Diversifying a Supply Chain: Building Competitive Advantage

May 11, 2022

Meet Andrea Sordi, Academic Director of the Executive MBA in Global Supply Chain and clinical assistant professor at the University of Tennessee’s Haslam College of Business, home of the Global Supply Chain Institute. Professor Sordi has more than 20 years of professional experience observing supply chain trends from the front row of the consumer goods industry. Before joining the faculty at UT and the Global Supply Chain Institute, Sordi was head of global procurement strategy and head of global indirect services sourcing for Mondelez Global LLC. Recently, Sordi shared his knowledge on the various ways diversity can improve an organization’s supply chain and elevate its productivity.

What do you think is the main challenge when it comes to diversifying a company’s supply chain?

I think there’s a cultural barrier to any change that exists, especially if you want to change your supplier and switch from an existing one that has been consolidated. As an organization, you have already allocated resources and have most likely established relationships that have been built over a long time. Changing that requires a lot of effort: it takes a lot of convincing and a cultural shift to enact a change in management across the organization. It’s easier for a procurement person to switch because as a procurement professional, you do not tend to be as personally involved. Still, it’s a matter of convincing your organization to switch and providing a justification, no matter the function; it could be manufacturing, it could be marketing, it could be HR, it could be any other function–but you must show a need for change. Navigating and adjusting the status quo is always tricky and can require a lot of executive involvement that ultimately leads to a cultural shift.

How should SCMs use supplier diversity to build a competitive advantage among their company’s competitors?

Diverse suppliers are most often smaller suppliers who are leaner and more agile. It is proven that diverse organizations tend to be between 20% to 30% more creative and more resilient. Intrinsically, an organization tends to look for ways to grow and ways to be resilient. Diversifying your supplier base and taking on diverse businesses are ways to get and source that creativity and harness the resilience that many organizations need. The sooner you get that expansion, the quicker you become more competitive within your marketplace compared to other companies. Whether you are competing within a virtual shelf, a physical shelf, or in a service industry, being out to consumers first with some new offering or even simply with availability of products goes a long way. Diversity in the supplier base represents a way to achieve that. 

Beyond being the “right thing to do,” there are distinct business advantages to building diverse supply chains. How aware is the end customer of the diversity in an organization’s supply chain? 

For starters, there’s an undeniable advantage in building brand and company equity, not only for consumers but also, for prospective employees and for investors. So it becomes a sort of sustainability need for organizations to really think about supply diversity. 

Another benefit of a diverse supply chain is the social impact that your organization generates. It allows you to tap into businesses that have fewer resources and to connect with social groups that are economically disadvantaged. In doing so, you can generate jobs, income, wealth and a sense of inclusion itself. 

In order for your consumers to know about the benefits of diversity and your company’s effort to be inclusive, specific communication efforts are required. The tricky part is, your organization needs to communicate but transparently; otherwise you end up seeming like you’re social greenwashing. That said, as an organization, your goal is to make sure consumers know what you’re up to. For example, if you’re sourcing from a certain area in the world that employs diverse businesses, women-owned businesses, or LGBTQ businesses or in a HUBZone, these efforts can create a sort of natural affinity to your organization and your products in the consumer’s mind. Consumers are always attracted to what they recognize as similar to themselves. For me, being Italian, if I must pick and choose between a fake Italian product and an authentic Italian product, obviously I’m going with the authentic Italian product because I recognize myself within it. And that happens with a lot of consumers.

“For example, if you’re sourcing from a certain area in the world that employs diverse businesses, women-owned businesses, or LGBTQ businesses or in a HUBZone, these efforts can create a sort of natural affinity to your organization and your products in the consumer’s mind. Consumers are always attracted to what they recognize as similar to themselves.”

What advice would you give to companies that understand the value of diversifying their supply chain but lack a procurement strategy that delivers for them?

In most instances, there are likely two things that a company is lacking: one goes back to a cultural element. And by that, I mean they may lack a company culture that allows the procurement function to have an impact beyond simply saving money or generating cash. So, my advice to executives would be to give your procurement function the freedom to drive value holistically , including through diversifying their supplier base. 

The second component involves a shift in perspective and new skill sets. You can’t always go and work with diverse suppliers or create partnerships if you are the classic negotiator, going in with the big guns and simply looking for the best price. In all likelihood, that approach won’t work. Buyers need to evolve their approach to encompass soft skills. They need to understand their business, connecting the dots of what they’re doing with what the business needs while also understanding the supplier side. This means creating ways to collaborate; the skill set you need to collaborate is very different from the skill set you need to go in and bargain a price. That’s a very different approach.

Does diversity have a meaningful impact on a product’s lifetime value, as it relates to the supply chain?

It does, because it creates equity. It creates an equity that goes beyond the commercial and extends to the social and sustainable aspects of a product or organization. There are statistics out there that say 70% of consumers are ready to pay a premium price for something that is sustainable or socially equitable. But they need to know it checks that box or fits into that category first. Otherwise they might ignore your brand and continue with what they are used to. To recognize the full potential of supply diversity and economic inclusion, the buying company doesn’t only need to have the the right culture and the right process to implement it, but also, the right processes in place to communicate and harvest the benefits from a commercial standpoint. Obviously, if the implementation goes well, the social benefits are there. But good communication is critical.

Teaching ways to drive value and societal impact through economic inclusion is one of the ways the Global Supply Chain Institute can provide the knowledge you need for success in supply chain. Andrea Sordi, academic director of the Executive MBA – Global Supply Chain, is at the forefront of shaping our curriculum to educate the next generation of supply chain leaders. Listen to the latest episode of Tennessee on Supply Chain Management Podcast to catch up on Andrea’s latest research and perspectives on Diversity and Inclusion and Risk Management.