Embracing Supplier Diversity: Treasury Lessons from Facebook and GSK

By focusing on the diversity and inclusion elements of external relationships within the supply chain, corporates can create additional value and efficiencies. Here, treasurers are being urged to ‘roll up their sleeves’ and get involved in this potentially transformative process. 

With diversity and inclusion (D&I) now well established on the corporate agenda, and companies continually improving representation at board level and within senior management, businesses are turning their attention to promoting D&I externally.

Tom Lutz, Senior Vice President, Chief Procurement Officer, at U.S. Bank comments: “What corporations are waking up to is that ‘doing’ diversity, equity and inclusion well takes the entire organisation – and it takes the entire supply chain.” He continues: “It’s not only about the money that you spend, it’s about the relationships that you build, develop and cultivate, it’s about the networks that you create. Our neighbourhood of Minneapolis and Saint Paul is home to a number of corporations including 3M, UnitedHealth Group, Target, and Medtronic, all globally known organisations, and as we work with the diverse supplier community, we can – and are – creating development opportunities as a result of this collaboration.”

Tom Lutz
Senior Vice President, Chief Procurement Officer, at U.S. Bank

Of course, most multinationals have supply chains that extend far beyond the environs of their headquarters, but this does not necessarily lead to de facto diverse supply chains. What’s more, the definition varies across geographical borders.

“Supplier diversity has been in existence in the US since the 1970s in one shape or form, ” Lutz continues. “We have a fairly mature approach and methodology in this country with certifying organisations including the National LGBT Chamber of Commerce and the National Minority Supplier Development Council [NMSDC], and others.”

Outside of the US, the issue becomes a little more complicated, as Carrie Hawkins, Customer Value Director and Supplier Diversity Strategist, Coupa, explains. “The definition of ‘diversity’ is different everywhere, and in some parts of the world it’s not even legal for a corporation to ask about diversity. A big driver of this came through Tier Two corporate reporting in the US, where international companies were required to report on this [diversity]. However, in China there are more than 50 ethnicities, so what does that mean? Or in Australia, for example, it’s totally different again, and so on. You’re looking at what is diverse in the region, but also at what big corporations are driving as priorities of diversity categories.”

In the UK, the Global Sourcing Association (GSA) is exploring building best practice guidelines for corporates advising them how they can assess the diversity of their supply chains, how to improve them, and how to report on them. However, this is more complicated than simply copying the US model.

Kerry Hallard, CEO, GSA UK and a founding member of the Council for Supplier Diversity UK explains: “What we’re not doing is a ‘lift and shift’ of the best practice coming out the United States, because it just doesn’t work. We ran a webinar with the procurement director from global biopharmaceutical company Bristol Myers Squibb. She talked about how they’ve got an absolutely world-class diversity programme for BMS running out of the United States but that it doesn’t work for her in the UK. She can’t just replicate that here because the set-up and the regulations in the US are completely different.”

Despite the challenges, GSA UK is hoping that during the course of 2021 it will be able to capture the best practice in this area, and give a whole suite of tools, checklists, and databases to organisations that they can use to find a diverse supplier.”

Resilience, agility, innovation

In the meantime, industry examples are a good source of learning. For instance, in February 2021, global investment firm The Carlyle Group announced it had secured a $4.1bn private equity credit facility linked to environmental, social and governance factors – the largest facility of its kind in the US. This was particularly notable for being the first to focus exclusively on advancing board diversity. Carlyle structured this revolving credit facility for its Americas corporate private equity funds, with the price of debt directly tied to the firm’s previously set goal of having 30% board diversity within Carlyle-controlled companies within two years of ownership.

In a statement at the time, Carlyle said it would continue its efforts to work closely with portfolio companies to achieve its goal, with measurable key performance indicators (KPIs). Carlyle says its research over the past three years has shown the average earnings growth of Carlyle portfolio companies with two or more diverse board members has been approximately 12% greater per year than companies that lack diversity. This underscores the correlation between board diversity and strong financial decisions and performance.

Hawkins notes: “As the Carlyle research and various other studies have shown, inclusion is going to result in profits. But this goes well beyond the bottom line for corporates. It goes to the resiliency of the supply chain, the agility possible with these new approaches, and the innovation.”

Corporates are now starting to appreciate the benefits of agility, flexibility and innovation that diverse service providers can bring to corporates.  The importance of bringing in diverse suppliers is illustrated by GSA through a case study from global pharmaceutical firm GlaxoSmithKline (GSK), which was losing its market share. A review found its supplier network consisted of a few major service providers. When the pharmaceutical market was deregulated and digital testing was allowed, GSK found it wasn’t able to bring new products to market quickly because its service providers were not agile enough.

Kerry Hallard
CEO, GSA UK

Hallard explains: “GSK basically reinvented and refreshed its work with providers and its supply chain internally. It  had a different team that managed small companies and understood what it meant to do so. They also changed their RFP [request for proposal] process so that it was no longer over six months, it had to happen within six weeks. The company also changed its payment terms from being over 90 days to being, on average, 14 days. Sometimes the firm paid on day zero as a real investment in co-innovation firms. Their contracts also moved from being 140 pages to being standard terms of about four pages. With all of these changes, suddenly everybody wanted to work with GSK because they knew they were going to get paid quickly and managed well, which absolutely turned the fortunes of GSK back around.”

Fuelling growth and opportunity

The business case for diversity in the supply chain has – thus far – been most evident for chief procurement officers (CPOs). Generally aware of corporate diversity objectives, CPOs are often scored on them relative to their competitors. In some sectors there is pressure to maintain supplier diversity standards in order to win government contracts, while in others there is a growing external pressure from customers and consumers for businesses to adhere to their corporate value statements.

For treasurers, it has been less common to have supply chain D&I targets, but there are signs of increased interest in this topic. “Right now, there are few treasurers or CFOs who have D&I directly measured as part of their scorecard, but I do think we’re starting to see a change,” says Louis Green, CEO of supplier finance and corporate diversity consultancy, Supplier Success.

Louis Green
CEO of supplier finance and corporate diversity consultancy, Supplier Success

“I’ve had calls with treasurers at five of the eight largest companies in Silicon Valley around the issue of supply chain diversity. Some corporate treasurers have said they’re worried about cost efficiency or even just having the time to think about supply chain diversity. What we’ve been able to show them is that it’s not a case of either/or – you can be cost efficient and engaged in diversity. With a properly structured programme and strategy, you get both.

The Facebook example shows what can be achieved, but simply being able to connect with diverse suppliers in the first place can be a challenge. Technology companies are looking for ways to bridge that gap. For example, Coupa invited thousands of diverse suppliers to lodge their information in a repository which is, in turn, used by buyers to find them.

Coupa’s Hawkins explains: “Through software, we’re breaking down the silos that can exist in organisations We’re pulling in treasury, business spend management [BSM], and supplier diversity. Inclusivity becomes part of the buying process, as a part of the supply chain. It makes it easy and sustainable – and because it’s driving diverse suppliers to that spend, what we’re creating is economic empowerment. This is going to happen on a global scale as well, which is really important.”

Corporate treasurers can also use their influence to drive policy changes and review the expectations of suppliers that are considered ‘non-diverse’. U.S. Bank’s Lutz comments: “We deal with global companies with a presence and familiar products, and we’re increasing the conversations that we have with them to ask what they are doing as a corporate vendor, and what their supplier diversity programme looks like. If I have two vendors to choose from, and they’re equal in every respect, but only one of them has a robust supplier diversity programme, I will choose the supplier with the robust supplier diversity programme. That’s increasingly part of the decision-making process that corporations like U.S. Bank and many others are making.”

Doing the ‘transformative’ thing

All of this might not seem as though it is within the traditional remit of the treasurer – but is important not to underestimate the value of a properly administered D&I programme. Those who believe they don’t need one or choose to follow the paths of others later risk missing out on the advantages such a focus can have.

GSA UK’s Hallard concludes: “If you look back at the GSK example, that really crystallises how it’s not just the right thing to do, it is essential to do things right. It’s not just about appearing to do the right corporate social thing, it will actually be transformative to creating value and innovation within your own business. Treasurers should roll up their sleeves and get involved.”