How to Measure Supplier Diversity in Procurement

Supplier diversity has become a cornerstone of modern procurement strategies, championing inclusivity and fostering economic growth by engaging with businesses owned by traditionally underrepresented groups. In today’s competitive landscape, understanding supplier diversity is crucial for organisations looking to enhance their procurement practices. This article delves into the significance of measuring supplier diversity, the essential metrics to track, and best practices to ensure the effectiveness of your programme.

The Importance of Supplier Diversity

In recent years, organisations have recognised that a diverse supplier base enhances their reputation and improves business outcomes. According to a report by the Harvard Business Review, diverse suppliers can drive innovation, improve competition, and strengthen supply chains. Companies like Coca-Cola, UPS, and IBM exemplify how investing in diverse suppliers can yield significant economic benefits and contribute positively to community development.

Key Benefits of Supplier Diversity

1. Economic Impact: Diverse suppliers contribute significantly to job creation and local economic growth. According to the National Minority Supplier Development Council (NMSDC), minority-owned businesses in the UK create thousands of jobs and generate substantial revenue annually, underscoring the tangible benefits of your supplier diversity efforts.
2. Enhanced Innovation: A diverse supplier base fosters a broader range of perspectives, leading to innovative solutions and products. By collaborating with diverse suppliers, companies can tap into unique insights that drive creativity and improvement.
3. Competitive Advantage: Companies with strong supplier diversity initiatives experience better financial performance. Engaging diverse suppliers can help businesses capture new markets, enhance brand loyalty, and improve customer satisfaction, giving your organisation a strategic edge in the market.
4. Community Development: Investing in diverse suppliers uplifts communities, leading to better job opportunities, increased wages, and higher tax revenues. It creates a positive cycle of economic empowerment that benefits everyone involved.

Understanding Diverse Suppliers

Diverse suppliers are typically classified as businesses, at least 51% owned by individuals from underrepresented groups. These classifications include:

• Minority-owned Businesses (MBEs)
• Women-owned Businesses (WBEs)
• Veteran-owned Businesses
• LGBTQIA+-owned Enterprises
• Businesses Owned by Individuals with Disabilities

Recognising these categories is essential for accurately measuring and reporting on supplier diversity, ensuring that your organisation is making meaningful contributions to inclusivity.

How to Measure Supplier Diversity

Measuring supplier diversity involves a strategic approach, focusing on key metrics and best practices that can drive success. Here’s a step-by-step guide:

1. Data Collection and Categorisation

The first step in measuring supplier diversity is gathering accurate and relevant data. Key datasets to consider include:

• Total Number of Diverse Suppliers: This metric reflects the breadth of your diverse supplier engagement.
• Spending Metrics: Track the total amount spent with diverse suppliers as a percentage of overall procurement spend. This provides insight into the financial commitment to diversity.
• Contract Sizes: Analyse the average contract size for diverse suppliers to ensure they receive significant opportunities. This is crucial for understanding whether diverse suppliers can scale their operations.
• New Supplier Additions: Track the number of new diverse suppliers onboarded annually. This indicates your organisation’s efforts to expand its diverse supplier base.
• Turnover Rates: Monitoring the turnover of diverse suppliers can reveal how well your organisation retains these essential partners.

Tools like Excel or cloud-based spend analysis solutions can help you categorise and visualise this data, making it easier to analyse and report.

2. Establish Clear Goals

Setting specific, measurable, and achievable goals is critical for the success of your supplier diversity programme. Avoid vague objectives like “increase supplier diversity” and opt for tangible targets. Clear goals provide direction and purpose for your supplier diversity efforts.

• Aim for 25% of total spending with diverse suppliers within a specified timeframe.
• Set a goal to retain 90% of your diverse suppliers year-on-year.
• Increase the average spend per diverse supplier by 10% over the next year.

Setting realistic goals motivates your team and provides a clear direction for supplier diversity efforts. It helps align everyone towards a common objective, fostering a sense of achievement when the goals are met and providing a roadmap for continuous improvement.

3. Benchmarking Against Industry Standards

To assess the effectiveness of your programme, compare your diversity metrics against industry benchmarks. Partnering with organisations like the National Minority Supplier Development Council (NMSDC) can provide valuable benchmark data. These organisations set industry standards and provide insights into how your programme compares to others in your industry.

Key metrics for benchmarking include:

• The percentage of diverse supplier spending compared to industry averages.
• The number of new, diverse suppliers onboarded annually.

When reviewing benchmarks, consider factors such as your company’s maturity in its supplier diversity journey and the availability of diverse suppliers in your industry or location.

4. Track Key Performance Indicators (KPIs)

Identifying and tracking key performance indicators (KPIs) is crucial for measuring the success of your supplier diversity programme. Select three to five KPIs that align with your goals and provide insights into your programme’s health. For instance, if your goal is to increase spending with diverse suppliers, a KPI could be the percentage of total procurement spent with diverse suppliers. If you aim to create jobs, a KPI could be the number of jobs created by partnering with diverse suppliers.

• Diverse Supplier Spend: Track how much you spend with diverse suppliers as a percentage of total procurement spend. This is a fundamental metric for evaluating your commitment to diversity.
• Economic Impact: Assess the number of jobs created by partnering with diverse suppliers. This metric can provide insight into the broader community impact of your diversity efforts.
• Market Share: Evaluate whether your supplier diversity programme has helped increase your market share within diverse communities. This can be an important indicator of the effectiveness of your outreach and engagement strategies.

Utilising technology solutions to automate the tracking of these KPIs can streamline the process, making it easier to analyse data and identify areas for improvement.

5. Engage with Diverse Suppliers

Maintaining strong relationships with diverse suppliers is key to their success and the effectiveness of your programme. Regular engagement fosters collaboration and helps identify growth opportunities. Here are some best practices for engaging with diverse suppliers:

• Regular Check-Ins: Conduct biannual check-ins with each supplier to discuss performance, satisfaction, and opportunities for expansion. This can help you understand their challenges and how your organisation can better support them.
• Educational Resources: Offer workshops or mentorship programmes to help diverse suppliers navigate procurement processes. Providing guidance can empower them to succeed and deepen your partnership.
• Networking Opportunities: Facilitate connections between your suppliers and other companies or industry groups. This can lead to new business opportunities and enhance their visibility in the market.

6. Reporting and Internal Communication

Visibility is crucial for ensuring supplier diversity remains a priority within your organisation. Implement high-visibility reporting methods to communicate progress with stakeholders. Here are some strategies to consider:

• Company-Wide Updates: Use newsletters, emails, or internal reports to highlight achievements in supplier diversity. Celebrate milestones and recognise the contributions of diverse suppliers.
• Dashboards and Visuals: Create dashboards that track your programme’s performance against set goals. Visual representations of data can help stakeholders understand the impact of your efforts.
• Trade Shows and Events: Participate in industry trade shows and events to raise awareness about your supplier diversity programme. Events provide an opportunity to network, share successes, and learn from others in the field.

Conclusion

Measuring supplier diversity in procurement is not just about tracking financial metrics; it’s about creating a culture of inclusivity and support for diverse businesses. By following these steps—collecting data, setting clear goals, benchmarking, tracking KPIs, engaging suppliers, and communicating progress—you can build a robust supplier diversity programme that drives meaningful results for your organisation and the communities you serve.

Investing in supplier diversity is a strategic imperative that benefits everyone involved. It fosters innovation, enhances competition, and contributes to sustainable economic growth. Embrace these practices to ensure your procurement strategy is effective, inclusive, and impactful for years.

With a commitment to measuring and improving supplier diversity, organisations can enhance their operations and play a vital role in uplifting communities and driving systemic change. By prioritising diverse suppliers, we pave the way for a more equitable and prosperous future for all.