This blog was originally published on 12/6/2018 and updated 1/7/2020
After 50 years of supplier diversity initiatives, we know that building inclusive supply chains enable underrepresented populations to compete and thrive in business. In addition to empowering diverse-owned businesses, supplier diversity initiatives also have significant payoffs for the companies that enact them.
For starters, they encourage innovation and increase competition between suppliers, ensuring that contractors receive the best value at the best possible price. Supplier diversity programs have also been shown to give their creators a competitive advantage in minority-dominated markets and boost overall brand loyalty and perception—all of which impact a company’s bottom line.
As more companies recognize the value of supplier diversity, many top-performing international businesses like Barclays have adopted supplier diversity programs and publicly advertised their commitment to supplier diversity as a means of evolving their brand identity.
Although setting up a supplier diversity program is a great first step, in order to take advantage of the benefits these programs offer, you must have the means to evaluate and improve upon your efforts. Below, we’ve outlined five key steps to measure the success of your supplier diversity program and optimize your approach to see the greatest impact on your business.
1. Create Clear and Actionable Goals
Each company will have its own reasons for creating a supplier diversity program and different goals that it would like to achieve with the program. Objectives and expectations for supplier diversity initiatives may also vary internally between C-suite members, procurement, and other stakeholders.
Before you begin to configure your reporting, it’s important to outline what your company objectives are and how you will measure your progress toward those goals. What are your strategic goals for supplier diversity? How do they align with your company’s core values and objectives? Will you leverage supplier diversity to impact your bottom line? Your local economic impact? Your market share? All of the above?
Laying out clear and actionable objectives will keep everyone in your organization on the same page and help you determine which metrics to focus on in your reporting.
2. Identify What Key Performance Indicators (KPIs) You’ll Track
As soon as you’ve outlined your goals, the next step is to determine which metrics you’ll use as KPIs to evaluate your progress. The most common KPIs used to measure supplier diversity initiatives are:
- Diverse Spend: How much money your company is spending with diverse suppliers.
- Diverse Count: The number of diverse suppliers that your company contracts with.
- Economic Impact: How doing business impacts the economy, specifically the local economy where your suppliers are located and do business. Choose from a variety of metrics to measure your economic impact. For example, you can track the number of jobs created by your supplier diversity program, as well as tax revenue generated by doing business in local communities.
- Cost Savings: The ratio of organizational spending to revenue over time.
- Revenue Impact: Your program’s impact on revenue earned and projected.
- Market Share: Your company’s sales in relation to the overall revenue of your industry. Market share is typically expressed as a percentage and can be calculated for your industry as a whole or for individual submarkets within your industry to reveal how much market share has grown in each subcategory.
- Deals Won: How many diverse suppliers were contracted within the stipulated time frame. You can also compare this metric to churn, or the number of diverse suppliers that left your company during the same period.
- Deals Lost (Due to Disqualified Suppliers): If you’re losing many deals because suppliers don’t meet your qualification criteria, then you may be aiming your marketing and outreach efforts at the wrong audience. Partnering with a third party like CVM, which offers a robust supplier locator database, can provide access to a list of diverse suppliers in your desired industry and geographic area.
- Tier 2 Diverse Suppliers: This metric tracks the diversity efforts of your direct (Tier 1) diverse and non-diverse suppliers in terms of their diverse spend and diverse count. To report on these numbers, you’ll need to collect data from your Tier 1 suppliers on a routine basis.
When you’ve chosen which metrics to track, consistency is key. Changes won’t happen overnight—if you change which metrics you’re tracking or don’t follow a strict reporting cadence, it will be much harder to track your growth and gain the insight you need to grow and improve your supplier diversity program.
3. Establish a Baseline
To track your progress, you need to know where you started. Look through your current supplier portfolio and identify baseline figures for each metric that you’ve chosen to track.
Your payroll and procurement departments should be able to help you access data on how much your company is spending with each supplier, the volume supplied and, possibly, the diverse status of all suppliers in your current portfolio. If diversity certification is not data your company has collected to date, you will need to collect it now either manually or through a tool like CVM's Data Enrichment and Insight Solutions.
As you source these baseline metrics, note the duration of non-diverse supplier contracts to identify upcoming bidding opportunities and give diverse suppliers adequate notice to compete. CVM's proprietary Supplier Locator tool enables you to search for suppliers in more than 40 categories so you can invite them to bid on upcoming opportunities.
4. Draw Insight from Data
When you’ve gathered your current data and established a baseline, you need a consistent and efficient means of organizing and analyzing incoming data. You can collect and analyze data by hand, but doing so will require more time and resources as your program continues to scale. Furthermore, a manual reporting process heightens the chances of human error and can inhibit rather than enable implementation across the enterprise.
Supplier diversity tracking software helps you automate this process and makes it easier to draw the insight you need to optimize your organizational spending, improve your diverse contracting efforts, and hone the impact of your program. As you compare different software solutions, it helps to know what qualities and functionalities to look for.
The ideal software solution should:
- Offer data enrichment to provide greater visibility and ensure the accuracy of your database.
- Be user-friendly so every department can access key insights and updated account information.
- Allow you to customize reporting that shows actual results vs. stated goals so you can see both the big picture and the impact of your supplier diversity program on individual objectives.
- Automate the data collection and analytics process to save you time, improve the accuracy of your results, and offer real-time insights to adjust to market changes.
- Be agile and robust enough to scale with your growing company, including the ability to measure and report Tier 2 diverse spend.
For more information on what to look for in a supplier diversity solution, download our free checklist.
5. Optimize as You Go
If you understand the impact of your supplier diversity program on your selected KPIs, then it’s possible to optimize your approach in real time. By recognizing areas of your business that benefit from supplier diversity efforts and areas that are unimpacted or suffering, you’ll be able to determine where to double down your efforts or how to tweak your approach to see a greater impact on specific problem areas.
If you find that one area of your business isn’t seeing the results you were hoping for, resist the urge to change everything at once. Instead, limit changes to one area of focus to determine how each of your efforts and initiatives is contributing to your success. This cyclical process of reporting, drawing insight, and tweaking your strategy will help you continue to evolve your program effectively and reap results that yield competitive advantages for your company and your partners throughout your inclusive supply chain.
What supplier diversity tracking or reporting methods have you found most beneficial to your program?