Risk management is fundamental to running a successful business regardless of the nature of the business that you operate. It has come into sharp question if it is genuinely necessary to invest in systems to manage the risk that is occasioned by the use of external suppliers or not. While everyone is in agreement about the necessity of these systems within the context of business, the question is whether supplier diversity programs are essential. There are those who are of the opinion that these systems add nothing more to the company than an aspect of diversity and affirmative action. Understanding the basics of these programs is essential in order to understand these programs’ importance and relevance to modern business operations.
Supplier diversity programs
These are programs that are used to infuse some diversity in the nature of the suppliers with whom the company operates. It assists the company to increase the overall equality of the different demographics that are used in their supply network. Companies are, therefore, able to create a supply network that closely represents the demographics of the society in which they operate. It is, hence, clear that these programs provide the much needed infusion of equality into the business world. Many people are, therefore, unable to see why what comes across as a project stemming from affirmative action philosophy is able to help a company manage its risk factors. Here is how increasing the diversity of suppliers in a company lowers their exposure to risks caused by external factors.
Homogeneity in suppliers increasing specific risk profiles
Having a highly homogenous group of suppliers increases the company’s exposure to specific risk profiles. This is because the similar the suppliers are the likelier it is that they are exposed to specific risks as a group. This means that even where the company seeks to protect itself from these risks by using the appropriate supplier performance management systems, they will be unable to reduce their overall exposure. The program provides value to the business as a whole and enable them to be operational in adverse socio-economic conditions affecting certain segments of the society too.
Compliance risk factors
Modern business is subject to a number of regulatory and oversight mechanisms that are meant to ensure that the company operates within the law. It is, therefore, necessary for the company to use supplier diversity to ensure that they are able to meet the regulations that have been instituted. This is especially valid as far as economic equality and fair opportunity regulations are concerned.
