As your supplier diversity program matures, you will likely begin looking at how to expand and be more aggressive toward meeting your organization’s goals around diverse spend. The most powerful way to do that is through multi-tier diverse spend reporting, or the practice of tracking and reporting money spent with diverse suppliers further down your supply chain.
What Is Multi-Tier Diverse Spend Reporting?
Before we dig into why multi-tier diverse spend reporting is important to your supplier diversity program, let’s clarify what this type of reporting is:
Diverse supplier spend is the amount of money your organization spends with diverse-owned businesses when purchasing products and services. You decide if you will count spend with businesses certified as diverse by third-party entities and/or those that self-identify as diverse-owned. You also decide which categories of diverse-owned businesses to include (e.g., minority-owned, women-owned, LGBT-owned, disabled-owned, veteran-owned, and so on).
Multi-tier refers to how deep in your supply chain you track and report your diverse spend. If you only report spend with Tier 1 or prime suppliers that are diverse-owned, that’s a single tier. If you also track and report spend with diverse suppliers at Tier 2, Tier 3, and beyond, that’s multi-tier.
In other words, multi-tier diverse spend reporting is an expansion of what your supplier diversity program is already doing when it reports spend with diverse-owned prime suppliers.
What Are the Benefits of Multi-Tier Diverse Spend Reporting?
Almost 59 percent of respondents to our 2019 State of Supplier Diversity survey said that they track and report Tier 2 spend, representing a continuous upward trend. Why are more and more companies engaging in multi-tier diverse spend reporting? Because working with Tier 1 suppliers to establish and improve their supplier diversity programs ultimately boosts their own supplier diversity success.
Meet Supplier Diversity Goals
If you’re looking for ways to increase your diverse spend quickly and create more economic opportunities for diverse suppliers, then you need to look further down your supply chain than Tier 1.
Consider this: The number of suppliers your company can partner with is finite, but when you get to Tier 2, the potential is almost unlimited. And because many diverse suppliers are also small businesses without the capacity to partner with large corporations directly, Tier 2 and Tier 3 are often a better fit for their capabilities (we’ll touch on this more below).
Another benefit of implementing multi-tier reporting is that it quickly and easily increases diverse spend because you're identifying and reporting spend that already occurs within your supply chain. Your primes may already be working with multiple diverse-owned businesses; with a multi-tier reporting program, that spend is included in your diverse spend.
Overview of Supply Chain
Multi-tier reporting provides an overview of your organization’s entire supply chain from an inclusive sourcing perspective. When you know how many diverse suppliers are included at all levels of the supply chain, you can identify areas where you may need to improve. Perhaps you need to find more potential suppliers for a business unit. Maybe one of your primes needs help developing their supplier diversity program to be more effective.
Being able to see your supply chain as a whole can also help you identify risk and determine how to mitigate it. Are you relying too heavily on a single supplier? Would splitting a request for proposal (RFP) into smaller contracts, which diverse suppliers may be better equipped to fulfill, prevent supply chain disruptions?
Opportunities for Small Businesses
The majority of diverse suppliers are also small businesses. They may not possess the capability to provide Tier 1-level products and services and may therefore miss opportunities to work directly with your large organization. However, through a Tier 2 or Tier 3 contract, they can supply one of your primes and still be part of your supply chain.
For example, Company A is a small, minority-owned construction firm specializing in commercial projects. You have a major construction project to bid out and have a diverse spend goal attached, but Company A does not have the capacity to manage the entire project. Instead, your organization awards the contract to Company B, a large project management firm with experience completing projects of this magnitude.
You introduce Company A to Company B as a potential subcontractor and, after doing their due diligence, Company B hires Company A to complete part of the project. Company B is your Tier 1 supplier. Company A is your Tier 2 supplier. Whatever Company B pays Company A is Tier 2 diverse spend for your organization.
If your supplier diversity program focuses solely on Tier 1 suppliers, you are missing out on a huge pool of potential suppliers that could add innovation and competitive advantage to your supply chain.
Expanding your diverse spend reporting to include Tier 2 and beyond tells a bigger story about the economic impact your spending has on the communities where those diverse businesses operate. Economic impact measures the effect of a purchasing event on the economy in a specified area. When we talk about economic impact in the supplier diversity context, we include metrics such as changes in business revenue, personal wages, and jobs created.
Economic impact reports answer questions like: How many jobs are being created and/or sustained when your Tier 1 partners work with diverse suppliers? How much tax revenue is generated for local, state, and federal governments as a result of that Tier 2 activity? Multi-tier diverse spend reporting gives us insight into the real impact an inclusive supply chain has, often in underserved and marginalized communities.
How Do I Track and Report Multi-Tier Diverse Spend?
You have probably already spotted the main challenge when it comes to tracking diverse spend further down the supply chain: If your organization is not purchasing products and services directly from these diverse suppliers, how do you know what those spend numbers are?
The short answer is to have prime suppliers report their diverse spend to you on a regular basis. It’s both as simple and as complex as it sounds.
First you need a tool to capture that data, a mechanism that makes it easy for primes to submit diverse spend data to you. The tool should be integrated with your Tier 1 spend reporting process so that all of the data can be reported in a meaningful way.
In addition to a software solution, you will need a process to communicate to primes the importance of reporting that data. Some companies include it as a requirement in contracts, with or without spend goals. Whether you choose to mandate diverse spend reporting is up to your organization, but either way, establishing clear expectations and guidelines about reporting diverse spend should be a priority for your supplier diversity program as you expand into multi-tier diverse spend reporting.
One such solution is Unitier, a revolutionary multi-tier reporting platform from CVM, a supplier.io company. Unitier combines software, training, support, and management that helps you onboard your suppliers quickly and easily.
Unitier is connected to the largest Tier 2 network in the industry, enabling your suppliers to report their diverse spend to multiple customers in one place.
Our data is only as good as it is accurate. Unitier is powered by CVM’s Master Database, the largest in the industry with more than 1.6 million certifications from more than 300 trusted agencies. Customers can quickly verify the certification status of diverse suppliers, including those submitted by primes, to ensure the accuracy of spend reporting.
When spend data is captured via Unitier, you can generate tailored reports with CVM’s powerful Spend Reporting tool. Used together, these tools enable you to view consolidated Tier 1, 2, and 3 diverse spends in one reporting platform, keeping you informed of progress toward goals as well as areas for improvement.
With this streamlined solution, suppliers spend less time reporting, and corporations improve the quality of their submissions—a win-win.
When multi-tier diverse spend is part of our supplier diversity goals, it creates additional avenues for supplier diversity professionals to identify opportunities for diverse suppliers, encourages prime suppliers to prioritize supplier diversity, strengthens our supply chains, and has a positive economic impact on the communities where diverse suppliers operate. With the right tools, capturing and reporting that data can be an efficient, effective process.