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Meeting in a Box: Supplier Diversity

December 2, 2014 4:19 pm

Meeting in a Box Supplier DiversityThis Meeting in a Box tool is designed for distribution to all employees. You may use portions of it or all of it. Each section is available as a separate PDF; you can forward the entire document or link to it on DiversityInc Best Practices; or you can print it out for employees who do not have Internet access.

This month, we give you information for all your employees on what supplier diversity is, best practices on how to start a supplier-diversity program, and what metrics are best to assess success. It’s important that everyone in the company understand the value of supplier diversity and how it builds community growth and loyalty.

[CLICK HERE to download a PDF of the full Meeting in a Box, our diversity-management training and educational tool available only to Benchmarking customers and DiversityInc Best Practices subscribers.]

1. Supplier-Diversity Primer

Supplier diversity was started by former President Richard Nixon in 1969 through an Executive Order. Its goal, an outgrowth of the civil-rights movement, was to encourage the use of vendors owned by underrepresented populations. Initially, those groups were Minority-Owned Business Enterprises (MBEs), which consisted of companies owned by Blacks, Latinos, Asians and American Indians. Women-Owned Business Enterprises (WBEs), which consisted of companies owned by women, were included later.

Today, supplier diversity includes businesses owned by Lesbian, Gay, Bisexual and Transgender (LGBT) people, people with disabilities and veterans with disabilities. Some organizations consider veteran-owned companies diverse suppliers, and the U.S. Small Business Administration includes small businesses as diverse suppliers but most corporations do not.

The biggest issues involving supplier diversity have been certification and making the business case for supplier diversity. To confirm that MBEs were actually at least 51 percent owned by Blacks, Latinos, Asians or American Indians, both government agencies and organizations such as the National Minority Supplier Development Council (NMSDC), formed in 1972, took an active role. The Women’s Business Enterprise National Council (WBENC) was created in 1997. In recent years, the National Gay & Lesbian Chamber and Commerce (NGLCC) and the US Business Leadership Network (USBLN) have certified vendors owned by LGBT people and people with disabilities, respectively.

Early industries that were supplier-diversity leaders were those with significant government contracts, such as telecoms or auto companies. But increasingly, companies have seen the business benefits of supplier diversity whether government mandated or not.

Companies cite the main benefits as increased innovation and different solutions (also commonly cited as a benefit of more diversity in the workforce), and building a reputation in diverse communities. For many companies, their suppliers are also their customers, and building community wealth enhances customer relationships.

Supplier diversity is assessed in two ways. Tier I suppliers are direct contractors, those whose services are purchased by the company. Tier II suppliers are subcontractors. Companies that are supplier-diversity leaders usually require their contractors to have diversity in their own vendor relationships.

Guided Questions for Employees

Why did the federal government see a need to mandate supplier diversity? How is this related to the civil-rights struggle?
Address whether minority-owned businesses have historically had the same opportunities in the U.S. marketplace and how this is changing.

What types of companies are usually diverse suppliers?
Are you seeing a change at your own company in the types of vendors hired who are from underrepresented groups, such as attorneys or those offering professional services? Why is this important?

How do you think supplier diversity benefits your company?
What is your company’s reputation in underrepresented communities? Does your company publicize its supplier-diversity efforts? How can you help get the word out?

Supplier-Diversity Primer

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2. How to Start a Supplier-Diversity Program

Based on data and successful best practices, we’ve compiled a list for your company to follow. Here are best practices that all your employee should know:

• Supplier diversity should be operated out of the procurement department, with one person responsible for it. The diversity department should be in frequent communication with this person.

• Supplier diversity should exist within the context of your company’s business goals, supply chain and competitive-market climate.

• It’s important to measure your success against other organizations and industry norms.

• It’s critical to assess Tier II (subcontractor) supplier diversity as well as Tier I and to train your prime suppliers to find and mentor diverse suppliers.

Guided Questions for Employees

Does your company have a supplier-diversity program? If it does, how well are its goals and successes communicated to employees?
What do you know about supplier diversity at your company? How can you get the word out about its importance?

How does supplier diversity help your company reach its business goals?
Do you deal with outside vendors? How important are they to your individual and the company’s business goals? Address how having different experiences and views can create new ideas and solutions.

Is your company helping your diverse suppliers grow?
Does your company offer educational opportunities and mentoring for suppliers, many of which are small businesses? This can include financial and technical education. Does your company make a significant effort to help its prime contractors find and nurture diverse suppliers—and does it track Tier II supplier diversity?

How to Start a Supplier-Diversity Program

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3. Metrics to Assess Supplier-Diversity Success

The metric most often used to assess supplier-diversity success is the percent of procurement budget allocated to Tier I and Tier II diverse suppliers. Some organizations also measure dollar amount spent with these suppliers, but it’s important to understand that larger companies have more money to spend and so not all companies have huge procurement budgets.

Companies also look for accountability—is supplier-diversity success tied to the compensation of procurement and other executives?

Other metrics are: number of diverse suppliers; third-party recognitions received; savings as a result of contracting with diverse suppliers.

Guided Questions for Employees

If your company has a supplier-diversity program, why is it important to assess success?
Is your organization metrics driven? If so, why is showing supplier-diversity progress important? How relevant are supplier-diversity metrics to other business goals, such as increasing market share?

How can your organization increase the number of diverse suppliers it has?
How can you help your company recognize the value of supplier diversity and get the word out to potential suppliers?

Metrics to Assess Supplier-Diversity Success

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4. Supplier Diversity Timeline

Supplier Diversity Timeline

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[CLICK HERE to download a PDF of the full Meeting in a Box, our diversity-management training and educational tool available only to Benchmarking customers and DiversityInc Best Practices subscribers.]

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