Opinion

Supplier diversity programs: a new source of competitiveness and innovation for utilities in North America?

Three takeaways from the Utility Supply Management Alliance Conference

3 minute read

Isabel Schwartz

Vice President, Supply Chain Consulting

Isabel is a leader in the supply chain consulting practice.

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On the 20th May, Isabel Schwartz, Vice President of Supply Chain Consulting at Wood Mackenzie, led a panel session on supplier inclusion and diversity at the Utility Supply Management Alliance Conference in Scottsdale, Arizona. 

The discussion explored strategies to drive inclusive procurement practices, which have increasingly become a key source of innovation and competitiveness for the utility industry.  

Fill in the form at the top of the page to download our key takeaways, and read on for a brief introduction to the main themes discussed: 

The rise of supplier diversity programs 

Supplier diversity programs have become a core part of utility supply chain organisations and are a key source of innovation and competitiveness for the utility industry.  

Utilities have managed to grow their diverse supplier spend impact over the past decade, but in recent years have struggled to continue expanding these programs as there are both structural (certifications, accreditations, insurance, and financial requirements) and cultural (risk adverse organisations) reasons that tend to influence utilities to do business with the same suppliers over time.  

In today’s environment, where there is increased pressure from Public Utility Commissions (PUCs) to control rates while decarbonising, supplier diversity programs will become increasingly critical in providing utilities a competitive advantage. 

What is the current state of supplier diversity programs across US utilities? 

Supplier diversity is not a new concept for utilities. Supplier diversity programs have been around for over a decade, with many utilities having established supplier diversity teams and reporting out on metrics such as Tier 1 diverse supplier spend.  

More advanced programs leverage data and analytics to strategically identify areas for diverse supplier growth across their spending profiles and include Tier 2 diverse spending in efforts to make a larger impact.  

Over the past decade, we’ve seen utilities recognize many benefits through implementing a supplier diversity program, including progressing corporate social responsibility efforts, driving innovation, and creating an overall benefit on the communities they serve. 

What are the largest opportunities and challenges for diverse supplier growth over the next 3-5 years? 

Utility spending is projected to significantly increase over the next 3-5 years to meet electricity demand growth and improve reliability and resiliency of existing infrastructure. It is estimated that the T&D industry will spend over $470B in reliability improvement projects over the next 5 years.  

With increased spending comes more opportunity to increase diverse supplier impact. However, it also poses larger challenges for utilities to maintain and grow the percent of total spend attributed to diverse suppliers – as the denominator (i.e. total spend) grows with increased investments, the numerator (i.e., diverse spend) will have to keep pace to maintain current state values. 

What strategies can supplier diversity teams implement to sustainably grow diverse supplier impact in the future? 

Many utilities have had success growing diverse supplier programs over the last decade by leveraging and expanding relationships with existing diverse vendors across a handful of higher-spend categories (such as construction services, engineering, or maintenance services).  

This strategy works well when spending is relatively consistent year-over-year as a utility is beginning to ramp up its supplier diversity program. However, over time, more sophisticated strategies are required to continue growing diverse spend impact. 

Lastly, it may be time for utilities to start thinking outside-the-box when it comes to diverse supplier impact. Diverse supplier programs are more than just business transactions and are meant to have a positive impact on the communities that utilities serve. Current diverse spend reporting metrics rely solely on the ownership of a company.  

To have a larger impact on DE&I and to provide utilities a stronger competitive advantage, utilities can start to encourage DE&I improvements among their suppliers by assessing workforce diversity and DE&I programs as part of Supplier Relationship Management programs. Over time, valued Tier 1 suppliers can be encouraged to improve their own diversity practices as a requisite to doing business with the utility. 

Learn more 

Fill in the form at the top of the page to download our key takeaways in full, for a deeper dive into the discussion.