CVS Health tracks $5.1 billion impact through supplier diversity [VIDEO]
By Melissa Lowery
For CVS Health, supplier diversity is a critical part of its overall business strategy. And for the nation’s largest pharmacy innovation chain, the high return on investment is undeniable.
In 2016, the Rhode Island-based company reported economic impact in excess of $5.1 billion as a result of its supplier diversity program. That’s billion with a “b”.
This is the sum of the impact through direct purchases by CVS Health from its diverse supplier base, subsequent purchases from each company’s supply chains, and spending by employees of these companies in the wider consumer economy. How did CVS Health achieve economic impact on par with the GDP of Switzerland? By focusing on more than spend.
CVS Health established a supplier diversity program in 2000, and set about actively integrating diverse suppliers of products and services into its supply chain. Today the company purchases from over 3,200 small and diverse suppliers, contributing over $5.1 billion to the U.S. economy and helping to sustain more than 30,000 American jobs.
The scale of the company’s engagement with small and diverse businesses earned CVS Health a place in the Billion Dollar Roundtable, a top-level corporate advocacy organization that promotes supply-chain diversity excellence, for reaching its goal of spending over $1 billion with women and minority-owned diverse suppliers.
“As the country’s demographics change and our patient and customer population becomes increasingly diverse, we need to ensure that our entire company – from our pharmacists and retail store staff, to our behind-the-scenes supply chain teams – is representative of everyone we serve,” said Anna Umberto, Vice President, Strategic Procurement.
“One of our most important tools to make progress in these areas is our Supplier Diversity Program, recognized as one of the most active and progressive programs among U.S. corporations.”
The multiplier effect
The impact of investing in diverse suppliers goes well beyond direct spend. Money spent with a diverse company is also spent again on payroll, goods and services, and on other suppliers in its supply chain. Employees at these companies then use their income to purchase goods and services from other businesses. Downstream suppliers similarly use the proceeds from their sales on their employees and other businesses. A chain reaction of indirect and induced spending continues, creating a multiplier effect.
”Sourcing from diverse, women-owned and small businesses broadens the range of goods and services that we can offer and advances our commitment to doing business, beyond consumerism, in diverse markets,” added Umberto.
So when CVS Health spends $2 billion with more than 3,200 small and diverse businesses currently in the supply chain, it directly impacts and sustains close to 14,000 employees at those companies. They in turn use their $1.7 billion in combined wages to purchase goods and services within their communities, further impacting the local economy and indirectly sustaining other businesses to the tune of $5.1 billion in total economic impact.
Creating jobs as a path to economic success
Through a robust supplier diversity program, employment opportunities are created for demographics that often confront disparities in the labor market. At 8.5 percent, unemployment in African Americans is twice as high as that for White populations. Similarly, unemployment among Hispanic-Americans (5.8 percent) is 30 percent higher than their White counterparts. For CVS Health, creating sustainable jobs through its diverse supplier spending showcases the company’s interest in and commitment to the economic development of all communities. More than 2,000 jobs sustained by CVS Health’s supplier diversity spend are with suppliers located in high poverty neighborhoods.
“By including diverse suppliers and diverse-owned pharmacies in our supply chain, we are also creating jobs and producing economic growth opportunities for local businesses in all our communities,” said Umberto.
CVS Health’s supplier diversity spending is spread throughout the U.S. via its national network. In the company’s home state of Rhode Island, its supplier diversity spending supports 1,300 jobs, while in California, supplier diversity activities contribute to 2,500 local jobs.
Building capacity of diverse suppliers
A sustainable diverse supply chain requires that small and diverse suppliers have access to opportunities to scale up and expand. Recognizing gaps in capacity, CVS Health launched its Executive Learning Series for Diverse Suppliers in 2015, which was designed to build the leadership skills necessary for diverse suppliers to engage with large businesses.
Sponsored by CVS Health and created in partnership with Rhode Island’s Roger Williams University, the professional development program offers 160 hours of training over an 18-week period to leaders of 10 diverse businesses from across the country. The program helps participants broaden their skills in a variety of areas, including management and technology, finance and human resources.
“The Executive Learning Series allows us to deepen our partnerships with small business owners and invest in their development by creating training programs that expand their capacity, skill level and growth potential,” said Raul Suarez-Rodriguez, Manager, Supplier Diversity/Strategic Procurement.
Supplier diversity is beneficial to all stakeholders, not just to the companies like CVS Health that support robust programs. First and foremost, supplier diversity programming adds economic value, because it encourages the growth of diverse businesses who typically encounter barriers that challenge their start-up and sustainability, such as access to capital and networking opportunities, so effective supplier diversity strategies can alleviate these pain points. And for CVS Health, as small businesses grow, so will our nation’s economy.