How to Develop Supplier Diversity Spend in a Global Economy

May 4, 2021 by FlexPro

Written by Grant Russian, FlexPro Sr. Project Manager

The Importance of Supplier Diversity

Over the past fifteen years Supplier Diversity and Inclusion has increasingly become a very important corporate objective for companies. Supplier Diversity spend historically has been a US focused program to maintain US government contracts. Today there are many targeted conferences, consortiums, and forums that promote Supplier Diversity opportunities and the ability for these suppliers and companies to develop relationships. One of the coveted forums is the Billion Dollar Round Table. Companies have found that the majority of Diverse Suppliers operate within the indirect services category space. The categories that generate the spend is through relationships and contracts for HR, fleet, marketing, cafeteria, janitorial, facilities, capex and landscaping services. Where Diverse Suppliers do not have the level of technical capabilities and expertise in the pharmaceutical and health sciences industry, companies have leveraged their larger global suppliers. Companies will create relationships between these suppliers to provide mentoring and sharing of best practices. This eliminates risk and continuity of services concerns with large suppliers managing and providing oversight of the day-to-day activities, but contracts are managed directly between the company and diverse suppliers.  

What is a Supplier Diversity Program?

As defined by Wikipedia:

A supplier diversity program is a proactive business program which encourages the use of minority-owned, women owned, veteran owned, LGBT-owned, service disabled veteran owned, historically underutilized business, and Small Business Administration-defined small business concerns as suppliers. It is not directly correlated with supply chain diversification, although utilizing more vendors may enhance supply chain diversification. Supplier diversity programs recognize that sourcing products and services from previously under-used suppliers helps to sustain and progressively transform a company’s supply chain, thus quantitatively reflecting the demographics of the community in which it operates by recording transactions with diverse suppliers.

I had the opportunity in 2019 and 2020 to manage a global sourcing event for IFM (Integrated Facilities Management) services, global real estate and capital projects. The scope included manufacturing, research, and commercial sites. As we developed our sourcing strategy, we saw the opportunity to expand Supplier Diversity spend as a global solution beyond the US boundaries. Many countries now have government requirements similar to the US such as South Africa, Brazil and some Western European countries. Diversity requirements and definitions do vary by country such as definitions for indigenous people. Through the RFI process and engagement with key stakeholders we identified a number of capable Diverse Suppliers to participate in the RFP, and we challenged the larger global suppliers to provide best in class diversity solutions. In countries where our suppliers did not have a presence, such as eastern European and countries with geo/political stability concerns, we identified a diverse supplier to manage those countries locally with local country contracts with our global suppliers managing oversite and liability.    

How to Qualify as a Diverse Supplier

Some of our most rewarding learnings came through understanding country level requirements for suppliers to qualify as diverse. The second learning was that there are suppliers who do not realize they qualify as a Diverse Supplier. We engaged our internal Supplier Diversity team along with the supplier’s diversity teams to better understand the requirements and develop a roadmap. The team also coached and mentored suppliers on how to qualify as a Diverse Supplier. Multiple workshops were held with our regional global stakeholders and the Supplier Diversity subject matter experts. The result created a clear delineation between US and global spend and a five-year roadmap to increase diversity spend targets and stretch goals annually. We also created KPI scorecards to track and validate diversity spend as part of the contractual negotiations. To incentivize suppliers, KPI’s are scored as part of a total scorecard which is tied directly to the supplier’s management fee. We review the KPI metrics with the suppliers on a quarterly basis to verify delivery and identify potential gaps. All this has led to a robust global diversity program and continued opportunities to further develop the program.

The benefits beyond being a good corporate social citizen, companies have experienced additional value such as supply chain continuity, innovations, attracting and hiring diverse talent, and promotes supplier competition. 

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