Making a Difference with Supplier Diversity
September 13, 2022 | by Chadwick Stephens
Much has been written about measuring the performance and impacts of supplier diversity initiatives in the private sector. But how much of that can apply to public procurement where the profit motive is not a factor? Pulse is here to help with tips for examining your supplier diversity program.
Diversity in procurement typically seeks to leverage contract opportunities or spend for socioeconomic impact. Tracking the impact beyond the initial award requires insight and effort. Consider the following factors for analyzing and improving your supplier diversity initiatives.
Follow the Money
Map your supply chain for categories that apply to your supplier diversity initiatives. Subcontractors, service providers, and your suppliers’ suppliers form a business ecosystem that is affected by targeted spending whose impacts may be felt at a local community level. Mature diversity programs in the private and public sectors often have requirements or guidelines for subcontracting or for a prime supplier’s diversity initiatives. This information is regularly reported throughout the life of a contract. Ask suppliers about their diversity spending. Your efforts may be reaching further than you think.
More Than Just Spend
A common goal and benchmark among private and public supplier diversity programs is the spending ratio. This is usually represented as the percentage of total contract or discretionary spending that is directed toward certified diverse businesses. In some cases, these goals can be met with just a few large contracts awarded to a handful of suppliers. Supplier.io and Supply and Demand Chain Executive suggest more comprehensive metrics to assess your program. Among those applicable to public procurement are:
- The average amount of spend per awarded certified supplier
- The total number of diverse awarded suppliers or contracts awarded to certified suppliers
- The total number of registered or certified suppliers for each targeted group or geographical area
- The number of informational and training events and the number of attendants
- The volume and frequency of outreach efforts to diverse businesses, or partnerships, with affiliated organizations.
Growth for the Future
Consider new categories for diversity investment and growth. In a May 2022 article, McKinsey & Company make the case for expanding diversity efforts into high-growth economic sectors, such as professional services, real estate, finance, insurance, and IT. According to their research, diverse businesses in these industries pay higher wages and create value through competition but are still underrepresented. These present opportunities to make longer-lasting impacts with your targeted spending.
“Expanding the scope of supplier diversity would create more jobs for minorities in higher-wage sectors and in roles less likely to fall prey to machine learning and AI.” -McKinsey & Company
Ask the Experts
Economic impact studies are frequently used to determine the multiplier effect of supplier diversity programs by translating procurement dollars into the number of jobs created, the number of wages paid, and tax revenues generated in affected communities. These types of studies can prove your business case for implementing or expanding supplier diversity initiatives and provide a measure of return on investment for government stakeholders. For an example of an economic impact study, see this 2021 report from the National Minority Supplier Diversity Council.
If you are interested in supplier diversity, take a look at some current state procurement programs like North Carolina’s HUB and Washington’s OMWBE. Keep an eye out for an upcoming deep dive into supplier diversity initiatives among the states in the Content Library on NASPO.org.