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10 Best Practices for Implementing a Supplier Diversity Program – Phase I

Supplier Diversity

06th Dec 2022 | 7 Mins

Introduction

In 1969, a Presidential Executive Order catalyzed the concept of supplier diversity programs. These programs strive to include diverse suppliers within an organization's purchasing strategy. Diverse suppliers mainly encompass businesses predominantly owned and managed by historically marginalized groups such as minorities, LGBTQ, veterans, and the disabled.

Solid evidence underscores that an effectively structured supplier diversity program can lead to considerable financial savings, nurture innovation, enhance competition, and rationalize costs. McKinsey's study extrapolated that an astute investment of $50 billion in minority-owned establishments could potentially catalyze four million jobs and rake in an added $280 billion in revenue.

The Two-Phased Approach by VIVA

As VIVA suggests, implementing a successful supplier diversity program is a two-phased journey:

Phase I involves laying the foundation, wherein you define the program, get leadership buy-in, and set the policies.

Phase II revolves around ensuring the program's sustainability. This includes continuous monitoring, feedback, and evolution based on changing business dynamics.

The Transformative Impact of Supplier Diversity

Before delving into best practices, it’s vital to understand the broader impact:

Economic Growth
McKinsey’s research reveals that investing $50 billion in minority-owned firms can potentially lead to four million new jobs and a $280 billion income increment.

Innovation Boost
Diverse suppliers often bring unique perspectives, leading to innovations in product and process design.

Example: A renowned tech company collaborated with a minority-owned supplier which offered a unique chip design. This led to the tech giant revamping its product line, driving higher sales.

Access to New Markets
Diverse suppliers often have deeper insights into niche markets, enabling companies to tap into previously unexplored demographics.

Example: A multinational cosmetics brand partnered with a supplier owned by individuals of African descent. This collaboration paved the way for a new product range catering specifically to African skin types, exponentially increasing the brand's reach.

10 Crucial Best Practices for Implementing Phase I of a Supplier Diversity Program

Get Commitment from Leadership
The foundation of any program's success within a company originates from the top-down approach. Leadership commitment acts as an affirmation of the program's importance. Leaders who are invested in supplier diversity are more inclined to provide necessary resources, both financial and operational. This commitment fosters a corporate culture that values and promotes diversity throughout the supply chain.

Example: Tech giants like Apple have shown immense commitment towards diversifying their suppliers. CEO Tim Cook's active endorsement of Apple's Supplier Diversity Program, backed by adequate funding and resources, has allowed the company to integrate a significant number of diverse suppliers into their ecosystem.

Appoint a Senior Manager to Lead the Program
Centralized leadership in the form of a senior manager or executive streamlines the implementation and ongoing management of the supplier diversity program. They possess the clout to pull resources, influence company decisions, and serve as the primary liaison between stakeholders, ensuring that the program's objectives align with the company's broader goals.

Example:Google appointed a Senior Director for their Supplier Diversity Program. Under their leadership, Google has created initiatives, such as hosting supplier diversity summits, to engage with and support diverse suppliers.

Develop Policy
Policies act as the guideline playbook for any corporate program. When it comes to supplier diversity, a clearly articulated policy delineates the company's mission, criteria for defining 'diverse suppliers', the process of engagement, and metrics for success. It ensures alignment, transparency, and a unified approach.

Example: IBM has a well-defined supplier diversity policy. It clearly states its commitment to providing equal opportunity to diverse suppliers and outlines its expectations, ensuring every stakeholder, internal or external, is in sync with their objectives.

Establish Baseline Spend
The baseline spend is the starting point, the snapshot of the current scenario. It gives clarity on the company's current engagement with diverse suppliers. Knowing the baseline allows the company to set realistic growth targets and measure progress over time.

Example: Procter & Gamble, upon assessing its baseline spend, realized opportunities for expanding its engagement with women-owned businesses. This led to targeted initiatives, subsequently increasing their spend with this segment.

Employ Technical Integration
As businesses evolve, relying on manual or archaic systems becomes inefficient. Modern technology solutions tailored for supplier diversity management not only streamline processes but also provide accurate real-time data, facilitating better decision-making.

Example: Ford Motor Company transitioned from manual spreadsheets to an integrated supplier diversity management system, enabling them to efficiently track, measure, and report their diversity spend.

Develop Specialized Reports
Specialized reports act as the program's health check. They provide insights into the number, spend, and categories of diverse suppliers, allowing companies to identify areas of success and those needing improvement.

Example: Coca-Cola, through its specialized reports, identified a need to increase its engagement with LGBTQ-owned suppliers, leading to targeted outreach and partnership efforts.

Onboard Employees and Vendors
The success of a supplier diversity program is also contingent on how well internal employees and external vendors understand it. Effective onboarding ensures everyone is aligned, understands the objectives, and is equipped to contribute to the program's success.

Example: Walmart conducts regular workshops for its procurement teams, ensuring they are equipped to identify, engage, and onboard diverse suppliers.

Launch an Effective Tier 2 Spend Program
While Tier 1 suppliers (direct suppliers) are crucial, Tier 2 suppliers (sub-contractors or suppliers to the primary suppliers) significantly expand the diversity landscape. Engaging Tier 2 ensures depth in the diversity of the supply chain.

Example: Boeing actively encourages its Tier 1 suppliers to report their spend with diverse Tier 2 suppliers, amplifying the overall impact of their supplier diversity program.

Institute Best Practices and Goals
Instituting industry best practices ensures the program is competitive and effective. Setting clear, measurable goals aligned with these practices ensures there's a roadmap for the program and a means to measure success.

Example: Dell Technologies adopted industry best practices and set clear KPIs for its supplier diversity program, resulting in the company achieving multi-billion dollar annual spends with diverse suppliers.

Communicate Regularly and Gather Feedback
Regular communication keeps everyone involved, informed, and aligned. Gathering feedback, both from internal stakeholders and external suppliers, ensures the program continuously evolves and improves.

Example: General Electric regularly engages with its diverse suppliers through feedback sessions, ensuring their program remains dynamic and beneficial for all parties involved.

Why Supplier Diversity Programs Are Essential

A well-implemented supplier diversity program broadens the potential supplier base, fostering competition and leading to numerous benefits.

Examples include:

Commercial Benefits:A diverse supplier base brings a rich mix of innovation, leading to improved product quality and, in the end, competitive pricing.

Moral & Community Benefits:By promoting diversity, businesses inadvertently support minority communities, fostering goodwill and societal upliftment.

Conclusion

Embedding a supplier diversity program can dynamically transform a business’s trajectory. It holds the promise of unlocking unparalleled innovation, penetrating previously uncharted markets, and realizing significant cost savings. However, its success is contingent on a multi-pronged approach. By securing unwavering leadership support, leveraging state-of-the-art technology, continually upskilling stakeholders, and maintaining a culture of open communication, businesses can lay a robust foundation in Phase I. As this phase sets the tone, it’s paramount to also cast an eye on Phase II, ensuring that the foundation laid bears fruit in the form of long-term sustainability and value creation.

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Frequently Asked Questions

Why are supplier diversity programs important for businesses today?

Supplier diversity programs not only foster innovation and enhance competition but also contribute to economic growth by supporting historically marginalized business groups.

How have global tech giants approached supplier diversity?

Companies like Apple and Google have shown commitment towards diversifying their suppliers, with leaders actively endorsing and creating initiatives to support diverse suppliers.

How does supplier diversity lead to innovation?

Diverse suppliers bring unique perspectives and solutions, often resulting in innovative product and process design, enabling businesses to revamp product lines and drive higher sales.

Can supplier diversity help in exploring new markets?

Yes, diverse suppliers often have insights into niche markets, which can allow companies to tap into previously unexplored demographics and expand their reach.

What role does leadership play in the success of supplier diversity programs?

Leadership commitment is vital as it provides the necessary resources and fosters a corporate culture that values and promotes diversity throughout the supply chain.

Why is it important to have a dedicated senior manager for a supplier diversity program?

A senior manager streamlines the implementation, possesses the influence to allocate resources, and ensures that the program's objectives align with the company's broader goals.

How can companies measure their current engagement with diverse suppliers?

Establishing a baseline spend provides clarity on the company's current engagement, allowing them to set realistic growth targets and track progress.

What technological advancements can support supplier diversity programs?

Modern technology solutions tailored for supplier diversity management streamline processes, provide real-time data, and facilitate efficient decision-making.

How do Tier 1 and Tier 2 suppliers differ in the context of supplier diversity?

Tier 1 suppliers are direct suppliers to a company, while Tier 2 suppliers are subcontractors or suppliers to the primary suppliers. Engaging both ensures depth in the diversity of the supply chain.

Why is continuous communication crucial in a supplier diversity program?

Regular communication ensures alignment and engagement among stakeholders. Gathering feedback helps the program to adapt and improve over time.

What commercial benefits can be realized through a diverse supplier base?

A diverse supplier base leads to a mix of innovation, improving product quality and offering competitive pricing due to increased competition.

How do supplier diversity programs contribute to community upliftment?

By supporting minority-owned businesses, these programs foster goodwill and promote economic growth within marginalized communities.

What steps should businesses take to ensure the sustainability of their supplier diversity program?

Continuous monitoring, gathering feedback, and adapting to changing business dynamics are crucial to ensure the long-term sustainability and success of the program.

How do established corporations like IBM and Coca-Cola approach supplier diversity?

Many corporations have well-defined policies and specialized reports to engage, measure, and continuously improve their relations with diverse suppliers.

What are some real-world examples of successful supplier diversity initiatives?

Examples include a renowned tech company collaborating with a minority-owned supplier for a unique chip design, and a cosmetics brand expanding its range by partnering with a supplier familiar with African skin types.

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Introduction

Established in 1969 by a Presidential Executive Order, a supplier diversity program encourages the use of diverse suppliers within an organization's supply chain. A diverse supplier is one that is at least 51% owned and operated by a traditionally underrepresented or underserved individual or group. These groups include minorities, LGBTQ, veterans, and persons with a disability.

Evidence has shown that when a company implements a comprehensive supplier diversity program from the top down, it saves money, drives innovation, increases competition, and drives down prices. And according to a McKinsey report, a successful program is the key to a strong, inclusive economic recovery. The article states that spending $50 billion with minority-owned businesses could add four million jobs and $280 billion in extra income.

VIVA has found that a successful implementation should be addressed in two phases. The first phase is the creation of the program, while the second phase is its sustainability. Below are 10 best practices to implement Phase I.

Get commitment from leadership

Commitment from leadership is important for growing a supplier diversity program because it sets the tone for the rest of the organization and demonstrates that the program is a priority. When leadership is committed to the program, they are more likely to allocate resources and provide support to ensure its success. This can include things like providing staff time to work on the program, setting targets for increasing diversity among suppliers, and promoting the program to other stakeholders.

Without leadership commitment, it is difficult to effectively implement and sustain a supplier diversity program. Staff may be hesitant to allocate time to the program, and it may not receive the support it needs to succeed. Additionally, without leadership commitment, it may be harder to secure buy-in from other stakeholders, such as suppliers and customers, who may not see the program as a priority for the organization.

Appoint a senior manager to lead the program

Appointing a senior manager to lead the supplier diversity program can help to ensure that the program receives the necessary support and attention from leadership. A senior manager is more likely to have the authority and influence to allocate resources and make decisions that impact the program and can also serve as a point person for other stakeholders, such as suppliers and customers.

Additionally, having a dedicated leader for the program can help to ensure that it is effectively implemented and sustained over time. The leader can be responsible for setting goals and targets for the program, developing and implementing strategies to increase diversity among suppliers, and tracking progress and results.

Develop policy

Almost every impactful supplier diversity program is an extension of the corporation’s goals and values. Developing a policy helps internal stakeholders and buyers understand what to look for, how to evaluate new suppliers, and establish both short and long-term measurable goals.

Additionally, a policy helps to ensure that the program is well-defined, consistent, and transparent. A policy can help to establish the goals and objectives of the program, outline the expectations for supplier diversity, and provide guidance on how the program will be implemented and measured.

Having a clear policy in place can also help to communicate the importance of the program to stakeholders, such as employees, suppliers, and customers. It can demonstrate the organization's commitment to diversity and inclusion and provide a framework for how the program will be implemented and supported.

Establish baseline spend

According to the Institute for Supply Management, US companies currently devote 7.2 percent to diversity spend. To set such goals for your organization, establish the company’s baseline spend, identify the number of diverse suppliers you already have, the diverse categories they fall in, and your current spend with each category. This information can be quickly gathered with the help of a third-party data enrichment solution.

Once the baseline spend is developed, it can further help companies track their progress in increasing diversity among their suppliers and measure the impact of their supplier diversity efforts. It can also serve as a benchmark against which to set goals and targets for increasing diversity.

Having a baseline spend can also help companies identify areas where they may be able to increase their use of diverse suppliers. By analyzing their current supplier base and spend, they can identify opportunities to diversify their supplier mix and potentially drive cost savings or other benefits.

Employ technical integration

Many companies use spreadsheets and non-networked internal databases to manage their supplier diversity program. But due to government regulations and audit requirements, companies need a full suite of technology solutions to collect accurate supplier data and avoid financial penalties. Real-time collaboration software shared among departments streamlines these functions as well as removes information silos. All this helps your company reach common goals.

Employing technical integration can help supplier diversity teams to effectively and efficiently manage the supplier diversity program. For instance, supplier diversity team can reduce the time and effort required to manage the program and free up resources to focus on other strategic initiatives. It can also help to ensure that the program is consistent and transparent, and that it is aligned with the overall goals and objectives of the organization.

Develop specialized reports

Developing specialized reports for supplier diversity can help track and measure the progress and impact of the program. These reports can include metrics such as the number and percentage of diverse suppliers in the supplier base, the spend with diverse suppliers, and the impact on the overall supplier base.

Specialized reports can also help identify areas for improvement in the program and opportunities for increasing the use of diverse suppliers. For example, a report may highlight categories where the organization has a low number of diverse suppliers, indicating an opportunity to increase diversity in that area.

Finally, specialized reports have the ability to help achieve continued C-suite buy-in. Measure the metrics most important to leadership to demonstrate the benefits of supplier diversity to the company. Examples include cost savings, revenue impact, market share, deals won and lost, and social impact.

Onboard employees and vendors

Onboarding employees and vendors for a supplier diversity program can help to ensure that all stakeholders are aware of the program and understand its goals and expectations. This can help to build support and buy-in for the program and ensure that it is effectively implemented and sustained over time.

Onboarding can also help ensure that employees and vendors have the knowledge and skills they need to effectively engage with diverse suppliers. By providing actionable steps for both employees and vendors, this ensures employees understand all facets of the program so they can train vendors to understand your company, its industry, and program expectations.

Communication is vital to a successful program.

Launch an effective Tier 2 spend program

Tier 2 suppliers are smaller companies that are accepted as part of your organization's diverse spend. To launch an effective program, identify your diverse suppliers and their certification status. From there, select your top Tier 1 suppliers and request they track their Tier 2 spend. It is recommended that you also connect your Tier 2s with your Tier 1s. This way, they can bid on contracts together.

Doing so has the potential to increase the overall diversity of the supplier base by identifying and engaging with diverse suppliers at the sub-tier level. This can help ensure that the organization is not just diversifying its direct supplier base but is also considering diversity at all levels of the supply chain.

Second, it can help to track and measure the diversity of the sub-tier supplier base, allowing the organization to identify areas where it may be able to increase diversity.

Finally, launching an effective Tier 2 spend program can help to drive overall supplier diversity efforts by providing additional opportunities for diverse suppliers to do business with the organization, and by demonstrating the organization's commitment to diversity to its suppliers and other stakeholders.

Institute best practices and goals

Instituting best practices and goals for supplier diversity can help companies increase the overall diversity of their supplier base, demonstrate their commitment to diversity and inclusion, track and measure progress, and drive cost savings and other benefits.

To institute these best practices and goals, establish a set of KPIs, making sure they are reasonable, achievable targets. Companies also provide benchmarks to measure the program’s success against others inside and outside your industry. It is important to measure not only the spend target but processes and culture too.

Conclusion

In conclusion, implementing a supplier diversity program can bring numerous benefits to an organization, including increased innovation, access to new markets, and cost savings. By following best practices, such as obtaining leadership buy-in, assessing the current supplier base, developing a plan, training staff, and communicating and promoting the program, companies can effectively implement and sustain a successful supplier diversity program. Additionally, by appointing a senior manager to lead the program, employing technical integration, developing specialized reports, onboarding employees and vendors, and instituting best practices and goals, companies can drive better results and achieve their diversity and inclusion objectives. To ensure the longevity of your supplier diversity program, take the next step, Phase II, which emphasizes sustainability and long-term value.