Nothing New Under the Sun: Taking an Advanced Approach to Supplier Diversity

supplier diversity

Spend Matters welcomes this guest post from Vernon Griffin, senior consultant and supplier diversity practice lead at Source One Management Services.

Growing up I remember hearing two phrases constantly: “There is nothing new under the sun” and “Numbers never lie.” Both statements I have found to be half-truths. Try telling dinosaurs, phone booths or the former milkman that nothing ever changes. People, things, ideas — all evolve.

The same holds true with numbers and data. Numbers never lie, but sometimes they do not tell the entire story. For example, we can look at a box score from last night’s game and see how our favorite player performed. From those few numbers, we can assess how much “value” that player contributed to her/his team’s success. In the past 10–20 years in sports a funny thing happened. Batting averages, points per game and passing yards per game are still captured; however, WAR (wins above replacement for baseball), PER (player efficiency rating for basketball), and AYPA (adjusted yards per attempt for football) are also being measured, to provide “deeper” insight into how the player performed. Practitioners in all three sports realized that changing what was being measured gave them a significant competitive advantage. Like sports, supplier diversity (SD) has always had a basic set of metrics. But now it is time for the advocacy of this vital program to evolve.

If companies want to increase the value of, and gain greater insight into, the performance of these programs, new metrics are required. Today the major supplier diversity metric is focused solely on ownership status. Having 51% ownership of any business from a minority, woman or LBGTBE person is the threshold that is required to receive certification from the National Minority Supplier Development Council (NMSDC), Women’s Business Enterprise National Council (WBENC) and National Gay & Lesbian Chamber of Commerce (NGLCC). Having this certification allows for companies to count their diverse spend on two levels: Tier 1 (seen as the most impactful) and Tier 2. What is missing from these tiers is an accurate measurement of the distribution of economic capital in terms of decision making and financial gain, which can be narrowed down to one word: impact.

Besides ownership percentage, minority board members, managers and overall minority employee level percentage should be captured as well. How would the new metrics impact evaluating suppliers during an RFX? The two charts below show a hypothetical comparison between two supplier evaluations during an RFX.

Example No. 1 demonstrates the traditional diversity questions used to evaluate suppliers. Company A, being 100% woman owned, would receive 100% of the evaluation points allocated for that question. If selected for award, the buying company would be able to count 100% of this supplier’s spend as Tier 1 Spend. Both Company B and C are majority-owned suppliers. Since Company C has a SD program, it receives points for that section. Company B would not receive any points because it is majority owned and do not have a current supplier diversity program.

In Example No. 2, advanced metrics/impact questions have been included in addition to the traditional diversity questions. Company A would receive points for being woman owned, but would lose points for having a low percentage of minority executives and employees. Company B would gain points for having a high percentage of minority executives and employees, and Company C would lose points for having a lower percentage of minority executives and employees.

My suggestions are just that: suggestions. I practice supplier diversity program advocacy and procurement the same way doctors practice medicine. It is an evolutionary journey. If implemented, we would then have great insight on how the companies we do business with are composed. Companies like B and C would get credit for their hiring minority employees and establishing SD programs, while Company A would be incentivized to increase its internal hiring of minorities.

Baseball teams having an “old school” management style did not initially accept the advanced metrics that started with the “Money Ball” revolution and ended with both the Boston Red Sox and Chicago Cubs winning the World Series. Today, every team utilizes these metrics. It will be interesting to see which industries and vanguard companies start to use advanced supplier diversity metrics to gain greater insight into firms diversity contributions and use this knowledge to gain a competitive advantage in the marketplace.

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