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Supplier diversity and supplier management: Don’t choose, do both

07/09/2019 By and

Supplier diversity connects to many trends occurring in supplier relationship management (SRM) these days, including developments like the rise of digital transformation, supplier networks and supplier collaboration.

As a business trying to start the supplier diversity process, it can be a daunting task to wade through diverse-supplier certifications and classifications to help you find a certified minority-, woman-, veteran- or LGBT-owned vendor for your company. But it can be worth it.

The methods that have made supplier diversity successful over the years now apply to other areas of procurement as well. And a Hackett Group’s supplier diversity study found that nearly all diverse suppliers meet or exceed expectations and bring additional benefits, like new revenue opportunities.

Supplier diversity isn’t about checking boxes to say you’ve done it; it’s about adding value for both companies. The best practices and solid outcomes from supplier diversity have informed how companies see supplier development overall. So you don’t have to choose. You can do both — and succeed.

Start with Technology

In some ways, supplier diversity has been a leading example of enriching data and fostering spend analysis because you need that information to have a successful program.

“The first step with any diversity program should begin with understanding your spend and your current vendors,” a Spend Matters analysis on the topic said. “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).

“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 … which will match this record against its 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 and compare against other databases (e.g., OFAC) to discover other potential issues with your vendors.”

The technology areas that have helped get supplier diversity programs going (better data, master data management, and spend analysis and reporting) also help any business looking to improve supplier management.

Supplier Networks and Collaboration

Supplier networks are all the rage these days because it’s valuable to have a vetted supplier that can meet your needs and add to the bottom line. And companies are relying more and more on their suppliers to be a true partner.

The ways that supplier diversity has been most successful (buyers-suppliers collaborating to grow the supplier, building relationships, driving innovation) are now being championed for mainstream supplier management, which is seeing the trend of businesses wanting suppliers to collaborate with them and add value to both parties.

The supplier relationship management (SRM) firm you choose should have a robust network of diverse suppliers among its stable.

The next article in this series will look at what companies can do to build supplier diversity and supplier management in tandem.