What is a diverse supplier? It is a business that is more than 51% owned and operated by an individual or group that is part of a traditionally underrepresented or underserved group. This may mean a small or micro-enterprise, a women-owned business or one run by people with disabilities. For example, there are more than 2.5 million veteran-owned businesses that generate more than $1 trillion in sales per year, one of 16 certified diversity categories in the US.
Many leading companies such as Coca Cola, Target, UPS, Merck and Toyota have demonstrated that a supplier diversity program has many benefits. Successful diversity programs are designed to actively include employees across the organization providing a direct link to the marketplace. Supplier diversity programs provide opportunities for companies to align with customers' values and fulfil their needs while continuing to be profitable.
Photo by Supplier.io
Why implement a supplier diversity program
- To support business strategy. Proactively introducing diverse suppliers can drive innovation in products and services, increase flexibility and resilience as well as providing cost savings and efficiencies.
- To align with corporate culture. Companies can demonstrate their commitment to local manufacturing, ethical and sustainable sourcing and can use diversity as a way to show their involvement in promoting social change. Supplier diversity programs can also be an important selling point in hiring, as candidates are increasingly looking for companies that align with their values.
- To support sales growth. Supplier diversity programs help companies meet customer expectations while ensuring compliance with regulatory requirements. Supplier diversity initiatives widen the pool of potential suppliers, and new suppliers bring new ideas which promote competition and improve service levels.
How to launch a new supplier diversity program (or energize an existing one)
- Set Goals. A goal could be defining the policy, or the number of new diverse suppliers targeted. It could be the value of spend with diverse suppliers, either in total or within sub-groups.
- Document the current status. There may be some diverse suppliers already on your database in specific commodities, or within some departments or regions.
- Identify the gaps between the goals and the current reality. Once you have a view of your current supplier diversity status and spend, procurement can lead the charge and work across functions to identify development areas and set goals.
- Develop a strategic plan to achieve the goals. Your plan will depend on the maturity level of your existing program, your ambition levels and corporate goals. Succesful supplier diversity program implementation will likely require changing some of your existing sourcing practices, proactive supplier outreach, and regular reporting to build awareness and buy-in across functions.
Using data to grow your diversity program
The first step involves searching for potential new suppliers in the categories or locations you have identified. A Google search can be a starting place. There are also specialist service providers such as Supplier.io that use technology to offer accurate, categorized, and up-to-date databases. They provide information on certified and third-party verified suppliers, by category and/or location.
Finding diverse suppliers is often a stumbling block in succesful program implementation. To address this issue, companies can proactively seek out diverse suppliers to support them in the certification process, or creating mentoring, training or networking programs to help them meet standards and better understand the corporate buying process, requirements and needs. In the short term, finding diverse suppliers in specialized markets may not always be possible. Having a data-driven approach to supplier diversity will help identify areas where more long-term development approach may be needed.
Managing your diversity program
Tracking and validating spend with your newly identified diversity suppliers is the next step. Current suppliers on your database that qualify as diversity suppliers and others who become so through certification or a change of ownership will add to your diversity spend. Companies with established programs track the diversity spend of their suppliers’ suppliers (Tier2). Managing this data is difficult manually, spend analysis solutions can consolidate, validate and summarize it for reporting purposes.
Reporting on diversity spend
Periodic management reporting of progress against established goals and objectives is the norm. At a minimum reporting will need to include key numbers such as total spend, the total spend with diverse suppliers by category, then by sub-category and by location. Additional metrics that may be measured are cost savings achieved or the number of jobs created. It may be difficult to establish any other direct economic impact such as social improvements or revenue creation in the early stages of a diversity program. Reporting is simplified when the data is managed using automated processes.
Supplier diversity dashboard in Sievo Procurement Analytics
Common supplier diversity KPIs
- Total or percentage of spend with diverse suppliers
- Diverse spend opportunities pipeline
- Number or percentage of diverse suppliers
- Number of sourcing activities that included a diverse supplier
- Number or percentage of diverse suppliers that are strategic partners
- Percentage of diverse supplier meeting or exceeding expectations
- Savings from diverse suppliers
Trends in supplier diversity programs
Bringing supplier diversity into the tools and processes procurement is already using. Supplier diversity has traditionally been a team or function of its own, but it's now increasingly becoming an integrated part of the buying process as the interest and mandate for supplier diversity grow. Many spend analysis providers (including Sievo) are integrating diversity data from third party vendors so that procurement has a direct, up-to-date view on progress.
Compliance and disclosure requirements are increasing for publicly traded companies. This means an increased focus on data integrity in reporting diversity spend. The focus on providing visibility into diversity spend in Tier 2 suppliers is increasing. Coca-Cola in the USA requires its contracted suppliers to set targets to commit 10% of their own expenditure to certified diversity suppliers.
Leading companies are tracking historical diversity spend to gain a better picture of how suppliers are performing and to identify needs for supplier development. These trends mean that a supplier diversity management solution is needed to manage spend analytics, ensure data integrity, identify Tier 2 spend, and to provide data that supports the growth of diverse suppliers.
Supplier Diversity Program Resources: