5 Steps to a Successful Supplier Diversity Program
Many modern businesses are going the extra mile to ensure they are engaging in ethical and moral business practices. To help with these efforts, more companies are leaning towards developing diversity, equity, and inclusion (DEI) efforts, engaging in net zero initiatives, and pushing towards more sustainable sourcing. One area that is gaining significant traction is supplier diversity.
Supplier diversity is a key topic that is having more of an impact on how companies do business. Requiring more supplier diversity is essential for helping to create positive economic growth and expansion. Companies are also being encouraged to engage in greater social and ethical responsibility and businesses are open to the challenge. A recent Hackett study reported an expected increase in diversity spend goals of more than 50% by 2025. That provides a huge opportunity for suppliers who have historically not been part of the mainstream sourcing landscape. But how can you build a successful diversity program? Use the following steps.
What is a Supplier Diversity Program?
A supplier diversity program is a company initiative that involves selecting suppliers from historically underrepresented groups. This often involves choosing suppliers that are owned or operated by groups such as women, minorities, LGBTQ+, veterans, disabled communities. To qualify, the supplier needs to have at least 51% ownership from the identified communities. Supplier diversity programs have become essential for companies who are looking to expand their diversity, equity, and inclusion (DEI) efforts.
Companies who are looking to undertake a supplier diversity program should use the following five steps to kick off their initiatives and see them through to success.
Step 1: Build a business case for supplier diversity
Supplier diversity programs provide many benefits for businesses, but it can sometimes be difficult to put those into tangible terms. Diversifying your suppliers is a positive step toward greater equity and inclusion, which helps to “Inclusive procurement also delivers broader societal benefits by generating economic opportunity for disadvantaged communities,” according to Harvard Business Review.
Supplier diversity provides many economic advantages. Drawing from a wider pool of potential suppliers helps to promote competition, which is a key factor in improving product quality and helping to lower costs. A diverse sourcing strategy also helps to toughen supply chains, making them more resilient—a spreading problem during recent economic uncertainty. A supplier diversity program not only makes you more agile, but it also helps businesses meet broader moral and ethical standards.
Step 2: Create a diversity policy and identify diverse suppliers
Once you’ve achieved the necessary buy in for your supplier diversity program, you’ll need to create policies to support it and begin the process of identifying which suppliers meet your needs. Establishing a supplier diversity policy makes your goals known throughout your enterprise and solidifies your commitment to those goals. It also provides a set of practices for your procurement team as they set about the sourcing process.
The following elements should be outlined in your supplier diversity policy:
- Identify why you need supplier diversity: Do your goals align with your DEI efforts and help to create resilience? Are you looking to create agility and expand your sourcing process? Whatever your goals are, state them concisely in your policy.
- Document your requirements for a diverse supplier: What do you consider to be a diverse supplier? How do you define diversity? State your parameters directly in your policy so that procurement teams know what to target in the sourcing process.
- Outline your goals: It’s important that your internal stakeholders and procurement teams understand your goals. Clearly state what you are hoping to achieve and tie those goals to tangible KPIs.
- State which processes, programs, and initiatives will help you to achieve your supplier diversity goals: Will you restructure your procurement processes and enable a program to identify more suppliers? Will you provide training sessions to help your teams learn how to attract more suppliers? Identify these opportunities and document them in your policy.
Step 3: Invest and nurture your program
After you’ve outlined your policy, it’s time to kick your supplier diversity program into action. Identify how you will nurture and invest in your supplier diversity program to achieve success. You want to position your team for success and that will require an investment of time and resources if you want it to remain a sustainable effort in your organization. The following tips can help you get started with your supplier diversity program.
- Educate your team on how to identify opportunities for new suppliers.
- Assign ownership of the program to a new or existing internal resource.
- Clearly outline how you expect different teams to play a part in helping you develop your supplier diversity program.
- Use a procurement platform that allows you to nurture relationships with diverse suppliers.
- Engage with supplier diversity programs who can help to connect you with new organizations.
- Attend supplier diversity events to identify valuable resources for developing and scaling your program.
- Provide options for diverse suppliers to find you. For example, you could create a supplier portal to enable new relationships.
- Track where you’ve spent money with diverse suppliers to pinpoint successes and identify gaps.
- Refine your approach to ensure you are continuing to nurture your initiative.
Step 4: Establish goals and best practices
Similar to any successful program, you want to make sure everyone is operating from the same set of goals and best practices. Document these and make sure you educate your procurement teams so they are ready to take part in building your supplier diversity program.
Your goals have likely already been outlined in your supplier diversity policy, but if not, put together concise goals and take the time to educate your staff on those, using follow-up to ensure proper cohesion and collective drive towards those goals.
You will also need to set up best practices for your program. Here are some common examples of supplier diversity best practices.
- Establish a baseline and a target with a timeline. Identify where you are and where you want to be. Make sure you put timeline parameters on your goals so that you know what timeframe you are measuring from the outset of your program.
- Establish benchmarks to check in on progress. How often will you determine success, once per quarter, twice per year? Pinpoint your dates and stick to them.
- Adopt a procurement platform that helps identify and nurture relationships with diverse suppliers.
Step 5: Monitor Performance and Build a Feedback Loop
No program is a complete success when you first launch it. There are bound to be growing pains and the path to a successful initiative is one that you update and improve as you move along—especially when it comes to younger, less established programs. If you want to ensure improvement, make sure to monitor your performance and implement a feedback loop to help your project owners and suppliers understand your expectations.
To monitor your performance, you first need to develop a set of metrics. How will you measure the success of a supplier diversity program? Here are some common examples of supplier diversity performance metrics:
- Percentage of diverse suppliers.
- Generated revenue from diverse suppliers.
- Economic impact of diverse suppliers.
- Additional jobs added as a result of your program.
- Innovations or improvements made as a result of relationships with diverse suppliers.
Using a feedback loop helps to ensure you and your suppliers are operating and progressing according to a shared set of expectations. The traditional feedback loop consists of four steps.
- Ask
- Categorize
- Act
- Follow up
- And repeat.
Ask your stakeholders what they plan to accomplish with your supplier diversity program. Are you succeeding? Do they feel their goals are being met with current suppliers? What should they like to see more or less of?
Categorize that feedback into meaningful segments for suppliers. Make it useful for them so they can continue to optimize their programs to meet your needs. For example, are you looking for your suppliers to also engage in diversity efforts?
Act on the feedback by supplying feedback to your suppliers and setting parameters for success. What percentage of diversity are you expecting from your suppliers’ partners? How do you expect them to document their gains?
Follow up with stakeholders to let them know you are working with suppliers to ensure success. This will also give suppliers an opportunity to make changes to meet your expectations.
Which Companies Have Supplier Diversity Programs?
- Abbott
As you can see, some of the world’s leading companies are focusing their efforts on establishing diverse business relationships. Supplier diversity will continue to be a key driver for responsible companies and forward-thinking procurement teams. Do you have the tools you need to join them?
