The Harvard Business Review published an article about supplier diversity programs that demystifies the topic and demonstrates how they create a competitive advantage for corporations across all industries.
Conversations about supplier diversity first gained momentum during the Civil Rights movement in the 1960s. By 1968, influential corporations like General Motors and IBM launched their own supplier diversity programs. The concept came full circle in 1969 when President Nixon established the Office of Minority Business Enterprise, formally recognizing the positive impact of minority businesses on the nation’s economy.
Today, supplier diversity is a core sourcing strategy for many American businesses. HBR notes that logistics giant UPS now spends $2.6 billion annually with thousands of small and diverse suppliers. Likewise, both Target and Coca-Cola report more than $1 billion annually in their diversity spend tracking initiatives.
However, supplier diversity programs are of particular importance to the healthcare industry. Mordor Intelligence estimates the U.S. medical supplies market at $180 billion with the potential to reach $290 billion by 2030. Hospital supplier diversity offers a vast opportunity when considered against the enormity of the hospital supplier marketplace overall.
This blog will explore the topics of diversity spend tracking in general — and hospital supplier diversity specifically — by addressing the following questions:
- What is the meaning of supplier diversity?
- What is Tier 1 and Tier 2 supplier diversity?
- What is meant by Tier 1 and Tier 2 diversity spend?
- What is Tier 1 diversity spend?
- What is Tier 2 diversity spend?
- How do you tell if a company is a diverse supplier?
- Where do hospitals get their medical supplies from?
- Who orders supplies for hospitals?
- What is the hospital supplier diversity gap?
- How do I choose a medical supplier as a healthcare organization?
What is the meaning of supplier diversity?
Supplier diversity refers to the intentional inclusion of businesses owned by historically underrepresented groups in an organization’s supply chain. These groups include minority-owned, women-owned, veteran-owned, LGBTQ+-owned and disability-owned enterprises. The goal is to ensure that procurement dollars support a broader spectrum of entrepreneurs, thereby promoting economic equity and reflecting the diversity of the communities served.
A robust supplier diversity program does more than meet compliance goals — it fosters innovation, enhances competition and builds resilience. Diverse suppliers often bring unique perspectives, specialized capabilities and deep community ties that can enrich the supply ecosystem.
What is Tier 1 and Tier 2 supplier diversity?
Tier 1 and Tier 2 refer to the levels at which diverse suppliers engage with a company’s supply chain.
What is Tier 1 supplier diversity?
Tier 1 supplier diversity involves direct relationships. These are diverse suppliers that sell goods or services directly to the buying organization. For example, a hospital purchasing surgical gloves from a certified minority-owned distributor is engaging in Tier 1 diversity spend.
What is Tier 2 supplier diversity?
Tier 2 supplier diversity captures indirect relationships. These are diverse suppliers that provide goods or services to the company’s primary suppliers, which may or may not be diverse themselves. Thus, if a hospital purchases surgical gloves from a non-diverse distributor who, in turn, sources the gloves from a diverse supplier, the hospital’s Tier 2 diversity spend includes that transaction.
This tiered structure allows organizations to extend their diversity impact beyond direct contracts, encouraging prime suppliers to build inclusive networks.
What is meant by Tier 1 and Tier 2 diversity spend?
Continuing with the description above, diversity spend thus refers to the portion of procurement dollars allocated to diverse suppliers. It’s a measurable way to track progress toward supplier diversity program goals.
What is Tier 1 diversity spend?
Tier 1 diversity spend is the total amount paid directly to certified diverse suppliers. It’s the most straightforward metric and often the focus of initial diversity initiatives.
What is Tier 2 diversity spend?
As the surgical glove example illustrates, Tier 2 diversity spend is more complex. It requires prime suppliers to report their own spend with diverse businesses. This data is typically collected through supplier diversity program reporting platforms and is used to evaluate the broader impact of an organization’s procurement strategy.
Healthcare organizations often set goals for both Tier 1 and Tier 2 diversity spend, such as allocating 10% of total spend to Tier 1 diverse suppliers and encouraging Tier 1 vendors to achieve 15% Tier 2 diverse spend. These benchmarks help drive accountability and foster inclusive sourcing practices throughout the supply chain.
How do you tell if a company is a diverse supplier?
Certification is the gold standard for identifying diverse suppliers. Several third-party organizations verify ownership and control by underrepresented groups. Common certifying bodies include:
- National Minority Supplier Development Council (NMSDC) for minority-owned businesses
- Women’s Business Enterprise National Council (WBENC) for women-owned businesses
- National Veteran Business Development Council (NVBDC) for veteran-owned businesses
- Disability:IN for disability-owned businesses
- National LGBT Chamber of Commerce (NGLCC) for LGBTQ+-owned businesses
Certification ensures that suppliers meet rigorous standards and provides buyers with confidence in their diversity claims. Many healthcare systems require certification for suppliers to be counted toward diversity spend goals.
In addition to certification, some organizations accept self-identification or use supplier portals to collect diversity data. However, certified status remains the most widely accepted benchmark.
Where do hospitals get their medical supplies from?
Hospitals source medical supplies through a combination of direct contracts, group purchasing organizations (GPOs) and distributors. The hospital supply chain typically includes the following types of organizations.
- Manufacturers: Companies that produce medical devices, consumables and equipment.
- Distributors: Wholesalers that aggregate products from multiple manufacturers and deliver them to healthcare facilities.
- GPOs: Organizations that negotiate pricing and contracts on behalf of member hospitals, often securing volume discounts and standardized terms.
Major GPOs like Vizient, Premier and HealthTrust play a central role in hospital procurement. They offer access to thousands of suppliers, including certified diverse businesses, and provide tools for diversity spend tracking.
Hospitals may also engage directly with niche suppliers for specialized products or services. In recent years, many have expanded their sourcing strategies to include local and diverse vendors, especially in response to supply chain disruptions and equity initiatives.
Who orders supplies for hospitals?
Hospital supply ordering is typically managed by the procurement or supply chain department, often in collaboration with clinical teams. Key roles in the hospital supply and procurement process are typically as follows.
- Purchasing managers: Oversee vendor relationships, negotiate contracts and ensure compliance with procurement policies.
- Materials management teams: Handle inventory, logistics and day-to-day ordering.
- Clinicians and department heads: Provide input on product selection based on clinical needs and patient outcomes.
In larger hospital systems, centralized procurement teams may manage sourcing across multiple facilities, while smaller hospitals may rely on local staff. GPOs often support these teams with analytics, benchmarking and supplier diversity program reporting.
What is the hospital supplier diversity gap?
Unfortunately, hospital supplier diversity programs are uniquely challenging for a variety of reasons. As noted by the Journal of Healthcare Contracting, the complexity of the healthcare supply chain creates a barrier to entry for many diverse suppliers. The high level of healthcare industry regulation is simply too expensive for many small business enterprises (SBEs), minority business enterprises (MBEs) and women business enterprises (WBEs) to bear. Likewise, the healthcare industry’s reliance on GPOs effectively locks up 60% or more of all contracts with the manufacturers of medical products.
However, GPOs are now working to provide their members with more access to diverse suppliers, and with good reason. When a hospital’s supplier network reflects the diversity of the patient population served, great things happen. Innovation flourishes, barriers are eliminated and relationships are formed within the diverse patient communities receiving care.
How do I choose a medical supplier as a healthcare organization?
Selecting a medical supplier involves balancing quality, cost, compliance and diversity goals. Here are seven steps to remember when seeking to advance hospital supplier diversity.
- Define your sourcing criteria: Consider product specifications, regulatory requirements, delivery timelines and sustainability standards.
- Evaluate supplier credentials: Look for FDA registration, ISO certification and relevant industry experience. To ensure hospital supplier diversity program goals are met, verify the supplier’s certification status through recognized agencies.
- Use GPO resources: Leverage GPO contracts to access vetted suppliers and competitive pricing. As noted above, GPOs are increasingly emphasizing hospital supplier diversity and reporting.
- Assess supplier diversity impact: Review Tier 1 and Tier 2 diversity spend data, supplier development programs and community engagement initiatives.
- Engage in strategic partnerships: Build long-term relationships with diverse suppliers through mentorship, joint ventures and capacity-building efforts.
- Monitor performance: Track KPIs such as fill rates, quality metrics and responsiveness. Include diversity metrics in supplier scorecards.
- Align with organizational values: Choose suppliers that reflect your commitment to equity, innovation and community health.
Clearly, hospital supplier diversity is of long-term strategic importance to the healthcare industry. As a foundational procurement goal in healthcare, supplier diversity has the power to enhance patient experiences and improve the quality of patient care. Hospitals that prioritize supplier diversity programs not only meet regulatory and ESG goals — they also strengthen their supply chains and contribute to economic inclusion.
Taylor Healthcare: Tier 1 and Tier 2 Diversity Spend Opportunities
While hospital supplier diversity is of strategic importance to healthcare organizations, not all diverse suppliers are created equally. To be truly effective, a hospital’s supplier diversity program must offer three things:
- Access to high-quality medical products.
- A robust customer service model.
- An unwavering focus on creating jobs in America’s underserved local communities.
One diverse supplier organization delivers all of these. Caracal, a certified minority business enterprise and Tier 1 diversity spend supplier, serves the needs of large companies across a variety of industries, including healthcare. Furthermore, Caracal is a strategic business partner of Taylor Healthcare — which opens the door to both Tier 1 and Tier 2 diversity spend opportunities.
- By sourcing directly from Caracal, hospitals can procure Taylor Healthcare’s vast assortment of products and services as qualified Tier 1 diversity spend.
- Conversely, Tier 2 diversity spend goals can be achieved by purchasing from Taylor Healthcare, who then sources products through Caracal. This includes Caracal’s own, fast-growing assortment of private-label healthcare products.
Thanks to this unique partnership between Taylor Healthcare and Caracal, healthcare organizations nationwide are able to advance their Tier 1 and Tier 2 diversity spend goals by purchasing products and services including:
- Labels and wristbands for the entire continuum of care, from admissions processes and patient charting to specialized pharmacy and lab labels.
- Print management services that bring new levels of speed and cost-effectiveness to corporate print programs.
- Branded apparel items and high-quality PPE products including gloves, gowns and masks.
- Marketing services ranging from direct mail campaigns to sophisticated omnichannel communications efforts.
- Warehousing, kitting and distribution through a nationwide network of secure distribution centers.
Taylor Healthcare and Caracal are teaming up to make it easier for healthcare procurement professionals to advance the cause of hospital supplier diversity. Learn more about the partnership between Taylor Healthcare and Caracal.
