic development to good-old cost savings.

 A whitepaper published by Supply Chain Partner, a consultancy, highlights how inclusive procurement can drive economic growth and benefit from supplier-driven innovation. Small businesses tend to be more agile, flexible, adaptable, and innovative. In the last two decades, small businesses were responsible for 65% of new jobs created in the US.
A diverse supply chain, especially a more flexible and innovative one, also helps foster competition, which is directly linked to cost savings. It also has a positive impact on corporate reputation and can help reduce GHG emissions since sourcing from local businesses also helps reduce transportation.

Talent attraction and retention is also impacted. A report by McKinsey points out that 64% of millennials in the US will not work for companies performing poorly on social responsibility.
Even the decades-old procurement metric of cost savings is positively impacted. The same report shows that firms with a more diverse and inclusive supply base realize yearly cost savings of up to 8.5%, versus a benchmark of 3-7%.

McKinsey suggests that the following levers should be considered when creating a more diverse and inclusive supplier ecosystem:

  1. Everything is in scope.
  2. Track the diversity of your business ecosystem.
  3. Rethink governance and resourcing.
  4. Improve your existing supplier diversity efforts.
  5. Build MWBE (Minority and Women Owned Business Enterprises) in areas of economic growth.
  6. Invite more stakeholders to the table.
  7. Form long-term partnerships.
  8. Review internal barriers that may preclude MWBEs from competing for your business.

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