Creating a supplier diversity program and integrating it into your procurement and supply chain strategy is one of the hottest topics in procurement, and not just in the U.S. – It is fast becoming a global issue. Perhaps, the most important reason from a business perspective is that your customers, especially the larger ones, have probably mandated their own supplier diversity programs. If they include government agencies, you may even need to demonstrate diversity to comply with regulations governing the award of contracts.
A supplier diversity program also:
- Enhances your brand appeal to a broader audience
- Stimulates competition among suppliers, leading to savings and/or innovations
- Strengthens your CSR efforts, which will help attract investors and enter new markets
- Has a positive impact on your reputation as an employer
If you have started on a supplier diversity journey or plan to, you will soon face some serious obstacles. Making the wrong decisions could damage your reputation. So, here are some common considerations and pitfalls to watch out for when putting together your supplier diversity program:
- There is no common definition of “diversity”. Different customers have their own requirements. For example, the federal government requires specific certifications. To ensure that you cover all bases in your diversity program, you need to tap into data from scores of different certification agencies: federal, state, local, international and supplier self-certification.
- Merging all this data is a monumental task. It is also likely that you already have suppliers in your network that are certified as diverse; you just don’t know it yet. How do you find out?
- Certification data needs to be mapped onto your actual supplier and spend data, which needs to be cleansed, normalized and categorized. Without a dedicated tool such as SpendHQ to do so, this is also time-consuming and technically challenging.
- You need visibility beyond your direct (Tier 1) suppliers. Primarily because many customers, especially larger ones, are asking for this but also a diversity program cannot be truly “world class” if you do not have this depth of information and the associated metrics.
- Supplier diversity is not just a “lump sum” or aggregate. You need to be able to break down your spend, not only by the various classifications (black, women, veteran and LGBTQ owned) but also by various other dimensions such as location and category of spend. A city authority may, for example, require you to demonstrate your commitment to supporting local minority owned businesses in a key category (such as building materials).
- The data and the associated reporting must be exportable, not siloed. It is particularly important to procurement, of course, but the main budget-holding departments (operations, R&D, marketing etc.) need to be able to incorporate the information into their own planning.
- Once you’ve got the information, you need to use it! The point of any program is to get better, to move the needle. But to do so, you need organizational alignment. Programs often fail to gain traction because executive-level buy-in is lacking, or it is under-resourced, or if it is not cascaded down to business unit or departmental leadership, with day-to-day accountability for results.
- Failure to integrate supplier diversity into sourcing and procurement will mean it remains in the realm of theory and good intentions rather than concrete reality. In addition to the data issues mentioned above, other common challenges are disconnects in the process, such as diverse suppliers being identified, but not awarded business (for a variety of reasons). You will need to overcome obstacles to granting awards such as terms of payment; diverse suppliers may be more reliant on rapid cashflow. Others may lack the access to capital needed to ramp up production. The prescriptive analytics in SpendHQ will show you how to identify risk and optimize your supplier diversity strategy across the various dimensions.
- Failure to plan ahead, or bad long-term planning. A supplier diversity program can die after a short period for one of two reasons: either a lack of long-term goals and objectives, or on the contrary, objectives that are over-ambitious and therefore breed cynicism and defeatism when not met.
- Finally, be aware that supplier diversity is a moving target. Reassess your program on an annual basis – where you have made progress and where you need to raise your game. Without this, your program will get stale and wither over time.
The good news is that you don’t need a perfectly polished dataset to get started. By leveraging the artificial intelligence of SpendHQ Insights, which uses trillions of dollars of classified spend, you can get a baseline and set targets with the data you already have. SpendHQ will cleanse and normalize it and enrich it with certification data. Whatever the current status of your supplier diversity journey, SpendHQ can provide the guidance you need to move forward.
For more detailed insights, download the webinar “How to Avoid Common Pitfalls and Build a World-Class Supplier Diversity Program” or reach out to schedule a demo.