Just about everyone in a US-based sourcing and procurement organization knows something about supplier diversity. We're even seeing an increased global focus, such as that on indigenous aboriginal-owned suppliers and content in Australia and Broad Based Black Economic Empowerment in South Africa. Yet few involved in the function know the nuances of how to impact diversity spending in practice, let alone where to get started.
One of the largest challenges facing diversity programs is need for greater visibility into spending activity. Everyone needs it. Diversity-focused spend analysis and vendor classification work is absolutely necessary for accurate reports that will stand up to audits. Spend Matters PRO recently featured the start of a four-part series that provides just about everything you need to know to put an analytically and platform oriented supplier diversity program into practice, alongside other types of initiatives (strategic sourcing, supplier rationalization, supplier management, risk management, etc.) Regardless of whether an organization is looking to accelerate their already advanced supplier diversity programs or get started on the right foot, this series should prove invaluable.
Below, we feature select analysis from Supplier Diversity Meets Supply Management: A Roadmap for Success, published originally on Spend Matters PRO. The series begins by exploring the importance of getting one's house in order.
The first step with any diversity program should begin with understanding your spend and your current vendors. To accomplish this, you absolutely need to invest some time and resources in spend reporting. This is also known as spend analysis, although supplier diversity requirements may introduce certain nuances beyond standard spend visibility requirements (e.g., multitier reporting).
So start with spend classification and cleaning ERP data, which requires working closely with accounts payable and quite often IT as well. Your friends in these areas will provide you with a detailed list of the past 12 to 18 months of spending data (we suggest going back at least 18 months if it is the first time you do this) across all of your vendors.
Then, give this file to a solution provider (e.g. CVM Solutions, ConnXus, D&B, Supplier Gateway) who will match this record against their own databases. Don't even think about doing this yourself – it's not worth the effort. This third-party firm will flag known SMWBE firms with the appropriate tags, and even help you determine which entries are duplicates, where there are parent-child linkages, match against IRS for tax ID accuracy as well as against other databases (e.g. OFAC) to discover other potential issues with your vendors.
Their final report should ideally be used to clean up your ERP and vendor management solutions – and will serve as the basis for the many reports you will need to create for your constituents, both internal and external. This activity should be paid for out of general IT budget since it is an effort that supports MDM (master data management) and data quality for all areas of the company. Save your precious (and too small) diversity budget for other programs.
Subscribers to our Risk, Performance and Compliance content channel can access the entire series on Spend Matters PRO. If you are interested in this level of insight and content on a daily basis, we invite you to try Spend Matters PRO before you buy. Low-cost (on a seat basis), corporate subscriptions (all company access) for practitioners are also available starting at $5,000 depending on number of users (e.g., for diversity teams that want to get a centralized procurement function to pay for access for the entire organization).
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