A step-by-step guide to creating a supplier diversity program

Owning the ESG (Environmental, Social, Governance) agenda has helped Procurement claim its seat at the table. Recent years brought increased focus to sustainable sourcing practices, sustainability metrics, and CO2 emissions along the supply chain.

And while Procurement teams in Europe have zoomed in on sustainability and environmental topics, Procurement teams in North America historically had a stronger focus on the social and ethical aspect of ESG. The first programs for battling social injustice through more inclusive government spending practices date back more than 50 years.

Today, these initiatives are often known as supplier diversity programs and consciously encourage and promote the inclusion of suppliers of a certain size or ownership structure in the Procurement process of public and private sector organizations. And while ethical reasons for doing so are still a valid argument, the rationale is becoming more economical.

In our recent survey, only 41% of respondents said their company has a program in place. There is room for improvement, and we believe that is important to further the understanding and knowledge around the topic so we can have a common perspective on the opportunities and challenges diverse suppliers create.

Establishing a supplier diversity program

Diving deeper into our ambition to make ESG topics actionable, our recent whitepaper ‘A practical introduction to supplier diversity’ provides an easy intro to supplier diversity, explains different perspectives on diverse suppliers across the world, and arms you with the arguments for building your own program.

You can download the full Whitepaper here.

A supplier diversity program is a business strategy that promotes the conscious inclusion of historically underutilized suppliers in the Procurement process. This includes small suppliers and suppliers that are at least 51% owned, operated, or controlled by an individual or traditionally underrepresented or marginalized group. The programs usually recognize women-owned businesses, minority-owned businesses, veteran-owned businesses, businesses owned by individuals with disabilities, and businesses owned by members of the LGBTQ+ community.

In our survey, respondents associate benefits like increasing their supply chain resilience, unlocking fresh innovation, or engaging more local communities with diverse suppliers. To reap those benefits, engaging diverse suppliers in a structured way is necessary.

10 steps for building a supplier diversity program

Supplier Diversity Programs are often part of the wider Environment, Social and Governance (ESG), Corporate Social Responsibility (CSR) or Diversity, Equity, and Inclusion (DEI) initiatives of an organization. Mostly, a dedicated team that either directly reports to the CPO, is part of a Procurement Excellence team or part of dedicated ESG team, works across spend categories to promote the initiative.

Below step-by-step guide will ensure you cover the main aspects of establishing a successful supplier diversity program.

1. Get aligned with the business strategy & secure management buy-in

Grassroot movements can be very powerful. In most corporations though, initiatives driven by top management have more visibility, more momentum, and more longevity. To create a successful supplier diversity program, it is therefore crucial to get top management buy-in and support. This is achieved much easier if the program aligns well with overarching corporate objectives, culture, and vision. Supplier Diversity is not just a Procurement initiative, it affects the entire organization. Building a broad consensus and support network will make it easier to develop a business case focused on the opportunities rather than the costs of running it.

Lastly, gaining the support from top management will also allow you to be bolder in activating the program through the ranks. Top level commitment means we can and should keep everybody accountable for their actions. Integrating supplier diversity targets into personal objectives is the ultimate commitment. And while we don’t need to link them in Year 1, it’s worth to keep pushing for it once the program is up and running.

2. Create a clear definition of who you want to impact

By aligning with your business and overall DEI objectives upfront, defining the scope of your program should be easy. There are many different types of small and diverse organizations across the globe. Your program should be specific about who you want to engage, and under which conditions they will be recognized. Your program can be as broad or narrow as you wish but should consider the different definitions of small diverse suppliers and available certification programs for those across your key markets. Establishing a clear definition and requirements will ensure your internal team and your external partners have clarity on the target audience of your program.

The intended impact of supplier diversity programs aligns very closely with the perceived value of working with diverse suppliers. An increased focus on the communities we serve, increased supply chain resilience are the main objectives.

3. Define the relevant metrics

After establishing who you want to impact, you need to define the metrics and KPIs that will help you measure and report on your progress. It’s good practice to start out with some key metrics and to steadily increase the granularity as your program matures. A simple dashboard or table stating the KPI, the nominal and percentage value, and the percentage increase or decrease are good starting points.

4. Establish your baseline

Without knowing where you started, you will not be able to see how far you have come. Once the key metrics for the program are defined, it is crucial to establish your baseline of how much you are already spending with whom and where. This will allow you to clearly understand where opportunities lie to grow existing relationships and where you need to start from square one. Especially understanding the categories and the current spend with diverse suppliers in them is important for identifying stakeholders that need to be brought on board. Working with peers, consultants, tech providers, or certification organizations will allow you to benchmark your baseline and define meaningful short and long-term targets.

5. Establish your objectives

The overarching goal, or vision and mission, for your Supplier Diversity Program will be derived from your business objectives and vary depending on the specific circumstances of your organization, including its size, industry, and current level of spend with diverse suppliers. Once the scope, metrics, and baseline are established, it is time to define the more operational objectives of the program.

Your objectives shouldn’t be lofty but need to be SMART. By creating specific, measurable, achievable, realistic, and timely targets that can be easily quantified and communicated, you can steer your program and confidently report on your progress. Increasing spending with diverse suppliers by 5% over the next 12 months in Marketing is much more tangible than simply stating ‘increase spend with diverse suppliers’.

Goals can include broader topics like achieving a defined percentage of the total spend impacted by Procurement with diverse suppliers or to create a PR campaign that keeps customers and stakeholders informed about the initiative. Objectives can also be very process orientated like including at least one diverse supplier into the tender process in a specific category or mentoring a specified number of suppliers. The key is that you educate and align the Procurement team and the organization on the targets to give them clear direction and guidance on expected behaviors.

6. Create a corporate supplier diversity policy

Once you have established the outline of the program and its objectives it is important to codify the approach in a written policy. This provides the program with the necessary formal authority for driving change. The policy should describe the program, the defined scope, the short and long-term objective, and the sourcing processes to achieve these. The policy will help you communicate the program internally and externally in a consistent and transparent way, which solidifies the managerial commitment.

The policy will be especially helpful for your Procurement team across the world. By clearly stating what supplier diversity means for the company, the desired goals it wishes to achieve, which suppliers qualify, and which ones do not, and how standard processes are amended for diverse suppliers, makes the policy a practical blueprint for the organization. Especially the implications on sourcing decisions are key for operationalizing the program.

7. Refine corporate policies and processes for diverse suppliers

Procurement processes are designed to ensure checks and balances are in place that protect the business from risks and ensure compliance. Large organizations design supplier onboarding, sourcing, contracting, and purchasing processes with other large organizations in mind, not small and diverse suppliers. When establishing a supplier diversity program, take stock of all the existing processes and requirements in the end-to-end procurement process and decide which of those might be contradicting your objectives. Now you can create a lighter version for those that takes the unique requirements of small and medium-sized business into account. Especially onboarding and contracting requirements have room for simplification.

Sourcing is a crucial process that can be modified and simplified to the benefit of small diverse suppliers. In some instances, the need for running a sourcing process can be skipped completely if business is awarded to certified minority suppliers. Work with your Legal and Risk Management teams to find the right balance between security and opportunity.

8. Identify enabling tools

Building a successful Supplier Diversity Program requires technological support. You need to identify suppliers, manage their information, keep them updated, and leverage them in your processes. In small organizations with less than 200 suppliers this can be done manually, but if you have thousands of suppliers, you need a robust supplier management system. You can put simple questions into your supplier registration process to capture initial information. But you also need to ensure certifications are in place and up-to-date during the qualification process. This can be done internally by supplier management teams, but there are also specialized providers for enriching your supplier records with diversity information that keep track of certifications and changes in ownership, and therefore diversity eligibility, on your behalf.

Spend analytics tools allow you to build custom dashboards to track and visualize your defined metrics. But tracking information is only half the job. You first need to embed diversity information in your day-to-day sourcing and purchasing decisions to actively drive your strategy and improve your metrics. Integrating diverse suppliers into the tender process is key for giving them equal opportunity to compete for procurement opportunities. Analyzing different award scenarios based on diversity-related criteria is a powerful way for objectively evaluating the impact of working with diverse suppliers for providing required goods and services. Lastly, by flagging diverse suppliers in the purchasing system, Procurement can actively promote their use towards stakeholders.

9. Craft a clear change management & communication strategy

A Supplier Diversity Program touches the entire organization and many different stakeholders like business users, category managers, purchasing, and existing and future suppliers to name a few. Setting up a successful program requires taking them all on the journey and communicating frequently and concisely what the goals of the program are, what initiatives will be taken, and how they affect them.

Start by mapping out the different stakeholder groups, the expected changes for people, processes, and, potentially, technology, the degree of impact of these changes on the different stakeholders, and their communication and training needs. Also, brainstorm all the questions your stakeholders may have. Plot all this information in a spreadsheet to identify the hot topics you need to address. Combined with your supplier diversity policy, this should help you craft a consistent and compelling narrative and an impactful communication and change strategy.

10. Measure, review, and refine

We all love it when a plan comes together. To ensure the program is on track, continuous progress tracking on the established metrics is required. With the support of spend analytics tools, a spend dashboard focused on spend with diverse suppliers and other KPIs can ensure no manual reporting requirements arise. Define a clear cadence, quarterly or bi-annually, to report back to senior management on the progress and the achieved results of the program.

It's also true that most likely you won’t get it completely right the first time around. The periodic reviews therefore provide you with an opportunity to review not only your progress, but also to refine and tweak your approach. As your program matures, engage other companies with similar programs and attend external events to share your experiences and learn from others. This will ensure you receive feedback and input that allows you to nurture your program.

Making your supplier diversity program actionable

Procurement is a force for good and has always been a key driver for positive change. Expanding from sustainability to supplier diversity will further establish Procurement as a progressive function that can define and operationalize business objectives into reality through supplier engagement and sourcing activities.

Establishing, maintaining, and growing a well-rounded supplier diversity program requires an investment of time, energy, and resources. As with sustainable sourcing, it is important to make sure that the program connects to corporate goals and that the vision is constantly communicated by senior leadership across Procurement, stakeholders, and suppliers.

And while increasing supplier diversity is the right thing to do, it is also an investment into a more innovative, cost effective, and resilient supply chain. Our whitepaper ‘A practical introduction to supplier diversity’ gathers all the insights and arguments to start your own journey towards a more diverse and inclusive supply chain in one place. Get your free copy now.