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A Diverse Supply Base Isn't About Procurement…It's A Leadership Issue!

I was recently involved in a survey of best practices in establishing a diverse supply base.  The most important and common method for driving diversity objectives in the survey (in 73% of firms)  involves explicitly building in diversity as an objective into sourcing processes. It is not uncommon to find that sourcing managers do not view diversity as a priority. Companies need to develop a culture of buy in and support of the Supplier Diversity program goals that reaches from top management all the way through the supply chain. Senior leadership needs to emphasize that diversity is an important objective, and also provide measures that establish how diversity outcomes are tracked over time. There are several ways to measure an organization’s commitment towards supplier diversity.

I conducted benchmarking across a subsample of firms in the utility industry, to identify how supplier diversity was measured. First, a Community metric identifies the percent of spend that goes to diverse suppliers. The best level in this case was 45%, with the norm being around 10-12%.  It is also important to note that every single sourcing category has some level of diversity spending, and none are exempted. A director in a leading company notes that there is continuous monitoring of large projects as they conclude, as diversity suppliers come to the end of their contract, there are new objectives to replace these contracts with others over time.

Next, the Process dimension assesses the extent to which continuous improvement in diversity objectives are pursued. This involves establishing on-going efforts to align training of suppliers with new sourcing requirements. As noted in an interview with a diversity director notes that there are always multiple initiatives going on to continuously improve this outcome.

“When I see competitive elements that are arising in the supply chain function – my first thought is to enable diverse suppliers so they can be prepared. For example, we had an initiative where we knew going green was going to be a competitive factor – and so we developed a training program around how to set goals, and how to demonstrate whther suppliers are reducing greenhouse gas and water usage. The next big thing was Safety –that was our mantra. So we began a program “Diverse Suppliers are Safe”, involving how to set up a safety program, how to measure it –and to enable them to become a more competitive response in the RFP’s on the safety element.”

Next, the People dimension assesses the degree to which there is an investment in people, both from a headcount perspective, and representation on supplier’s board. One company has a significantly larger group of supplier staff working on diversity initiatives (13), compared to the others, despite lower revenues.

Finally, the Leadership element tracks the highest level of commitment to supplier diversity, in the form of an active presence of the senior leadership on a Supplier Diversity Council. Such a council is tasked with building commitment and support for inclusion of minority and diverse suppliers in on-going capital projects, on-going sourcing activities, and major projects. As shown, there is also a strong corporate commitment to diversity at companies with the CEO representing the enterprise on the council, that is a core factor that supports their high level of diverse spending.