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Supplier diversity programs are not only good for society; they’re crucial to enhancing supply chain competitiveness, risk mitigation and cost reduction for businesses.
Within the past year, supplier diversity has gone from being community-focused and potentially optional to business-critical. As demand and requirements increase, leaders are being held to a higher standard. The question on many minds today is: “How can I create a successful supplier diversity program that is measurable, and sure to have an impact?”
The top 20% of companies with the highest diverse spend outperform industry peers by two to three times. Following are five best practices collected from more than 200 industry leaders.
Ensure data accuracy at all costs. Accurate data is vital for managing supplier diversity programs, so it’s troubling that 75% of leaders express doubts about their data. One simply can’t understand how much a business spends with small and diverse suppliers when there are hundreds or thousands of unreliable data points to analyze. Self-reported data or business directory providers can be up to 50% inaccurate, sometimes failing to identify small and diverse suppliers, which may under-represent the success of your program by as much as 20%.
In a recent webinar detailing best practices for 2024, The Hackett Group reported that over 51% of leading programs rely on third-party supplier diversity data instead of owning the task internally, which is a heavy burden for an understaffed or busy team. Spot checking is an effective strategy to confirm accuracy, where leaders pull 20-30 suppliers and confirm directly with them if their certification and other data are accurate. Lastly, it’s proven to be important to make the data visible and use it. Leaders recommend a central dashboard that shows key metrics across business units so each team can see how well they’re doing.
Provide data context for actionable insight. While most (86%) programs report dollars spent with small and diverse suppliers, top-performing leaders look for additional ways to provide more context for results. Some have embraced more detailed metrics, such as business unit-specific or peer benchmarking — which is especially effective in encouraging improvement.
Some leaders go beyond internal metrics, such as measuring the economic impact of spend with small and diverse suppliers. In fact, recent data reveals leading organizations’ supplier diversity programs generated over 1.3 million jobs, $104 billion in income, and $31.4 billion in tax revenue. Combining business-specific metrics with community output allows procurement leaders to contextualize their supplier diversity program and strengthen supply chain resilience.
Strengthen your relationships. As supplier diversity becomes more infused in how companies operate and spend money, relationships with leaders outside of procurement and finance are critical. In fact, strong connections among business-unit leaders can improve the impact of supplier diversity programs, with 89% of companies expecting internal support to maintain or increase in the coming years. As a result, leaders are aligning supplier diversity needs with department-level plans. A good start is to select the top five spenders and discuss how small or diverse suppliers can help them reach objectives.
It’s also about strengthening relationships with customers. Forty-five percent of leaders use supplier diversity programs to help win new business and requests for proposal (RFPs), especially with big customers and government contracts. When teammates are holding each other accountable (48% of organizations include supplier diversity results in leaders’ compensation score cards), then bottom-line impact really starts to trickle in.
Plan, plan, plan. In 2023, a challenging economic landscape emerged. Successful supplier diversity programs thrived through proactive and strategic planning. Leaders who prioritized connecting with business unit-leaders and buyers ahead of the RFP process were able to identify opportunities and bring in small and diverse suppliers earlier. The early collaboration for joint category planning empowers leaders to drive innovation together, versus making quick, reactive decisions.
Going further, leaders can even engage suppliers at the project-design phase, drawing on their unique perspectives for shared vision. Pre-curating a small and diverse supplier pool before opportunities arise enables leaders to pinpoint services meeting company requirements for price, quality and speed. This also entails tracking expiring contracts and getting ahead of the process before it’s too late.
Maximize impact by doubling down on ESG. More environmental, social and governance regulations are developing than ever; however 75% of companies feel they don’t have the skills and systems in place to be ready for the data assurance needed for disclosure mandates. And failure to comply introduces even more risk into the volatile supply chain. As a result, visibility is of the utmost importance — and who has more visibility into suppliers than supplier diversity program leaders?
Proactive leaders are reaching out to third-party data providers to see how they can expand their supplier identification beyond just diversity categories. To start with a general baseline and capture company-specific details, leaders are adding ESG questions to their supplier registration portals as well as ongoing supplier surveys. It’s especially important to prioritize highest-spend suppliers or those with the biggest ESG risks, such as high carbon emissions.
Leading solutions can offer businesses a complete supplier assessment that includes 61 indicators across eight ESG categories. They can ensure alignment with initiatives like the Sustainable Disclosure Regulation (SDFR) and the UN’s Sustainable Development Goals (SDGs)– creating peace of mind for leaders knowing they have detailed supplier insights, reduced risk and ensured continuity.
As supplier diversity continues to emerge as a differentiator for businesses, it’s important to ensure that programs are built for long-term success. Although the landscape can be tricky to navigate, leaders are reaping the benefits of a thoughtful approach centered on data, relationships and planning. And with the added focus on ESG, even more value can be generated.
By embracing these best practices, procurement leaders can drive significant business outcomes and overall supply chain resilience. Supplier diversity could be your secret weapon — its potential just needs to be unleashed.
Aylin Basom is chief executive officer of Supplier.io.