Companies that invest in supplier diversity ultimately do so for the positive economic impact it allows them to have beyond their own four walls. But how far beyond those walls can they reach – in which localities and in which segments of the business community?
As revealed in a 2014 report by the National Minority Supplier Development Council (NMSDC), “certified Minority Business Enterprises (MBEs) have a total economic impact of over $400 billion dollars in output that results in the creation of and/or preservation of more than 2.2 million jobs held by persons who find themselves either directly or indirectly employed by NMSDC certified MBEs.” Being able to contribute to the momentum of such programs is an important and highly strategic effort.
As supplier diversity programs mature, procurement’s understanding of their potential economic impact naturally becomes more nuanced. This is made possible through increased awareness of which spend categories lend themselves to diversity partnerships and which diversity categories require the most purposeful follow through – possibly even at the race or ethnicity level. At this point on the diversity maturity curve, procurement’s focus turns to:
- Connecting diversity objectives with available data, and
- Identifying and finding additional data required to achieve the intended impact.
Achieving Diversity at Scale:
In order to move the needle on supplier diversity, procurement will have to target certain contracts or spend categories for diversity investment. A significant opportunity for widespread diverse supplier economic impact is through the sourcing of direct commodities, such as are found in the manufacturing industry.
Not only was the manufacturing industry an early leader in the diversity movement, but they also employ just under 14 million people across the United States according to Statista. The maturity of their diversity programs has been driven in large part by their customers, suggesting a multi-tier opportunity for procurement to increase diversity spend through the supply chain. As a result, manufacturing presents an immediate and scalable opportunity to advance the objectives of supplier diversity.
Relevance of Granular Diversity Management
It is a best practice for companies with a supplier diversity program to articulate the specific objective or vision of their program. This will guide decision making and make it easier to measure whether the program is having the desired effect.
Tying the value of a ‘diversity dollar’ to that objective or vision is a critical step to ensure the vision is actionable. For instance, if the vision involves job creation, services spend should be the priority for diversity supplier discovery and relationship building. If the vision is to target a specific race/ethnicity or HUBZone, procurement will need to start by researching suppliers in those communities and being prepared when the time comes to award contracts. Work with what you have to advance the objectives you have spoken about publicly.
Driving Sales Through Diversity
Procurement has long wanted to have an impact on the corporate top line. Supplier diversity provides an excellent opportunity to do this. According to an article on Thomas, “Companies that earmark 20% and up of their spending for diverse suppliers report that 10-15% of their annual sales come from these programs.” Not only is each supplier a new potential customer but being able to inform sales prospects how the company is investing in specific ‘diversity’ communities may offer a differentiating factor that can tip the scales in your company’s favor. Having a successful supplier diversity program is important to winning public sector contracts (especially if they have carved outs) as well as high public visibility projects, even if the company is not B2C.
Wanting to broadly increase the diversity of the supply base is a noble mission, one that delivers benefits for the company and their supplier alike. As the program becomes more mature, however, it can be managed in such a way that it delivers very specific types of opportunities for targeted communities. The economic impact of these opportunities – everything from job creation to cash flow to top-line growth – can be purposefully maximized by companies that have the data and vision to support it.
If you would like to talk to one of our supplier diversity experts on how to collect workforce diversity metrics for your supply base, help answer any questions, or get advice on starting your program, schedule time to meet with us.