Moving Beyond Spend in Supplier Diversity
Regarding supplier diversity, bigger is not always better.
The most common way to measure a supplier diversity program’s performance is dollars spent with diverse suppliers. Companies often look at this figure as a percentage of total controlled spend or spend under management, which translates into increasing use of diverse suppliers in the portion of the spend procurement organizations control.
For some companies, a single metric — total spend with diverse suppliers — becomes their guiding star. But increasing spend with diverse suppliers does not guarantee value creation or forward movement. A supplier inclusion strategy should include more than spend.
Growing Spend with Diverse Companies
Measuring total spend with diverse suppliers is an easy metric. Growth can be accomplished either by spending more with existing suppliers or by introducing new suppliers.
The prevailing logic is that spend with diverse suppliers will trickle down to economically underrepresented diverse communities. Approximating this economic impact makes having a diversified supply base attractive for employees, customers and investors. Another motivation, which is not discretely measurable, is that including diverse suppliers in competitive bids provides better pricing and innovative solutions.
Continued growth and expansion of the diverse supplier pool should be as equally important as spend. For some companies, a few diverse suppliers account for a high percentage of diversity spend. If these suppliers become nondiverse or are deemed unsuitable for the business, diversity spend figures will plummet. For this reason, companies should work with many diverse suppliers. One way to encourage that is to measure the number of active diverse suppliers.
An Evolving Strategy
The mission of the Billion Dollar Roundtable (BDR), “to drive supplier diversity excellence through best practice sharing and thought leadership,” articulates the need for directional measurements. The organization, formed in 2001 to recognize companies spending at least US$1 billion with minority and women-owned suppliers, requires continuous improvement, which includes a multi-year strategy with year-over-year percentage increases, projected dollar targets, or category penetration and utilization. BDR encourages companies to do more to increase support of diverse suppliers.
Success should not be seen as a race to build the biggest supplier diversity program. Instead, it should be an evolving strategy that includes nurturing a pipeline of competitive diverse businesses and expanding the program’s impact by increasing size, scope and numbers. Strategies include more spend with existing diverse suppliers, adding more suppliers, and extending beyond traditional categories.
Setting the correct measures guarantees the growth of your supplier diversity program by encouraging the discovery and development of the most talented suppliers based on your business requirements. Be creative when setting internal goals and link diversity numbers to actions that will result in the introduction of new diverse suppliers. Some companies track the inclusion of diverse suppliers in the RFX toolbox; others focus on conversations with new diverse suppliers, or mentorships established.
Position supplier diversity as an integrated procurement strategy, not a stand-alone initiative.
Align Metrics With Your Strategy
The value of diverse suppliers differs by company and supplier. Some diverse suppliers might propose new processes, approaches, products or innovation; others might offer perspectives that reduce risk or lower costs. Measuring the business benefit of diverse suppliers may require some finesse and can begin with storytelling — for example, sharing the contribution a supplier has had on operations.
The supplier diversity value proposition is based on many factors. Take time to understand your supplier diversity journey, then measure what really matters: Find the touchpoints between diverse suppliers and the success of your business.
Keep measures actionable, realistic and aligned. Trust, time and tenacity are the foundations of creating measures that matter and deliver business value.