The term “supplier diversity” is used often these days, but for companies that are striving or are mandated to increase diverse spend in their supply chains, establishing, maintaining, and growing a supplier diversity program isn’t so clear-cut. In short, supplier diversity is (defined more in this post here) a strategy to achieve a more diverse supplier base, emphasizing the inclusion of vendors such as minority-owned business enterprises, women-owned business enterprises, small businesses, LGBT-owned businesses, and veteran- and disabled-owned businesses.
Beyond that definition, strong supplier diversity programs exhibit many key characteristics that contribute to their success. And many of today’s supplier diversity programs are succeeding—according to our recent supplier diversity professionals survey, 69 percent of respondents reported that their programs were at least somewhat effective. Here are seven things that characterize many of those programs:
1. An established baseline
Determining the effectiveness of a supplier diversity program is difficult if you don’t know its current state. Establishing a performance baseline identifies the number of diverse suppliers presently in your portfolio, as well as spend with each of those suppliers. From this baseline, you can set goals, determine which diversity categories you will focus upon, and decide which certifications your program will accept. The best way to achieve a baseline is to enlist the help of a third-party data enrichment solution and to use it periodically so that you can adjust strategies as needed.
2. Alignment with corporate goals
Supplier diversity programs provide advantages that often resonate with corporate goals. Does your company want to project a better image? Supplier diversity can help with that. Does your organization want to boost its bottom line? Supplier diversity can help with that. Does your company want to be responsible for creating jobs in the community at large? Supplier diversity can help with that too. Consider these areas when aligning your program with corporate goals:
- Cost savings generated by diverse suppliers
- New revenue attributed to diverse suppliers
- Deals lost due to not meeting supplier diversity requirements
- Risk mitigation from an active supplier diversity program that boosts company perception in the community
- Increased share/penetration in diverse markets
- Improved corporate image
3. Identifying and contracting diverse suppliers
Effective supplier diversity programs know where the diverse suppliers are and how to close the deal to partner with them. Finding such vendors can be challenging, but with a combination of supplier databases and supplier management portals (which can be used to find opportunities in your own supply chain), you won’t be scrambling to increase spend—and ideally, much of the due diligence in investigating a supplier will already be completed.
The best supplier diversity programs not only measure their performance against past results but also the success of other programs. The first step is finding similar organizations to benchmark against and then establishing common metrics for comparison with these programs. Industry events are a great avenue for finding like-minded peers to collaborate with and benchmark against. The effort benefits everyone—not just the companies collaborating on strategies to increase diverse spend but also suppliers that are likelier to be contracted by active supplier diversity programs. (Additionally, you can reference our 2017 State of Supplier Diversity Report: Supplier Diversity Programs to immediately see how your company stacks up.)
5. Tier 2 spend
Now we’re getting advanced. Tier 2 spend is the supplier diversity efforts of the suppliers, diverse or not diverse, in your vendor portfolio. In other words, Tier 1 is your direct suppliers; Tier 2 is your suppliers’ suppliers, and you can track diverse spend with these “fourth parties.” Many strong supplier diversity programs recognize the incredible potential of Tier 2 and seek opportunities to increase overall spend by working with their more direct partners.
6. Supplier development
Another higher-level supplier diversity initiative is supplier development. A diverse supplier that excels benefits both your spend and your organization’s bottom line. Many programs engage in some sort of supplier development so that diverse partners stay part of the supply chain portfolio for a long time.
7. An effective management solution
The last important characteristic of a supplier diversity program entails how all the data generated throughout the process is managed. Many programs use Excel spreadsheets, but this approach is time-consuming, is not always accurate, and doesn’t produce the actionable information to take supplier diversity to the next level.
In fact, our research found that 69 percent of Excel or other database users rated their supplier diversity programs as at least somewhat effective, as opposed to 85 percent for users employing dedicated supplier diversity software. Such a solution brings together every facet of supplier diversity into one platform and eliminates the tedium of sorting through a spreadsheet. This frees up time for supplier diversity professionals to do what they do best: finding new diverse suppliers and building long-lasting relationships.