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Supplier Inclusion #01-Cost Concerns

by | Jul 17, 2024

Supplier Diversity x

Cost Concerns

Businesses often fear that sourcing from diverse suppliers might lead to higher costs due to smaller-scale operations, which cannot leverage economies of scale as larger suppliers might. However, these apprehensions are often based on misconceptions. Here’s why:

 

    1. Misconception: Diverse suppliers are less competitive on quality and cost.
      • Reality: Contrary to popular belief, diverse suppliers can be cost-effective. Research by the Hackett Group (2020) shows that companies dedicating a significant portion of their spending to diverse suppliers save an additional 0.7 percentage points on total procurement expenditures.
      • Action: Promote transparent communication and collaboration to highlight the innovative, agile, and unique perspectives that diverse suppliers bring.
    2. Misconception: Smaller businesses have higher costs due to smaller scale operations.
      • Reality: Smaller businesses often achieve cost efficiency through specialization and focused niches (Porter, 1998). They also tend to have lower overhead costs due to fewer employees and smaller spaces, enabling competitive pricing.
      • Action: Explore partnerships with small businesses to leverage their specialized services, which can offer long-term cost savings and tailored solutions.
    3. Misconception: Smaller businesses cannot leverage economies of scale as larger suppliers might.
      • Reality: Small businesses can achieve economies of scale through strategic alliances (Teece, 1992). Their agility enables them to quickly adapt and efficiently scale operations without sacrificing quality.
      • Action: Consider forming alliances with small businesses to extend economies of scale benefits, enhancing capacity and community service capabilities.
    4. Misconception: Smaller businesses lack the scale to benefit from technology adoption and versatility.
      • Reality: Small businesses are often more versatile, enabling quicker adoption and implementation of new technologies that improve service delivery (Rogers, 2003).
      • Action: Utilize the technological agility of small businesses to streamline operations and improve efficiency in delivery.

In summary, Supplier Inclusion isn’t just a social responsibility; it’s a strategic advantage. Organizations can unlock innovation, reduce risk, and enhance their bottom line by challenging these myths and investing in the capabilities needed to support diverse suppliers and foster a mutually beneficial partnership.

 

References:

Hackett Group. (2020). The impact of supplier diversity on competitive procurement.

Porter, M.E. (1998). On competition. Boston: Harvard Business School Publishing.

Teece, D.J. (1992). Competition, cooperation, and innovation: Organizational arrangements for regimes of rapid technological progress. Journal of Economic Behavior & Organization, 18(1), 1-25.

Rogers, E.M. (2003). Diffusion of innovations (5th ed.). New York, NY: Free Press1234