A recent article in the Harvard Business Review, “Getting Serious About Diversity: Enough Already with the Business Case” November/December 2020 (https://hbr.org/2020/11/getting-serious-about-diversity-enough-already-with-the-business-case) found that when enterprises take such programs seriously, supplier diversity programs are socially beneficial and have big commercial impacts. 2020 has been a breakout year as we see a surge of interest among companies starting new diversity programs or boosting existing programs. All organizations should look towards implementing supplier diversity programs as they are win-win propositions for everyone.
What is Supplier Diversity and Why is it Critical?
Supplier Diversity programs encourage procurement from businesses owned by traditionally underrepresented or underserved people such as veterans, women, people of color, and other groups historically unable to obtain contracts. A diverse supplier is denoted as a business that is at least 51% owned and operated by such underrepresented or underserved groups. In the United States for example, there are approximately 16 categories used to identify diverse businesses. Common examples are small-business enterprises (SBEs), minority-owned business enterprises (MBEs), and woman-owned business enterprises (WBEs).
During the 1960’s, at the height of the Civil Rights movement, General Motors established the first supplier diversity program in the US. Since then, many large corporations have followed suit and developed and nurtured their own diversity programs. Apart from the “right thing to do” sentiment behind these programs, there are a number of tangible societal benefits:
● There were eight million minority-owned companies in the United States as of 2018 that generate $400 billion in economic creating or preserving 2.2 million jobs and $49 billion in annual revenue for local, state, and federal tax authorities. (Source: US Small Business Administration and The National Minority Supplier Diversity Council)
● Some companies have started measuring the impact of their programs. For example: CVS Health reported that their 2018 diverse spend contributed $5.5 billion to the U.S. economy and sustained 31,095 jobs.
● Most diverse businesses are small businesses and they are instrumental in economic recovery and sustainability of communities.
● Often a large company can influence their own suppliers to create supplier diversity programs to broaden the economic impact. For example, Target spent $1.4 billion on goods and services provided by first-tier diverse suppliers and influenced its first-tier suppliers to buy over $800,000 worth of offerings from second-tier diverse suppliers.
These are well established facts. But are there any direct, financial benefits to companies that run such Diversity programs? Research and data points strongly suggest, yes:
● Companies that spend more with diverse suppliers generally see a higher market share. According to The Hackett Group, “companies that allocate 20% or more of their spend to diverse suppliers attribute 10%-15% of their annual sales to supplier diversity programs. Conversely, companies that direct less than 20% of spend to diverse suppliers attribute under 5% of sales to their supplier diversity program.
● An inclusive procurement strategy widens the potential supplier pool and promotes competition in the supply base, which can improve product quality and drive down costs. And by providing more sourcing options, inclusiveness can make supply chains more resilient and agile — an increasingly important advantage in these uncertain times.
How to Run an Effective Supplier Diversity Program
Despite the benefits, many enterprises struggle to effectively run their diversity program. Even when such programs are blessed by Executive sponsorship and have a high priority, enterprises often do not have tools and data to manage a program effectively and efficiently. Let’s look at some of the key problems:
● What does not get measured does not get managed – One of the key problems is not establishing a diversity spend baseline. This requires two accurate analyses – spend analysis to understand what is being bought, from which suppliers, and understanding which of these suppliers are or are not diverse. This is more difficult to establish than it seems as mapping real-time spend volume to accurate supplier diversity classification is not easy. There are a number of very good databases of diverse suppliers (such as CVM/supplier.io) but that information still needs to be integrated with spend analytics.
● Benchmarking diversity spend against peers or targeting an aspirational target is generally the second step. But this “aspiration” needs to be based on what’s possible. Many spend categories areas are not influenceable and may not be ideal targets for diversity spend. It’s critical to find the right areas where a diversity program needs to spend its energy. Set a target and identify areas to improve.
● Program Efficiency – once the strategy is in place, the program needs close monitoring with strong collaboration across the organization. Buyers and procurement professionals need to find diverse suppliers that are ideal for the company and execute contracts and/or agreements and on-board these suppliers. Monitoring these suppliers and managing these relationships is also critical for a thriving program. A diversity initiative is only as strong as its execution against mandate. Measuring improvements and reporting/analyzing the impact is key for on-going program health.
How Suplari Can Help
Suplari has partnered with CVM/Supplier.io to integrate industry-leading spend analytics and supplier diversity data to manage Diversity programs around the world. Suplari’s Diversity Program benefits include:
● Automated baselining – There is no need to purchase data separately and attempting to painstakingly map suppliers to understand how much of your spend is diverse. Using advanced AI/ML techniques within supplier normalization, Suplari can automatically identify all the diverse spend in a spend base leveraging its partner database (supplier.io). This combination takes diversity up a level, unlike one-off analysis, users can see how spend is changing month over month.
● Opportunity identification and goat setting – Suplari has developed multiple intelligent Insights that identify Cost centers and categories which have low diverse spend and can be targeted as diverse spend improvement areas. Suplari can also recommend new diverse suppliers and help enterprises to set measurable goals for diversity spend.
● Program management – using Suplari Connect, program managers can create initiatives from these opportunities, assign employees to these initiatives and drive these to increase diversity. Suplari Connect provides an in-procurement collaboration platform for teams to work on these projects – bringing data, action plans, best practices and tracking mechanisms together to efficiently manage and drive results.
Suplari provides an end-to-end modern solution for Diversity program management. With increasing interest and urgency to implement successful Diversity programs, Enterprises needing a quick start turn to Suplari to successfully manage and deliver results from Diversity initiatives.
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