A 2006 study by the Hackett Group found that companies focused on supplier diversity saw a 33 percent return on the cost of operations, resulting in a more effective supply chain than those who did not have a supplier diversity program. 17 years out from that study, supplier diversity initiatives are catching on across the globe, and a potential ROI of 33 percent would make anyone question why an employer wouldn’t have a robust program in this day and age.
While companies continue their efforts to integrate diverse businesses into their supply chains, these companies should also consider strengthening the procurement systems that support all suppliers. See, creating a program and creating an effective program are two entirely different things. As we know, diverse businesses have a greater need for formal and effective systems because they do not typically have the informal relationships and networks that the majority of businesses benefit from.
These formal systems should include IT system configurations, data quality, and transparent processes. My company, Optimist Business Solutions, has been a supplier for large and small employers, but my recommendations are based on the Six Sigma Racial Equity Institute’s supplier diversity projects. Through those projects, we’ve revealed three key opportunities for buyers and suppliers alike.
1: IT System Configurations
IT systems should be configured in a manner that allows for effortless identification of businesses as MBE, WBE, DOBE, BBE, VBE, etc. This configuration should identify both the prime contractor and the subcontractor since the diverse businesses are oftentimes the subcontractor rather than the prime contractor. This identification would allow companies to track and disaggregate data across primes and subs. In addition to tracking percent participation and levels of spend, the IT system should be configured to track timely payment to the primes AND the subs.
Here’s a real example: Last year, I experienced a late payment from the prime that exceeded 60 days past the payment terms. Black suppliers typically have less capital compared to white suppliers, so a payment of 60 days past the payment terms negatively impacted my ability to pay staff. However, the buyer may not have known the timing of the late subcontractor payment if the IT system was not set up to track this information.
Bottom line: Tracking subcontractors’ payments can, and should, be done.
2: Data Pedigree, Provenance, and Integrity
The pedigree, provenance, and integrity of supplier data must be known and confirmed. These terms are relatively technical, so to clarify:
Data pedigree includes not only the history of data but also the quality of it.
Data provenance refers to the origin of data and the process by which it arrived at the database.
Data integrity is a concept and process that ensures the accuracy, completeness, consistency, and validity of data.
Data pedigree, provenance, and integrity are essential elements of the supplier diversity ecosystem because they shape the quantitative assessment of the supplier diversity program and potential opportunities for improvement.
3: Transparent Processes
Transparent processes help establish trust between suppliers and buyers. Transparency also contributes to greater accountability. Employers may be taking all of the right steps toward building a more robust supplier diversity program, but if the program and the processes are not transparent and clearly communicated, the perception of inequities may remain. Your transparency efforts should focus on:
and supplier development processes.
Remember, transparency is the secret sauce to greater equity and trust.
To the employers who are currently lagging with their supplier diversity programs: it’s time to catch up! The growth is in XBEs. A thriving supplier diversity program with the right IT configurations; data pedigree, provenance, integrity; and process transparency will all be essential to the growth of your business. Strengthening supply chain and its processes is always in a business’s best interest—and a 33 percent return is nothing to scoff at, either.
If you’re intentional about moving the needle on supplier diversity in Indianapolis, now’s your chance to get involved in the Business Equity for Indy (BEI) Procurement Roundtable. As a purchaser/buyer, you have the opportunity to increase your supplier diversity, and as a supplier, you get to pitch your value proposition to dozens of companies.
Feeling inspired to take your supplier diversity programs to the next level? Optimist Business Solutions implements winning strategies that empower entire teams. Get familiar with our services.