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CVM Supplier Diversity Blog

4 Supplier Diversity Best Practices You’re Not Following

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Let's talk about why your supplier diversity program is underperforming.

You want to diversify your supplier base. You create a position for a supplier diversity manager and hire someone with the appropriate qualifications. You step back and let your new supplier diversity professional get to work. The results are underwhelming. Why? Because just like you wouldn't expect to undertake a long road trip without directions to your destination, no matter how passionate you are about supplier diversity, if you're not following best practices, your efforts will be ineffective:

1. Establishing an accurate baseline

How do you chart a path to your destination if you don't know where you're starting? To get from Point A to Point B, you have to know where Point A is first. With respect to your supplier diversity program, that means identifying diverse suppliers already in your supply chain and how much you spend with those suppliers.

To set this performance baseline, first run your supplier file through a third-party supplier data enrichment service. Supplier data changes frequently, so to protect the integrity of your program, be sure you're working with a service that maintains an up-to-date database. It is also imperative that you continue to run a third-party data enrichment process on a regular basis to monitor changes in your supplier base.

By combining the diversity category information with actual spend dollars per supplier from your Accounts Payable system, you will have an understanding of the current state of your organization’s supplier diversity program. This is your Point A.

Two other important decisions are required when establishing an accurate baseline. First, which diversity categories will your program focus on? Nearly all successful diversity programs baseline against minority- and woman-owned business enterprises (MBE and WBE, respectively), with a growing number also choosing to include LGBTQ-owned business enterprises (LGBTQE). The decision to include additional categories is often driven by the external reporting requirements of your customers—those firms that have significant relationships with the federal government are generally required to report a variety of “federal” categories, including small business and veteran-owned business.

The second decision is to determine what types of certifications your program will accept as part of your baseline and ongoing reporting, including either third-party-certified segments and/or self-reported segments.

Third-party private agencies such as NMSDC and WBENC manage a certification process in which qualified firms must complete a series of certification steps prior to being granted a diversity certification. A self-reported or self-classified firm is one that has indicated to your company or a non-certifying third party that it qualifies for a diverse designation. There is no vetting process involved for self-reported firms, so you should consider the risk of overreporting diversity spend due to a lack of verification.

Once you have established which diversity categories your program will focus on and which certifications you will accept as part of your baseline, it's time to determine the goals against which the program will be measured.

Learn the 3 Steps You Need to Build a Successful Tier 1 Supplier Diversity  Program »

2. Benchmarking and goal-setting

Now that you know your starting point, it's time to map out the journey to your destination. Set short-term and long-term goals to serve as guideposts along the way and establish the right metrics to determine when you've reached those goals.

Recognizing that industry and company size make a difference when it comes to comparing spend, benchmarking can be challenging. Take a look at other companies in your industry, preferably those of a similar size, and ascertain their diverse spend (most companies with a supplier diversity program publish this information on their websites and/or in their annual reports). There are likely to be material differences that can make the best-in-class company a poor choice for a model, but you can gain a sense of what others in your industry are doing.

Benchmarking is about more than metric scores, however. The real value in looking at other supplier diversity programs is identifying winning processes that lead to supplier diversity success. Here is where looking to leaders in other industries is beneficial. While the diversity spend reported by a Fortune 10 company may be an unrealistic goal for now, bringing in techniques from other industries may well be your ticket to jumping ahead of your industry peers on key program metrics. If your goal is to outperform your peers rather than do just as well as your peers, examining processes outside of your industry can put you in the fast lane.

3. Identifying opportunities and proven diverse suppliers

Once your baseline, benchmarks, and goals are established, it's time to identify opportunities for adding diverse suppliers to the supply chain. Work with your procurement team to gain visibility into when current contracts are expiring and new sourcing opportunities are arising. Armed with this list, your next step is to identify qualified suppliers for the procurement team to include in the RFP process.

The first source of proven firms should be diverse companies you are currently doing business with, as you identified when establishing your baseline. When you have maximized opportunities for those firms, the next efficient way to find proven firms is to utilize a large and accurate database of diverse suppliers that contains detailed supplier information. This database should allow searching for suppliers through an internet portal based on any parameter. It should help your internal teams, or even your prime suppliers, find diverse businesses by making it easy to locate proven MBE, WBE, LGBTE, SDB, 8(a), HUBZone, veteran, service-disabled veteran, and small-business suppliers from one location.

Another diverse supplier identification/qualification technique is to purchase or build a supplier management portal that prequalifies potential suppliers. Diverse firms will register in your portal on a walk-up basis with your firm and provide details about their businesses. For this to be effective, it is important that you market/advertise the fact that you have a registration portal for diverse suppliers on a consistent and ongoing basis. It is also important that the portal is linked to the procurement section of your company’s website.

4. Collaborating with potential suppliers and partnering with procurement

When you embark on a long journey, you bring along a navigator, right? Someone to read the map—even if that someone is the disembodied voice in your GPS unit—and alert you that it's time to change lanes and prepare to exit. Your supplier diversity journey also requires collaboration and communication.

The registration portal we talked about above will be one of your most valuable collaborators. Customized, commodity-specific surveys designed by the purchasing team ask suppliers to answer prequalification questions specific to the product/service they provide. The survey functionality incorporates scoring and automatically notifies the appropriate buyer if a registering supplier has a survey score above the preestablished threshold. By implementing this system, the purchasing team—which has direct access to the registration portal—only spends time reviewing company profiles for suppliers that have been prequalified.

Your firm's procurement department will also be invaluable to the success of your supplier diversity journey. Not only can the procurement department keep you informed of bidding opportunities, but allowing your procurement teams to have direct access to your supplier registration process can be critical to your success in locating, qualifying, and registering suppliers in the most cost-effective and least time-consuming way.

Just as you wouldn't start out on a long trip without careful planning, your supplier diversity program has a better chance of succeeding when you implement best practices.  

 

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For over a decade CVM's mission has remained unchanged: lead the transformation of Supplier Diversity program management and support Supplier Diversity programs. CVM helps corporate supplier diversity programs in every stage of their evolution; from those that are just getting started, to the most advanced, world-class programs. Equipped with unparalleled data intelligence, superior technology and expertise guidance, businesses can effectively establish and advance their Supplier Diversity initiatives.