How Global Companies Are Implementing Supplier Diversity Policies

By Anna Sáez de Tejada Cuenca and Gemma Berenguer

It has become increasingly common for companies to implement supply-chain diversity to maintain a good image and show commitment to sustainability efforts. Here are some insights into how Fortune Global 500 companies are diversifying their supply chains.

As companies face growing demands for supply-chain transparency and inclusive workplaces, many, especially in the US and Europe, are stepping up efforts to expand their supplier diversity.

Gone are the days when companies could consider their supply chain – the complex web of third-party contractors and sub-contractors – to be independent of headquarters. An important turning point came in 2013 with the collapse of the infamous Rana Plaza in Bangladesh which killed more than 1,100 people and revealed just how little many Western fashion brands knew about who was making their clothes and under what conditions.

Now global companies are expected to know who is producing their goods and providing their services, and that their basic values are aligned. Those who don’t, risk serious damage to their reputation. Additionally, for companies taking sustainability seriously, the supply chain forms part of Scope 3 emissions, which include not only a company’s directly owned or controlled activities but also its full value chain.

An increasing number of companies include diversity under the umbrella of social responsibility. As a consequence, supplier diversity efforts are a natural extension of the heightened awareness of supply chains and drives to create more inclusive and diverse companies.

To understand what companies are doing and where, we examined the supplier diversity initiatives of Fortune Global 500 companies in 2020 and 2022.¹ We found that, overall, North American companies lead the way in implementing diversity programmes, but Europe is gaining ground. At the other end of the spectrum, firms from East and Southeast Asia – the majority of the list of companies – have little demonstrated interest in the issue. 

The numbers speak for themselves. Of the 214 Asian companies among the Fortune Global 500 companies, only 7% had specific supplier diversity programmes in 2022; in 2020, that percentage was 5.4%. Of the 117 North American companies, 86% had programmes in 2022, up from 79% in 2020. Western Europe had 43 companies on the list: 35% of them had diversity programmes in 2022, up from 28% in 2020. 

History and Context of Supplier Diversity

In our recently published paper, and based on our analysis of the Fortune Global 500 companies as well as in previous academic literature, we define supplier diversity as the effort made by a company to increase the relationships it has with suppliers that are owned or operated by disadvantaged groups and to improve those already in place. What counts as a disadvantaged group varies by country and region; depending on cultural and historical context, different places have their own distinctive demographics and groups that have suffered from a lack of opportunities.

But while there are variations, companies do coalesce around certain areas. The dimensions with more than 100 mentions in our data are gender, disability, sexual orientation, age/generation, ethnicity, race, gender identity, nationality, religion/creed and veterans (disabled or not). We note that 96% of the companies with a specific supplier diversity definition refer to gender, far more than any other dimension; broken down by region, gender tops the list everywhere.

It is useful to understand how supply-chain diversity has evolved. While diversity, equity and inclusion (DEI) has become another salvo in the US culture wars in recent years, diversity initiatives in supply chains started there during the Civil Rights movement in the mid-1960s² as a way to reverse long-standing discrimination against companies owned by ethnic minorities and women. Initially, the US federal government spearheaded efforts, using its procurement practices to target support for minority corporations.³ Over the years, the private sector climbed on board.

Globally, the UK was the first country to follow the US in adopting intentional policies to increase supplier diversity, particularly among ethnic minority- and women-owned businesses.⁴ Western Europe has joined this trend over the last several years.

Because the US was a pioneer in this area, many concepts have been rooted in its demographics and the groups traditionally discriminated against there. But each region is putting its stamp on policies. Many companies worldwide refer to ethnicity, but this may involve different concepts in different places (for example, immigrants in Europe and Aboriginal peoples in Australia). Companies that work with suppliers based in India sometimes refer to caste. In definitions of diverse suppliers, the US includes those owned by military veterans. Age is mentioned in places such as Asia and Europe, but less so in North America. Sexual orientation is often referenced by firms in Western Europe and North America but not in other regions represented in the sample.

It is worth noting which diversity dimensions are found in East and Southeast Asia, even if the initiatives are relatively scarce since they do not coincide with those from North America. The areas most often referenced by Asian companies are age/generation, nationality, disability and religion/creed.

How Companies Diversify Their Supply Chains

We found that companies implement supplier diversity efforts in two main ways: by creating specific supplier diversity programmes and/or by embedding diversity requirements into supplier codes of conduct (SCoC). The programmes tend to be more proactive in seeking to do business with a diverse group of vendors. They have been shown to have a number of intangible benefits for the buyer firm, including a stronger reputation, recognised leadership and the building of more robust partnerships.⁵

Broader in scope, supplier codes of conduct cover a range of topics beyond diversity, in order to foster ethical conduct within all organisations in the supply chain. They can convey a company’s values, covering areas including labour conditions such as maximum hours and minimum wages and ethical behaviour such as zero tolerance for bribery. Whereas SCoCs are guidelines to be followed by all vendors, supplier diversity programmes can be targeted to specific and, potentially, small subsets of suppliers, such as firms owned by individuals of a specific ethnic minority.

Again, location played a role in which approach companies generally take. US companies seem to lean more toward running supplier diversity programmes, while European firms tend to incorporate their diversity goals into their supplier code of conduct.

Correlation With Internal Diversity and Sustainability

By sector, finance and healthcare companies most actively pursued diversity among vendors. From the 2022 Fortune Global 500 data, the sector with the highest proportion of supplier diversity programmes is healthcare, with 72%, followed by motor vehicles and parts (51%) and technology (50%). Regarding diversity in their SCoCs, firms in the financial sector show the most activity, with 60% of companies, followed by the healthcare sector with 56%.

But beyond sector, it is a certain type of company that pays attention to supplier diversity, one that is concerned about the composition of its workforce and is also committed to sustainability more broadly.

Of the 2022 sample of 500 companies, 379 reported some form of data on employee diversity (e.g., gender or racial composition of their workforce); those that did were much more likely to have a supplier diversity programme than those that did not. Some 45% of companies that reported on internal diversity also had a supplier diversity programme; in contrast, only 7% of companies that failed to report on their own diversity had a supplier diversity programme. 

A similar pattern is seen around supplier sustainability. Companies that responded to public pressure to reduce their negative environmental and social impact with initiatives that addressed those challenges in their internal operations and/or immediate communities⁶ are also more likely to have supplier diversity programmes. Companies lacking in supplier sustainability initiatives are also generally lacking in supplier diversity initiatives.

We expect supplier diversity initiatives to be increasingly common among top global companies in the coming years. They respond not only to public expectations but also to demographic realities. If populational trends continue, companies owned by ethnic minorities and women will represent a majority of small businesses in the future. Companies that overlook them will be at a growing disadvantage.

About the Authors

Anna Sáez de Tejada Cuenca is an assistant professor in IESE Business School’s Operations, Information and Technology Department. She holds a PhD in Operations Management from the UCLA Anderson School of Management, an MSc in Mathematical Engineering and a BSc in Mathematics from the Universitat Politècnica de Catalunya. Anna’s research interests include sustainability, social responsibility and the circular economy, with a focus on the fashion industry.

Gemma Berenguer is an associate professor at the Universidad Carlos III de Madrid and was an assistant professor at Purdue University. She holds a PhD in Operations Research from the University of California, Berkeley. She also holds a MEng in Logistics and Supply Chain Management from ZLC, an MSc in Economics from the Barcelona School of Economics and a BSc in Mathematics from the Universitat Politècnica de Catalunya. Her main research topics are nonprofit supply chain management, sustainable operations and supply chain design.

References

1. Berenguer G., Costas Lorenzo N. and Sáez de Tejada Cuenca A (2024). The State of Supplier Diversity Initiatives by Large Corporations: The New Sustainable Supply Chain? Production and Operations Management: 1–11.
2. Bateman A., Barrington A., Date K. (2020). Why You Need a Supplier-Diversity Program. Harvard Business Review, August 17.
3. Shah M. and Ram M. (2006). Supplier Diversity and Minority Business Enterprise Development: Case Study Experience of Three US Multinationals. Supply Chain Management: An International Journal 11(1): 75–81.
4. Ram M., Theodorakopoulos N. and Worthington I. (2007). Policy Transfer in Practice: Implementing Supplier Diversity in the UK. Public Administration 85(3): 779–803.
5. Porter KK. (2019). Implementing Supplier Diversity: Driver of Entrepreneurship. Springer.
6. Thorlakson T., de Zegher JF and Lambin EF. (2018). Companies’ Contribution to Sustainability through Global Supply Chains. Proceedings of the National Academy of Sciences of the United States of America 115(9): 2072–2077.