When considering strategies to increase Minority and Women Business Enterprises (MWBE) spend, supplier diversity programs must be willing to be moved to tiers. (Sorry, we couldn’t resist the obvious pun!) Tier 1 and Tier 2 are important terms to know when describing suppliers, especially diverse suppliers, and the supplier diversity Tier goals that companies set and strive to meet. Tier 2 suppliers are of special note because these businesses offer the potential of impressive growth for diversity initiatives.
Tier 1 suppliers are the business partners who directly provide goods and services to the parent company. For example, if your organization needs a key component to manufacture a product, a Tier 1 supplier provides that component to you. Or your company sells goods produced by a Tier 1 supplier in your stores. Or you directly contract a technician to perform services at your facilities. Tier 1 refers to a direct relationship, and therefore it is easier to determine if a supplier qualifies (and is certified) as an MWBE.
Tier 2 suppliers are the vendors your partners contract—think of this as your supplier’s suppliers. From the examples above, the suppliers your Tier 1 partner uses to produce its components you use for production of the goods you sell in your stores would be Tier 2, as would the businesses the service technician relies upon to be successful. Your supply chain has supply chains of its own, and this reality provides an incredible opportunity to increase diverse spend.
What Is a Tier 2 Program?
A Tier 2 supplier diversity program aims to grow and sustain MWBEs beyond direct supplier relationships (Tier 1). For many varying reasons, growth opportunities for MWBEs are more frequently further down the supply chain. Through a Tier 2 program, key suppliers are required to create and/or maintain their own supplier diversity programs and report their spend.
Why Are Tier 2 Programs Important?
In 2005, the Billion Dollar Roundtable identified a Tier 2 program as an essential best practice of a mature supplier diversity program. Actively working with Tier 1 suppliers to improve their supplier diversity programs ultimately boosts your own supplier diversity success. For starters, the number of suppliers your company can partner with is finite, but once you get to Tier 2, the potential is almost unlimited. Second, a strong Tier 2 program builds networks, thus creating opportunities to strengthen your diverse Tier 1 portfolio. Diverse small businesses grow when larger organizations are encouraged to seek them out, and your reputation builds when you contribute to the success of MWBEs.
How to Build Tier 2 Diversity Programs
The most prudent way to build a Tier 2 program that increases MWBE spend is focus much of your effort toward Tier 1 partners who do not yet have a supplier diversity program in place. Be ready: The initial dollars reported might be minimal, and your supplier diversity program might need to help suppliers get their own programs off the ground. The process may be slow, and though some suppliers with established SD programs might report spend that is solid, this Tier 2 approach won’t be breaking records out of the gate. That’s OK; there’s a long-term goal you should be aiming for.
How to Measure Success of a Tier 2 Program
The temptation to initially target suppliers with established supplier diversity programs for your Tier 2 efforts is strong because you can show an impressive spend right away. However, that front-loading rarely results in lasting results, and the amount of diverse business you indirectly bring into the fold won’t increase beyond the first year. Therefore, focus most of your resources toward suppliers who can benefit the most from your help, and/or to Tier 1 partners who have never heard of supplier diversity and have no idea where to start. Ultimately, your Tier 2 program success won’t rely on the “ringers” who offer established MWBE spend, but rather the suppliers who will be inspired to find new spend from diverse businesses just waiting for the opportunity.
What kind of Tier 2 supplier diversity program does your organization have in place?