Incorporating Diversity into Supplier Management
Business stakeholders – such as regulators, investors, consumers and employees – are driving companies to consider more than just their profit. As executives make sustainability commitments to their stakeholders and the market, it is often up to Procurement to fulfill these commitments by incorporating sustainability in the Source to Pay process. While each company’s definition of sustainability will depend on variables such as country, industry, and product line, the purpose of this blog is to talk about one dimension of sustainability: Supplier Diversity.
Supplier Diversity is a dominant theme of Sustainability in countries such as the United States, Canada, the UK, and Australia. It means committing to working with suppliers that are at least 51% owned by an under-represented group or groups (e.g. indigenous-owned, minority-owned, women-owned, LGBTQ-owned, etc.). Companies typically set targets such as a certain percent of diverse suppliers, or an amount of ‘diverse spend’. While some are driven by improving local communities or “the right thing to do”, companies with Supplier Diversity programs (or ‘inclusive procurement’) also benefit from a more resilient supply chain, lower costs, increased brand value, and improved product quality.
If your company is considering a Supplier Diversity program , the first step is to determine what “Diversity” means in your business context and your goal (where you want to be by when). Next, figure out where you are today. Which of your suppliers are diverse? How much do you spend with them? Knowing where you are today, and where you want to be, helps you determine the gap between the two and select the measurements to use to chart your progress. While it’s possible to do all of this manually, automating the process with supplier management software offers both efficiency and ongoing visibility of the journey toward your goal.
To find diverse suppliers, non-profits, supplier data companies and supplier networks can help. Validating a supplier’s diversity certification(s) during onboarding is a critical part of the process. Whether you choose to work with a 3rd party validator (a ‘trust proxy’) or validate the information yourself, it will be important to automate the expiration notification process so that your supplier diversity information is not soon out of date (and isn’t a burden to maintain manually). Once you have management of your Tier 1 diverse suppliers automated, you may want to start collecting your suppliers’ suppliers (Tier 2) diversity information as well.
What I’ve described so far is usually intuitive. Find the supplier. Onboard the supplier. (Qualify them if needed.) Manage the supplier. What many companies miss is the most powerful part of the process: incorporating and highlighting the diverse supplier at the appropriate stages of Source to Pay process.
What good does it do to have that diverse supplier in your supplier database if you are not sending them RFx’s during the sourcing process? How will you get from having a diverse supplier to having diverse spend if you do not enable your business users to find and purchase from that supplier?
Extending the information in your supplier management software to the entire Source to Pay process is a step often missed, or sometimes, too painful to fulfill if you are managing your data manually, or in silos. This is the power of a Source to Pay platform and digitization. When supplier diversity data becomes information, and can be used to make business decisions across the Source To Pay process, that’s when a company’s supplier diversity goals and commitments are achieved…and can make a true difference in the world.