Why nonprofits need a vendor diversity policy

May 2, 2022

Supplier diversity should matter to all nonprofits

Each year, nonprofits spend nearly $1 trillion annually for goods and services, ranging from large expenses, like medical equipment for nonprofit hospitals, to everyday purchases such as office supplies, food, utilities, and rent. (https://www.councilofnonprofits.org/economic-impact)

Where a trillion dollars of economic value goes should be of significant importance and review for mission-minded organizations. Put simply, do nonprofit, foundation, and endowment daily spending practices reflect their values or do they reinforce historical injustice?

A vendor diversity policy is an organization’s official written commitment to being inclusive and equitable when awarding contracts and making decisions about business relationships. Diversity has been a hot topic in the business world for many years with many developing vendor or supplier diversity programs. According to Oliver Wyman, “Many organizations appear to be making progress and our studies revealed that 85 percent of companies in the United States have dedicated supplier diversity programs. But despite its importance, only 59 percent of those with a program report supplier diversity spend.”

While there’s still more work to do ensure businesses diversify their spending, no survey has been done to date that indicates either the number of nonprofits, foundations, and endowments with vendor diversity policies or that tracks diversity spend.

There are many definitions of vendor diversity, but the most common include:

1) consideration of the ethnic, gender and sexual orientation backgrounds of vendors

2) a commitment to contracting with a wide range of vendors

3) a commitment to making policy decisions that serve the needs and interests of marginalized groups

4) a written commitment to upholding human rights principles

5) the inclusion of under-represented groups in decision-making processes

As an example, a diverse vendor list for a nonprofit food bank might include: A commitment to contracting with underprivileged vendors who are marginalized on the basis of race, gender, or sexuality. A commitment to excluding from consideration vendors who commit human rights violations and/or engage in unethical business practices.

A vendor diversity policy will help your nonprofit build trust with people of diverse backgrounds by ensuring that they are treated fairly.

What is a vendor diversity policy?

A vendor diversity policy is a set of guidelines that an organization creates to ensure that they are not knowingly or unknowingly discriminating against any of the vendors who might want to do business with them. It also gives the organization a sense of what they would like their workplace to be like and how they would like their values to impact all their relationships.

The idea behind this policy is that by having more diverse vendors, you will also ensure that diversity is a component of internal hiring, promotions, compensation, etc. A vendor diversity policy is not a checkbox that enables organizations to mark ‘complete’ on their equity journey. Instead, it is an outgrowth of their continued work. This leads to internal and external outcomes because members of the community will be able to see themselves in your organization’s mission. The results of this policy may be better quality programs, a more diverse workforce, and representation of different segments in the population. Diversity policies can also rectify or address historical injustices or practices that reinforced dominant power structures.

There are many reasons for this, but one of the most important is that diversity leads to innovation.

Creating a vendor diversity policy

To create a vendor diversity policy, it is important to define what we mean by diversity. Diversity can be defined as including all differences among people that make them unique and valuable in any environment. Some of these differences include gender, race, ethnicity, sexual orientation, religion, and socioeconomic status. To develop this, it’s important to first understand what diversity means and why diversity is important in all aspects of business. In the business world, diversity can be defined as different backgrounds, cultures, and skillsets that form a diverse workforce.

The purpose for having a diverse workforce is the ability to provide employees with a wide variety of experiences, viewpoints, and perspectives that can help generate new ideas. A diverse set of suppliers or vendors supports the research that demonstrates that diversity enhances innovation in the for-profit world. While current research in the sector indicates the value of diversity on nonprofit boards, a diverse supplier or vendor policy that invites new and different inputs at the board level can reinforce innovation.

The growing need for diverse skillsets can be seen when considering the increasing number of online businesses. To maintain a competitive edge, these businesses have expanded their workforce by actively recruiting individuals who possess different skill sets to help create innovative products and services.

The next step would be to develop a vendor diversity policy that includes all the different aspects of diversity and how they will affect the organization’s decision-making process when it comes to vendors and suppliers.

This includes not only who you work with but also what you buy from them as well as the terms and conditions on the items and the work that is done as well as how you evaluate the quality of their products and services.

A vendor diversity policy is a way for an organization to create a fair and equal opportunity for vendors to bid on contracts. The policy should be designed to ensure that the vendors are diverse and that they are engaged with equity lens. This means that historical contracts, agreements, and even performance can bias decision making and should be considered.

Guidelines for a Vendor Diversity Policy

The vendor diversity policy should include:

A list of all the different types of vendors that are allowed to bid on projects; if there are minimum criteria, ensure that they are evaluated through an equity lens. For example, for internal hiring, a degree may not be necessary for certain jobs but has been historically used to exclude diverse candidates. Suppliers and vendors may have varying but similar constraints.

How will the organization evaluate the bids from these vendors? Transparency is significant. Are buying decisions based on solely on personal relationships and unchallenged over time or are they open to reconsideration? Are diverse suppliers and vendors considered, interviewed, and placed in a side-by-side comparison to current vendors?

What the evaluation criteria will be for these bids? While nonprofits, endowments, and foundations are all rightfully cost-conscious, is the criteria simply on lowest price?

What resources will be available for these vendors to help them submit their bids? For suppliers and vendors who have not historically been given the opportunity to respond to an RFP or part of consideration, how are they informed of the process, and given the tools to ensure that they are considered equally.

The Small Business Administration identifies a non-exhaustive list of businesses that may be included in a policy:

• Women-owned businesses

• Veteran-owned businesses

• Service-disabled veteran-owned businesses

• LGBT-owned businesses

• Disadvantaged businesses

• Historically Underutilized Business Zone (HUBZone) businesses

• Minority-owned and other small businesses

Suppliers might be evaluated on several criteria including price, quality, customer service, delivery, and other requirements.

Categories of goods and services we (Endowment Partners) purchase include, but are not limited to:

• Professional services (e.g. temporary staffing, legal, coaching)

• Facilities (e.g. construction, maintenance, repair, painting, lighting, cleaning, supplies)

• Office services (e.g. flowers, gifts, catering, meetings & events)

• Marketing (e.g. creative, photo/video, promotional services)

We (Endowment Partners) aim to reach our program goals by:

• Identifying, actively seeking and continuously expanding our network of small diverse business vendors

• Training and encouraging our purchasers to include small diverse business vendors in the purchasing process where there is alignment with our business needs

• Monitoring and measuring the effectiveness of our supplier diversity efforts

Does your organization need help creating a vendor diversity policy or other policies? Here’s a free resource to assist you in getting started on this journey: https://www.dropbox.com/s/0o0hpx5vj139o8z/Vendor%20Diversity%20Policy.pdf?dl=0

As with all policies, we recommend thoughtful deliberation and guided decision before establishing policies.

Summary

Nonprofits, foundations, and endowments have tremendous buying power. Even small purchases indicate how organizations live out or betray their values through their spending. A vendor diversity policy is an organization’s way of ensuring that the company is not limiting its potential by only working with companies who are like them.

It is important to remember that a vendor diversity policy is not just about race, ethnicity and gender. It also includes things like different generations, social economic backgrounds, visible and invisible disabilities, and sexual orientations. Nonprofits, endowments, and foundations also have a responsibility to provide a safe and inclusive work environment for all employees, vendors, beneficiaries, and other community members.

An organization can create a vendor diversity policy to make sure that they are upholding their values. They can also use this policy as an opportunity to set themselves apart from other organizations by showing that they are committed to equity and inclusion. They can also create vendor selection criteria, such as only considering vendors that have a vendor diversity policy and requiring that any purchasing decision requires the consideration of a diversity-enhancing vendor or supplier.