Supplier Discrimination: Are You Guilty?

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It’s not uncommon for organizations to have supplier diversity programs. Supplier diversity programs are supposed to encourage buying from a wide variety of suppliers, including small suppliers and businesses owned by people from demographic groups that have been historically discriminated against.

Yet, despite the proliferation of supplier diversity programs, many of the same organizations that have them have business practices that unintentionally, but effectively, discriminate against small suppliers. If your organization has business practices with the following characteristics, your organization is guilty of making it more – and not less – difficult for small suppliers to do business with you:

• Your organization mandates the use of payment terms that are net 60 or longer. Even net 45 terms can strain a small supplier’s cash flow.
• Your organization has standard insurance requirements for all transactions – including the most basic – that are beyond the insurance levels typically maintained by small businesses.
• Your organization uses complex and extensive terms and conditions for all transactions – including the most basic – that can compel small suppliers to seek expensive legal review before they can accept your orders.
• In your supplier qualification process, your organization requires “audited” financial statements without knowing the immense cost of financial statement auditing or the lower-cost, but often equally acceptable, alternatives of “reviewed” or “compiled” financial statements.
• Your organization has no policy or goals for awarding bidding opportunities or orders to small or diverse suppliers.

A supplier diversity program is great to have. But if your organization doesn’t supplement the program with small business-friendly business practices, your supplier diversity program may be undermined and your organization may be guilty of de facto discrimination against small suppliers.