Amid widespread calls for greater inclusivity, companies are more motivated than ever to strengthen diversity within the workplace. Diversity and inclusion initiatives can take many forms, including policy changes, talent recruitment and changes to company culture. Within procurement departments, supplier diversity programs are one way to approach diversity commitments. Supplier diversity programs have been growing for decades, becoming more and more common across corporate America. These programs encourage sourcing professionals to seek out traditionally underrepresented business owners when securing contracts for goods and services. To help procurement departments rise to the challenge of diverse sourcing, ProcurementIQ has compiled a list of best practices for supplier diversity.
1. Earn stakeholders’ approval
Supplier diversity programs offer a range benefits that can be communicated to stakeholders in the development stages, some of which are covered in ProcurementIQ’s Supplier Diversity: What’s In It For You? Of the various reasons behind supplier diversity programs, a CVM Solutions survey of 134 sourcing professionals suggests that corporate social responsibility and alignment with corporate culture and workforce inclusiveness are the main motivators.
2. Audit existing suppliers
If supplier diversity was not previously on your radar, you may need to audit your database before making a game plan.
- To understand where your organization stands in achieving its diversity goals, each supplier should be broken down dollar for dollar. Quantifying spend with each provider will help your organization develop a starting point from which to grow.
- Develop ground rules for audits that explicitly outline the types of businesses you will target. Typically, diverse businesses are those in which at least 51.0% of the ownership is of a designated diverse background. Businesses owned by women, minorities, LGBTQ individuals, veterans or service-disabled veterans are often considered diverse. However, companies may also give preference to small businesses, small disadvantaged businesses and businesses located in historically underutilized business zones (HUBZone).
3. Review your procurement schedule
When it comes to diverse sourcing, a thorough review of procurement timelines and current contracts can help illuminate areas of opportunity. Procurement departments should evaluate current contract lengths and upcoming sourcing events.
- If contract periods are coming to an end, buyers should assess the buying lead time of the product or service under contract to determine whether it is possible to switch to a diverse supplier. If a contract renewal is right around the corner, there may not be time to get a new supplier in place without a gap in product or service delivery.
- For products and services that are not governed by contracts, procurement professionals may consider historical purchasing patterns and lead times to determine whether there is time to evaluate new, more diverse supplier prospects. If inventory is dwindling, for example, buyers may be unable to secure their next shipment from a new, more diverse supplier due to the time needed to identify and vet new vendors. Instead, a new vendor may be introduced down the road.
4. Consider all categories of spend
Supplier diversity goals may include targets that dictate how much spend should be dedicated to diverse suppliers. Spreading that target across different categories can make diversity goals easier to reach.
- If possible, start by compiling a list of diverse suppliers that spans all categories and cut the list according to budgetary needs and other specifications. Enlisting procurement consultants may help this process along.
- In identifying opportunities for partnerships with diverse vendors, remember to examine bundled contracts that may span multiple categories of spending. Conduct a cost-benefit analysis to determine whether the loss of bundling discounts will be too significant to consider switching providers.
5. Consult certification databases
Identifying diverse suppliers can be time-consuming. For large-scope diversity programs spanning multiple classifications, paid resources may be necessary.
- Vendor matching services can help companies fast-track their supplier diversity goals. Providers in this market, such as Dun & Bradstreet, CVM Solutions (part of Supplier.io) and ConnXus (part of Coupa Software), collect large databases of diverse suppliers and offer paid access to interested parties. Buyers may be able to access these services through their Procurement Software provider.
- Industry associations, such as the Sourcing Industry Group (SIG), publish lists of diversity certifications that procurement professionals can use to identify diverse vendors. Some of these certification programs, such as the Women’s Business Enterprise National Council (WBENC), charge dues to access their database of certified businesses. These membership fees may add up for companies initiating large-scope diversity programs spanning several designations.
6. Monitor results
The success of a supplier diversity program depends on the company’s ability to track results. In addition to tracking the growth in spending dedicated toward diverse businesses, procurement departments should monitor ROI and satisfaction with their new suppliers.
- After auditing current diversity statuses and spend, procurement departments should continue tracking each of their suppliers dollar for dollar. Having exact data will allow buyers measure their progress by calculating what percentage of managed spend is dedicated toward diverse suppliers.
- In order to maintain support for supplier diversity programs while furthering cost avoidance goals for the company, procurement professionals can measure ROI using the following formula: (Gain from the program – Cost of the program)/Cost of the program
- Buyers should also measure satisfaction with their new suppliers to ensure that product or service quality has not suffered as a result of the new contract. Buyers may consider the lead time index (the latency between the initiation and the execution of the procurement process) or other performance measures.
By: Kim Bucci
Sign up to our newsletter
ProcurementIQ Launches New Supplier Information Collection
With 2020 bringing on unexpected supply chain disruptions, ProcurementIQ knows it’s more important than ever to shape and strengthen your sourcing strategies.
Building the New Normal in Procurement
The rise of the coronavirus has turned procurement on its head. Which practices will manage to break the surface?
Financial Matters: Understanding Financial Statements
Companies’ financial statements are packed with numbers and figures that may seem confusing at first glance. While taking a templated approach to analyzing financial statements is an easy way to help procurement staff evaluate such dense documents a one-size-fits-all approach could cause procurement staff to misinterpret outliers.