In CVM’s 2019 supplier diversity survey, 32 percent of respondents said they currently measure the economic impact of their supplier diversity program. This is an increase over the 19 percent who reported tracking that metric in 2017, indicating that more and more companies are recognizing the value of looking beyond spend, competitive advantage, and cost savings.
Of course, all of those metrics are important, but they don’t tell the whole story.
What Is an EIA?
An economic impact analysis (EIA) shows the ripple effects of investing in small and diverse suppliers. It looks at a different data set to analyze the impact of doing business, specifically in the communities where these suppliers are located.
And because small and diverse suppliers are often located in communities with fast growing minority populations, the business case for positive economic impact on the rising consumer base cannot be ignored.
An EIA measures four types of economic impact:
- Output effect: A measure of revenues generated by small and diverse suppliers within your supply chain
- Income effect: A measure of total income generated with small and diverse suppliers within your supply chain
- Employment effect: A measure of the number of jobs created as a result of the business activities of small and diverse suppliers within your supply chain
- Tax effect: A measure of federal, state, and local business and personal taxes that are supported through economic activity
Adding an EIA to your reporting lets you demonstrate to leadership and other stakeholders how your supplier diversity program is strengthening the economy at national, state, and local levels. It provides quantifiable data that shows how each dollar spent with small and diverse suppliers has a multiplier effect on economic growth.
An example of the multiplier effect is the statistic most of us have heard from the Shop Small campaign: “[E]very dollar spent at small businesses creates an additional 50 cents in local business activity as a result of employee spending and businesses purchasing local goods and services,” according to the 2018 Small Business Economic Impact Study from American Express.
This ripple effect occurs because money spent with small and diverse businesses is redistributed throughout a company’s payroll and the goods and services that company purchases, as well as those purchased by companies within its supply chain.
Employees spend their salaries on goods and services, many of which are part of their local economy. All of this economic activity strengthens those communities which, as an accurate EIA can show, leads to bottom-line benefits for larger companies partnering with those small and diverse businesses.
We Have the Results, Now What?
Reports are not the end of the lifecycle for data; rather, they should help inform and guide our business strategies. When you have your EIA in hand, it’s time to look at the results and determine where you can improve and strengthen your supplier diversity program for maximum ROI.
Does your data show a community with untapped potential? How would increasing spend with local small and diverse suppliers in that community improve your economic impact? Would it create more jobs and thereby increase your consumer base?
Maybe people aren’t aware of your commitment to small and diverse businesses even though you already partner with businesses in that community. Targeted marketing to increase consumer awareness could improve brand loyalty. People want to buy from companies that support them. Make sure the communities impacted by your supplier diversity decisions know that these choices are intentional and align with your corporate values.
Perhaps your EIA shows a small or diverse supplier within your supply chain that could dramatically increase its economic impact if it could expand. How can your supplier development team help it scale? What resources are available to support its growth?
The key to an accurate, insightful EIA is ensuring that you’re capturing the relevant data correctly so you can produce a report that shows the effectiveness of your supplier diversity investment.
Working with a third-party like CVM, a supplier.io company, takes the task off your shoulders and leaves it in the hands of an experienced team of researchers and analysts.
We at CVM utilize our industry-leading data enrichment processes to measure and create a customizable report with analysis at a granular level. Using up-to-date, robust tools and analysis, an EIA can reveal a lot about the efficacy and potential of your supplier diversity program.