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The supply chain reset could help build a more equal economy, according to McKinsey’s research

·4 min read
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Between January 2020 and March 2022, Fortune 200 companies have committed to spending more than $50B with minority and women-owned business enterprises (MWBEs) by 2030.

However, research suggests that U.S. businesses are only scratching the surface of what’s possible through supplier and business diversity efforts and the economic value that can be created by increasing holistic support for these businesses.

Data shows that the return on investment of partnering with MWBEs is significant. A McKinsey study found that companies sourcing from MWBEs reported benefitting from increased innovation, competitiveness, and resilience, while realizing a year-over-year cost savings of 8.5%, compared to the three-to-seven-percent industry average.

Additionally, the research found that MWBEs hire more minorities and pay them higher wages on average. That trend opens additional opportunity: If spending with MWBEs was to double from the current $1 trillion dollars to $2 trillion, it could generate $280 billion in additional income and 4 million jobs for minority populations.

These outcomes are compelling if realized, yet many supplier diversity commitments were made with an incomplete understanding of what it would take to meet and sustain these efforts. To realize this unmet opportunity, companies must expand the scope of their supplier diversity efforts and explore innovative approaches and partnership models to support their MWBE partners.

Although there has been progress on supplier diversity in categories such as facilities management, construction, staffing, and food services, spending with diverse suppliers in high-growth industries such as professional services, real estate, finance, insurance, and information technology still lags behind.

In fact, fewer than one in 10 companies with supplier diversity initiatives rank finance and insurance among their top spending areas for supplier diversity. These approaches can have industry-wide consequences. Of the 350 largest M&A transactions that closed in 2021, none of the 118 investment or law firms serving as advisers were minority- and women-owned business enterprises–a massive missed opportunity for inclusive economic participation. Supplier diversity programs must prioritize spending in these industries to ensure all businesses are included in the economic growth of those sectors.

Partnerships are another promising avenue to increase the impact of working with MWBEs, particularly in areas where not all players are direct suppliers. These can take a variety of forms. For example, a minority-owned business and a major French automotive supplier formed a joint venture to take over interior-trim production for Ford vehicles. In another example, an MWBE technology reseller developed a channel partnership with a leading commercial insurance company to migrate its voice and contact-center legacy solution to a cloud communications platform. These models create new opportunities for corporations and MWBEs to generate mutual value for one another.

Companies should also be thinking more creatively about how their approach to supporting MWBE partners in the areas of capital, connectivity, and technical assistance can address some of the systemic challenges that prevent them from scaling up quickly to meet new opportunities.

Lack of flexible capital to invest in research and development and scale operations is often cited as a common issue for minority-owned businesses looking to grow. By thinking creatively about their balance sheet and commercial terms, companies can help smaller MWBEs bridge some of the problems they have accessing capital. Let’s say a company is securing contracts to install equipment in homes and offices in a local area. It could offer loans to help diverse businesses meet the terms of the contract to install this equipment.

Corporations can also support MWBEs by increasing their connectivity within a given business ecosystem to help bridge professional and social network gaps that tend to negatively impact many minority business owners. There are industry groups that focus on this–but a business can also help by introducing its supplier to lenders, business partners, or clients.

Finally, forward-looking companies are also supporting MWBEs through technical assistance, using their resources to help build out the infrastructure, capabilities, resiliency, and scale of suppliers. For example, some companies have their procurement executives provide training workshops to suppliers' staff.

The supply chain reset provides an opportunity for greater engagement with MWBEs. As companies embrace the importance of building resilient supply chains, they can do so with an eye to increasing the participation of MWBEs.

An estimated 10,000 certified businesses owned by minorities, women, LGBTQ+ people, veterans, and the disabled earn $10 million a year or more. Corporations can do their part to ensure these businesses have the capital, access, and capabilities to compete for more while fostering the creation of new businesses. The opportunity to create greater–and more inclusive–economic value is all ours for the taking.

Shelley Stewart III is a senior partner in McKinsey & Company’s marketing and sales practice and is the leader of the McKinsey Institute for Black Economic Mobility.

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not reflect the opinions and beliefs of Fortune.

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