Supplier diversity programs aren’t just good for society; These are critical to increasing the competitiveness, risk mitigation, and cost reduction of a company’s supply chain.
Within the past year, supplier diversity has gone from being community-focused and potentially optional to a business imperative. As demands and requirements increase, leaders are held to higher standards. The question on many people’s minds today is, “How do I create a successful supplier diversity program that has a measurable and tangible impact?”
The top 20% of companies with the most diversified spend outperform their peers by a factor of 2 to 3. Below are his five best practices collected from over 200 industry leaders.
Ensure data accuracy at all costs. Accurate data is essential to managing supplier diversity programs, so it’s troubling that 75% of leaders express doubts about their data. When you have hundreds or thousands of unreliable data points to analyze, you have no idea how much money your company is spending dealing with small, diverse suppliers. Self-reported data or business directory providers can be up to 50% inaccurate, may fail to identify small and diverse suppliers, and may underestimate program success by as much as 20% there is.
In a recent webinar detailing best practices for 2024, Hackett Group found that more than 51% of major programs rely on third-party supplier diversity data rather than taking tasks in-house. I reported it. This is a huge burden on understaffed or busy teams. Spot checking is an effective strategy for checking accuracy, where a leader gathers her 20-30 suppliers and checks first-hand whether certifications and other data are accurate. Finally, visualizing and using data has proven to be important. Leaders recommend a centralized dashboard that shows key metrics across business units so they can see how well each team is performing.
Provide data context for actionable insights. While most programs (86%) report spending with small and diverse suppliers, top-performing leaders are looking for additional ways to provide more context about their results. Some companies employ more detailed metrics, such as business unit-specific benchmarks or peer benchmarks, which are particularly effective at driving improvement.
Some leaders are going beyond internal metrics, such as measuring the economic impact of spending with smaller, more diverse suppliers. In fact, recent data reveals that major organizations’ supplier diversity programs have generated more than 1.3 million jobs, $104 billion in revenue, and $31.4 billion in tax revenue. By combining business-specific metrics and community results, procurement leaders can tailor supplier diversity programs to their context and strengthen supply chain resiliency.
Strengthen your relationships. As supplier diversity becomes more pervasive in how companies operate and spend their money, relationships with leaders outside of procurement and finance will become important. In fact, strong connections between business unit leaders can improve the effectiveness of supplier diversity programs, with 89% of companies expecting to maintain or increase internal support in the coming years. As a result, leaders are aligning supplier diversity needs with department-level plans. Start by selecting your top five spenders and discussing how smaller or more diverse suppliers can help you achieve your goals.
It’s also about strengthening relationships with customers. His 45% of leaders use his supplier diversity program to help win new business and requests for proposals (RFPs), especially in large customer and government contracts. When teammates hold each other accountable (48% of organizations include supplier diversity results in their leader compensation scorecards), the impact on the bottom line really begins to trickle down.
Plan, plan, plan. In 2023, difficult economic conditions emerged. Successful supplier diversity programs succeed 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 smaller, more diverse suppliers early. Early collaboration for joint category planning allows leaders to drive innovation together rather than making quick, reactive decisions.
What’s more, leaders can also collaborate with suppliers during the project design phase to leverage their unique perspectives and share the vision. By pre-selecting small, diverse suppliers before the opportunity arises, leaders can pinpoint services that meet the company’s requirements for price, quality, and speed. This also requires tracking expiring contracts and getting ahead of the process before it’s too late.
Double down on ESG to maximize impact. Environmental, social and governance regulations are evolving more than ever before. However, 75% of companies do not feel they have the skills or systems in place to prepare for the data assurance required for disclosure obligations. And non-compliance creates even greater risks for volatile supply chains. As a result, visibility is paramount. Who has more visibility into your suppliers than the leader of your supplier diversity program?
Proactive leaders are reaching out to third-party data providers to explore ways they can expand supplier identification beyond just diversity categories. To start with a general baseline and capture company-specific details, leaders are adding her ESG questions to supplier registration portals and ongoing supplier surveys. It is especially important to prioritize suppliers with the highest ESG risks, such as those with the highest spend or high carbon footprint.
Leading solutions can provide companies with a complete supplier assessment that includes 61 metrics across eight ESG categories. Align with initiatives such as the Sustainable Disclosure Regulation (SDFR) and the United Nations Sustainable Development Goals (SDGs) to gain detailed supplier insights, reduce risk, and ensure continuity. It gives leaders a sense of security that they can do it.
As supplier diversity continues to emerge as a differentiator for companies, it’s important to ensure you build your program for long-term success. This landscape can be difficult to navigate, but leaders are reaping the benefits of a thoughtful approach that centers data, relationships, and planning. Additionally, he can create even more value by focusing on ESG.
By adopting these best practices, procurement leaders can drive important business outcomes and resilience across the supply chain. Supplier diversity can be your secret weapon. We need to unlock that potential.
Aylin Basom is the CEO of Supplier.io.
