As a supplier diversity practitioner it is no small task to quantify the results and impact of a corporate supplier diversity program. “What is the ROI of this program?” is the million dollar question that those passionate about the cause hear continuously throughout their career. As you may already be aware, many in the industry track a few different metrics to measure ROI. Here are some common results being looked at:
- Savings when a diverse supplier is selected over the next lowest bidder
- Summing the dollar value of customer and government contracts that mandate Tier 2 reporting
- Quantify the results by attempting to measure an increase in B to C sales based on a respected supplier diversity program purchasing decision
Although all of these methods have some validity there are two issues. One, it is difficult to come to a dollar amount without a variety of general assumptions along the way. Two, these methods also do not take into account residual savings, sales, retention, innovation, social impact, among other intangibles.
Another way to strengthen your business case is to measure the effects your supplier diversity efforts have on the economy. Here are major areas of data points you should be collecting from your suppliers:
- What is the revenue growth of your diverse supplier base year over year?
- Job creation?
- Work force diversity?
- Supplier expenditures with other diverse companies?
- Other industry data?
To gather this information, you should be surveying your suppliers on an annual basis. The reason is to illustrate to leadership how your suppliers, program, resources and commitment are strengthening the economy on a local, state and national level as well as developing and growing diverse suppliers year over year. This is quantifiable data that can be put into a business case for leadership.
Recently there have been several great examples of economic impact studies that measure the effect diverse businesses have on the U.S. and state economies. These studies measure things like jobs, taxes, sales, and indirect financial expenditures. Below are highlights of their findings as well as links to the full reports.
The North Central Minority Supplier Development Council commissioned an economic impact study from the University of Minnesota Humphrey School of Public Affairs in 2013. They found that the total effect minority businesses in Minnesota had on the economy in 2013 was $2.146 billion (http://www.northcentralmsdc.net/Content/2091NCMSDC_EconomicDev_2015-post.pdf).
Duane Ramseur, President of the NCMSDC remarked “The objective of the 2013 North Central MSDC(NCMSDC) Economic Impact Study was to provide actual data to corporate executives to illustrate the impact and value of corporate Supplier Diversity to communities, cities and within the State of Minnesota. The NCMSDC Impact Study was the first study conducted by a globally recognized organization, Humphrey School of Public Affairs, using NMSDC Certified Minority Businesses. The study has assisted in building the credibility of the corporate members and MBEs we serve, the overall council who are in committed to Supplier Diversity.”
Another study, conducted by the National Minority Supplier Development Council, produced similar data at the national level (http://www.nmsdc.org/economic-impact-study-shows-pivotal-role-minority-owned-businesses-u-s-economy-2/). Those results found that over 11,000 NMSDC certified companies had $400 billion impact on the economy and created or retained 2.25 million jobs as of 8/1/2014.
Yes, all large corporations are interested in job creation and economic growth but they also want insights into what their supplier diversity resources and efforts are doing at a granular level. This is where the importance of an experienced partner comes in. Not only is it imperative to ensure you are capturing the data correctly but the most vital step is then being able to present the effectiveness of said results. To learn more about developing your own report, and would like to receive your own template, contact us here.