For the last 7 years, I have been working with Fortune 500 companies as they expand and strengthen their supplier diversity programs. A key component for many of these programs has been a strong Tier 2 Program. Tier 2 programs are near and dear to my heart – I have been a long-time supporter of capacity building policies and programs aimed at growing and sustaining diverse and women-owned businesses (MWBE), and many of the opportunities for these companies occur in the second, third and fourth tiers of the supply chain.
When supplier diversity managers are given approval to put a Tier 2 reporting program in place, it is usually done with the understanding that the program will show immediate results – and the results are usually measured by the number of dollars of Tier 2 spend reported in the system. The need to show results to an often skeptical management leads many Tier 2 programs to be set up similarly by requiring suppliers that have strong supplier diversity programs in place to report their MWBE spend. This leads to the reporting of an impressive dollar amount of Tier 2 spend from the program’s inception. The Tier 2 program also looks more impressive as year-over-year reported spend increases because more suppliers with diversity programs in place are invited to report.
I would argue, however, that when judged by the true goal of supplier diversity – which is increasing the amount of business done with diverse and women-owned businesses – these Tier 2 programs fail. While these Tier 2 supplier diversity programs serve an important role in helping to sustain spend with MWBEs, they aren’t instrumental in increasing the level of spend with them.
To build a Tier 2 program that really works towards the goal of increasing MWBE spend, the lion’s share of the development effort should be devoted to suppliers that don’t already have supplier diversity programs in place. This means that the initial dollars on diversity spend reported should be minimal at best. It also means that the supplier diversity manager will need to assist the supplier in starting its own supplier diversity program. This can and probably will be a slow process.
This doesn’t mean, however, that Tier 2 diversity program development has to be an “either-or” proposition. It is fine to ask some of the usual suspects – suppliers with strong supplier diversity programs – to report. However, there shouldn’t be a lot of time devoted to following up with them. Resources – either time or money – should be reserved for working with the suppliers that can benefit the most – the ones that have never heard of supplier diversity and have no idea how to put a program in place.
The ultimate success for a Tier 2 program can be gauged by the creation of new supplier diversity programs at companies that wouldn’t have set one up on their own.