Supplier Diversity: Where Do We Start?
2020 was a catalyst for a change in the status quo, and many procurement professionals have been directed to either start or improve upon their company’s supplier diversity program. This topic is gaining momentum, particularly in North America, where goals have pivoted away from cost savings and toward sustainability, diversity, equity, and inclusion initiatives. To be successful in this endeavor, it requires executive buy-in to align procurement’s goals and KPIs with that of the business, as well as an investment in technology.
Supplier diversity initiatives encourage the use of minority-owned, women owned, veteran owned, LGBT-owned, service disabled veteran owned, historically underutilized business, and Small Business Administration-defined small business concerns as suppliers. As technology continues to evolve, there is now a solution for every challenge when it comes to analyzing data and garnering the insights necessary for a successful supplier diversity program. To go beyond “check-the-box” quotas that make a sustainable and measurable impact, here are some tips to track diverse suppliers, measure the results, and optimize for value.
Track
Most procurement organizations already have established criteria, or at least guidelines, when it comes to managing and tracking supplier relationships. Work toward your company’s supplier diversity or sustainability goals by incorporating those specific criteria into your existing supplier relationship management process.
To streamline the process and track progress, a supplier management tool is crucial. In a supplier portal, diverse suppliers can upload their information, including diversity certifications, and respond to questionnaires based on your company’s established diversity and sustainability goals. All of this information in one place provides a 360-degree view of your supplier base, allowing you to search thousands of suppliers and filter by company, category, certification, or other criteria.
You can further qualify diverse suppliers through the eRFx process to provide suppliers the opportunity to articulate their value proposition and skills in relation to non-diverse suppliers. This is especially helpful when basing award decisions, especially if the cost is higher to work with a diverse supplier. The total value that a diverse supplier may be able to provide – such as employing veterans, working with marginalized communities, or just being geographically able to deliver a product or service in the event of a global disruption – may offset a higher cost of doing business.
Measure
As the management author Peter Drucker is often quoted, “You can’t manage what you can’t measure.” What he means is you cannot measure whether or not you are successful unless success is defined and tracked.There are different ways in which leading companies measure supplier diversity. Some measure by the number of suppliers they buy from and compare that as a percentage of how many suppliers are diverse. This method will suggest a higher percentage of inclusion for diverse suppliers, which is not necessarily wrong, but also not exactly telling the whole story.
An alternative best-practice is one in which companies measure results by actual spend and what percentage of that spend is fulfilled by diverse suppliers. This result will lead to a lower percentage, but it places a focus on putting actual dollars back into local economies through diverse suppliers. What we are seeing and hearing from our most successful customers is that more and more diverse suppliers are winning contracts in categories that have historically gone to non-diverse suppliers. No matter how you choose to measure and report on spend with diverse suppliers, it requires a spend analytics tool. A successful supplier diversity program must be driven by data-based decision-making to find savings, calculate risk, and drill down into all areas of spend for quick reporting.
Optimize
Diverse suppliers may be smaller in terms of number of employees and annual revenue, but they are attracting innovative talent that traditionally favored working for larger companies. As opinions shift and priorities change, diverse suppliers really can innovate and be more agile than the larger, non-diverse suppliers, as long as companies are willing to give them the opportunity.
The Hackett Group’s research supports this: “Virtually all diversity suppliers meet or exceed expectations, and top corporate performers in supplier diversity experience no loss in efficiency.”
With the right technology and mindset, optimizing your working relationships with diverse suppliers will pay dividends in multiple ways: It will attract talent to the buying organization, infuse capital into local communities, and increase market share.
Remember, this is a journey. Start it off by defining what success looks like early and you will be on your way to achieving your goals at the corporate and personal level.
