Supplier Inclusion: Moving Beyond Spend to Measure Impact

Spend Matters welcomes this guest contribution from Brian Peters and Steven Wuerth from Gilead Sciences.

“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 (SBA)-defined small business concerns as suppliers … 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.” — Wikipedia (the SBA is a U.S. government agency)¹

Supplier diversity can have positive impacts on businesses and communities, but history suggests that program implementation has been difficult and, in some cases, borderline ineffective. In CVM Solutions’ 2018 State of Supplier Diversity Report, only 32 percent of respondents rated their supplier diversity programs as very effective,²up 7 percentage points from their 2017 report³. This white paper by Gilead, one of the world’s largest biopharmaceutical companies, with suppliers worldwide, contains reflections and learnings from our work to progress our company’s supplier diversity program. We aim to move beyond spend as “the” metric for program success, inspiring and measuring a broader impact.

The ineffectiveness of supplier diversity programs has, in our view, been exacerbated by that historical focus on spend with diverse suppliers as the metric. A 2016 Hackett Group survey stated that this was the most common indicator used to monitor program success. While this is a cornerstone metric, a broader lens is needed to capture the full impact of supplier diversity.⁴

Objectives

A progressive supplier diversity program’s objectives should focus on the inclusion of suppliers who represent company values, positively impact communities and help the company deliver its product/service value to diverse communities.

In the 2016 Hackett survey, recipients were asked what diversity program objectives they considered to be critically important or important. The top four responses in order were 1) improve corporate image in marketplace 2) support corporate culture around diversity and social responsibility 3) meet customer/government requirements in RFPs/contracts and; 4) comply with regulatory requirements.⁴

Spend: An Incomplete Metric

The Hackett survey’s responses are consistent with our observations: Supplier diversity metrics have stagnated and are due for disruption. Spend certainly aligns to regulatory requirements but we believe it is incomplete. It does not capture the full impact of diverse contracting on businesses and communities.

It limits, for example, visibility to understand if diverse suppliers receiving corporate business are also encouraging inclusion in their workforce and sub-suppliers. If a diverse-owned, value-added reseller of technology hardware acquires hardware from a large business and only adds incremental features or services to the existing product, just a portion of the total contracting dollars may reach a diverse business.

Secondly, “diverse” presents challenges in a global context. As of the end of 2017, Gilead has offices in more than 35 countries. In each of those countries, “diverse” has a different meaning. This, along with potential loss of qualified spend for U.S. compliance targets, has made it difficult to expand globally. In the Hackett survey only 15% of global companies have a global supplier diversity program.⁴

Supplier Diversity/Inclusion Disruption and Redesign

With this historical research in mind, we challenged ourselves to rethink the design and practice of our program. Our hypothesis is that program success, at least for our company, requires (a) alignment to internal corporate goals and, (b) key performance indicators (KPIs) that measure a broader impact. For those companies brave enough to revisit the foundational design of their program, Table 1 displays a group of program parameters that collectively go a long way toward dictating program outcomes.

Table 1 — Subset of Program Parameters with Conventional Approaches and Alternative Considerations for Supplier Diversity/Inclusion Programs

Alignment and Change Management

A core value is a fundamental belief of an organization. In October 2016, Gilead added inclusion as a core value and changed the name of its supplier diversity program to “supplier inclusion.” In addition to diversity spend, Gilead has broadened its definition of inclusion and integrated these indicators into the fabric of supplier selection and our business, overall.

While serving as a core value, supplier inclusion also enhances our corporate performance through three key drivers: innovation, supplier engagement and community impact. This evolved value proposition establishes a framework for an open dialogue among executives, business units and government affairs.

Development of the parameter framework and debate around a short list of key drivers has proven to be a worthwhile change management exercise. We acknowledge that the program parameters above are certainly not comprehensive, and we fully anticipate our key drivers to evolve.

Key Value Drivers: Gilead Supplier Inclusion

In October 2016, Gilead added inclusion as a core value to reflect our identity as a company and the process of how we approach our work on a daily basis. To align internally we’ve branded our supplier diversity program as “supplier inclusion,” and we believe the research around workforce diversity also applies to a supplier base — that diversity of thought leads ultimately to improved products and outcomes.

Table 2 — Key Value Drivers and Corresponding Key Performance Indicators

Key Driver 1: Enabling Innovation

Despite the influence of globalization and digital trends, collaboration in process innovation occurs most when a supplier is close to the buyer.⁵ Proximity is especially important when it comes to small businesses, where more personal interactions and services are involved. Trust and satisfaction enable open innovation and high-performing teams.⁵

To measure proximity, we examined the locations of our operational footprint and high concentration areas where people benefit from Gilead’s products. Through this analysis, we identified 15 high focus zones, which span the globe. The objective is to increase the percentage of small and diverse suppliers within 100 miles of these zones, increasing the likelihood that collaborative innovation can occur. For example, Rev One Design, a small, LGBT, woman- and minority-owned graphic marketing communications agency near Gilead’s headquarters in Foster City, California, developed a nimble business model that helped Gilead reduce its design update time from several weeks to just a few days.

Key Driver 2: Supplier Engagement

Gilead’s program also strives to foster collaboration with suppliers through engagement. “Seeking relationships with suppliers that are underrepresented in terms of size, geography and ownership is the right thing to do for Gilead,” says Andy Murray, senior director of procurement. “It allows us to stay connected to the people we serve and contribute to economic development in the communities where we operate.”

As an example, Gilead engaged with Science Exchange, a small business that adopted an innovative approach to securing outsourced research and development services from a network of approved suppliers, significantly reducing the time spent by Gilead on supplier identification and contracting. “It really cuts the time spent on logistics — the non-research time — so we can get to our experiments faster and validate drug targets,” says Adele Wang, a research scientist at Gilead.

In a survey conducted by Gilead, more than 71 percent of small and diverse suppliers selected “lack of communication and feedback” as the major challenge to growing business with Gilead. In response, we will modify how we engage with our existing suppliers to improve communication and feedback, as well as embed the value of inclusion when assessing business opportunities, risk and strategic importance in the selection of new or existing suppliers.

Key Driver 3: Community Impact

One traditional underlying assumption for measuring spend is that the economic benefit trickles down to the community. Instead of simply assuming a company that is owned by an underrepresented individual or group will positively impact an underrepresented community, we want to go a step further and confirm that impact by adopting location-based indicators, such as jobs supported by state and economic contribution by state. These indicators will be measured by working with a third-party economic impact supplier, using evidenced-based models.

At Gilead, we have seen the potential for suppliers to positively impact communities. In one example, a minority-owned IT service company with which we contract established customer care centers in Chico, California, rather than turning to offshore solutions and added 140 additional jobs in the city. By systematically measuring these efforts, we believe we can prioritize our contracting resources and maximize the impact of our supplier inclusion program on underserved communities.

Getting Started

Gilead’s aim is to enhance our program’s success as we extend the focus beyond spend. We redesigned our program to align with corporate objectives — with a focus on innovation, supplier engagement and community impact. Our belief is that when internal stakeholders such as executives and day-to-day decision makers see the full value of the program, increased spend with small and diverse suppliers will be the byproduct of that success.

We recommend that supplier diversity and inclusion professionals periodically step back to rethink program design, ensuring a robust value proposition to align with their procurement, supply chain and company objectives. For us, this process has created healthy internal discussion around the challenges associated with traditional approaches, resulting in meaningful stakeholder engagement. Enabling innovation, supplier engagement and community impact will require continuous improvement through knowledge sharing and testing to drive the success of what we now refer to as “supplier inclusion.”

Gilead would like to receive your thoughts and feedback on the themes discussed in this paper. Please send all questions/feedback to supplierinclusion@gilead.com. We also recommend that current and prospective suppliers register on our portal at https://supplierinclusionportal.gilead.com.

We are proud to be members of the Institute for Supply Chain Management (ISM) Supplier Diversity Pharmaceutical Forum, Diversity Alliance for Science and the Western Regional Minority Supplier Development Council (WRMSDC).

References

“Supplier Diversity” Wikipedia The Free Encyclopedia. Wikimedia Foundation, Inc. 22 July 2004. Web 28 Sep. 2018. wikipedia.org/wiki/Supplier_diversity
(CVM Solutions, 2018) https://info.cvmsolutions.com/download-the-2018-state-of-supplier-diversity-reports
(CVM Solutions , 2017)http://info.cvmsolutions.com/download-the-2017-state-of-supplier-diversity-reports
(Connaughton & Gibbons, 2016) https://weconnectinternational.org/images/supplier-inclusion/HackettGroup_SupplierDiversity_2016.pdf
Schiele, Holger. How to distinguish innovative suppliers? Identifying innovative suppliers as new task for purchasing. Industrial Marketing Management, 7 November 2006. https://doi.org/10.1016/j.indmarman.2006.05.003