It is time for private and public institutions to assess and understand the 5 W’s and H of Supplier Diversity (Who, What, Why, Where, When, How).
Several online searches of what supplier diversity means reference an expansion of the supply chain to include diverse suppliers. This limited definition does not consider that the basis of many of these programs is a supply chain that is representative of the communities in which companies live and operate. Many organizations either view their supplier diversity programs as part of their corporate social responsibility program or as a check of the box strategy to meet a regulatory requirement. Companies that go beyond a “check of the box” policy can benefit from previously unforeseen returns on their investment. Even well-meaning institutions fall short in the implementation of their programs for a variety of reasons. These include:
- How data is tracked – Supplier diversity data comes from accounting systems and show Tier 1 (direct supplier) or Tier 2 (contractor to direct supplier). This limited view of the supply chain offers fewer opportunities to engage with local and diverse suppliers.
- Who has access to opportunities — Suppliers that are considered for procurement opportunities must be members of national certifying agencies such as the National Minority Supplier Diversity Council (NMSDC), National Association of Women Business Owners (NAWBO) and the Women’s Business Enterprise National Council (WBENC). Most programs have no mechanisms to engage with local suppliers and small businesses that are not affiliated with membership organizations and that would otherwise qualify.
- What are the determining factors in participation rates — There is no standard for determining the denominator in calculating supplier diversity participation rates which means that organizations are creating formulas that either include all organizational costs or formulas that are limited to specific division expenses. Bottom line, participation percentages are not telling us anything about the success of a supplier diversity program.
When the supply chain is more representative of its local communities it is a win for the company and the economy at large. Amongst the benefits are:
- The identification of a new customer base, as vendors and their associates also become customers
- A diverse set of suppliers means introducing suppliers who can offer new and innovative and solutions
- Lower service and product costs mean less red tape in decision making and implementation
There needs to be a fundamental shift in supplier diversity programs that will now have companies implementing programs that will monitor economic inclusion and its overall impact on the company as well as on the local economies. A data-driven supplier diversity program is a good business strategy that offers additional value to the company and its local communities and includes defined metrics in the following categories:
- Local economic and demographic data
- Effectiveness of community engagement campaigns
- Community investment and local impact
- Talent engagement strategies and effectiveness
- Workforce Development program and local impact
Our experience in recent years has demonstrated that for true economic inclusion and impact to occur, supplier diversity programs must be intentional with a data-driven strategy that lets the numbers tell the story. Companies are missing opportunities to build community goodwill and expand their customer base. Many companies have developed budget line items to engage with their local community and with a redefined formula on supplier diversity that investment can reap benefits in profits and market share.
The results can be infectious and lead to more organizations joining the bandwagon…. companies learn that they can have a healthy bottom line, advance generational wealth, and build stronger, safer, and healthier communities.