The United States first introduced the concept of supplier diversity programs in 1953, when it set up the Small Business Administration to ensure that small companies were given an equal chance to bid on federal contracts. This approach broadened out over time to include race, gender, veterans and lesbian, gay, bi-sexual and transgender communities too.
In fact, to work with the US Federal Government today, it is a legal requirement for companies to have suitable supplier diversity policies and practices in place. But the same is not true elsewhere in the world, where local cultures and legislation mean it is impossible to adopt a one size-fits-all approach to the issue.
However, many of the traditional benefits associated with an inclusive approach apply just as much to suppliers as they do to staff. At the recent WEConnect International Europe conference in London, Joe Jones, principal consultant at sustainability consultancy SustainIt, outlined four of them:
- Access to innovation and creative thinking
- Commitment over and above the call of duty, which improves service quality
- New voices around the table driving better approaches
- Cost savings.
Interestingly, when a varied group of sustainability, corporate services, procurement, HR and global supplier management professionals were surveyed, a huge 81% put innovation and creative thinking, at the top of the list of reasons for going down this route, he said.
But Justin Lambert, head of procurement at pharmaceutical giant Roche and board director of WEConnect Europe, a non-profit organisation that aims to connect female-owned and-led businesses with procurement teams in large corporations, also threw another couple of ideas into the pot. In his view, supplier diversity is important as it enables organisations to reflect the community in which they are based. He explained:
Small companies generate more employment than large corporates, which tend to reduce headcount and employ fewer young people. So working with them has a positive impact. Also if you’re dealing with customers and can demonstrate that you’re putting something back into the community, it’s good for your brand.
IBM’s international program
One vendor that has already implemented a supplier diversity programme in more than 170 countries around the world, meanwhile, is IBM - although the firm’s US scheme is by far the most mature. In fact, according to Ross Mandiwall, procurement manager for the UK and Ireland, the company views the scheme as a “strategic business imperative due to the value it adds to the business”.
As a result, by 2010, it was already spending $2.1 billion with diverse suppliers, a figure that had risen to $2.6 billion by 2015. In the UK, some $14 million goes into this area, 64% of which benefits female-owned businesses.
But Mandiwall acknowledges that, as the firm’s total procurement expenditure in Britain is $1 billion, “there’s still work to be done”. Such work differs very much depending on location, however, he said:
Definitions of diversity differ from country-to-country. Local legislation drives what local diversity programmes look like and you have to make local allowances. But for every RFP [request for proposal] that goes out from IBM, the bidding process must include one diverse supplier. It’s not necessary that they win, but they have to be there. And exceptions need to be agreed by a supplier manager in the supplier council so it has to go through governance.
But RFPs are not the only vehicle by which IBM finds diverse suppliers. On the one hand, it works directly with government programmes and organisations ranging from universities and non-profits such as WEConnect. On the other, it encourages its Tier One suppliers to engage with diverse businesses too. Mandiwall explains:
We sometimes contract directly with Tier Two suppliers ourselves, but we also suggest possible Tier Two providers to Tier One players and actively ask them which Tier Twos they’re working with. Because our aim is to increase our annual spend on diverse suppliers, we have goals and reporting that takes place quarterly and annually as we need transparency.
Intel’s Tier Two scheme
Another large tech company that is putting a lot of resource into this area is Intel. Its chief executive Brian Krzanich has committed to a direct spend of $1 billion per year on diverse suppliers by 2020. This expenditure covers any sub-contracted services that are provided directly to the company, as opposed to payments for subcontracted work that cannot be tracked to a specific project or activity.
Because Intel partners with 16,000 suppliers around the world though, it does not contract directly with small firms itself due to the management overhead involved. Instead it has introduced a “Tier Two” programme that requires its strategic providers to work with smaller, more diverse businesses in an aggregation role.
Performance reviews are held quarterly, half-yearly or annually depending on each “Tier One” player’s operations, but diversity is a scorecard category that they are measured against. They are also expected to report their direct and indirect spend in the area via an online platform. Maytal Perpinyal, Intel’s commodity manager for regional strategic sourcing, explains:
Reporting is vital. It’s a case of ‘it’s data or it doesn’t exit’. We want to know how many Tier Two players they’re working with, how much they’re spending and where. But only certified, direct Tier Two suppliers can be counted towards our goal.
Although the company’s supplier diversity scheme has been running in the US for 20 years, it was only rolled out internationally a couple of years ago, while its Tier Two programme only kicked off overseas at the start of this year. Because diversity certification is less advanced in the rest of the world than it is in the US and many providers “have not mapped out their supply base to identify diverse suppliers” though, the situation is “more challenging”, says Perpinyal.
Nonetheless, the Tier Two initiative was launched with two large suppliers operating in Europe, the Middle East and Africa as well as existing US providers keen to take the scheme international. Training was provided to key executives about what the programme entailed, what Intel’s reporting expectations were and how to use the reporting template.
A supplier workshop for organisations in the same sector was also held for networking purposes. By the end of the second quarter, more than $7 million of expenditure had been identified with certified Tier Two players.
As to the value of putting a Tier Two programme in place, Perpinyal believes the benefits are many. Not only does it create awareness of the supplier diversity issue throughout your own supply chain, but it trickles out across the industry too, creating more opportunities for smaller businesses. She continues:
Corporates tend to try and reduce their supply base to increase efficiency. So a Tier Two programme means you can diversify your supply chain while maintaining a manageable supply base as your Tier One suppliers manage multiple suppliers instead. And they get excited about it too as it makes them look good.
Best practice tips
SustainIT’s Jones, meanwhile, suggests the following six steps for companies wanting to set up a supplier diversity scheme:
- Get buy-in from the board: Commitment needs to come from the top if you are to introduce cultural change
- Clarify your objectives and build a business case: It always helps if you know what you want to achieve and establish specific goals and requirements to get there. Moreover, to ensure the initiative is sustainable, ensure it is aligned with your overall business strategy
- Keep definitions and classifications simple: This can be hard to do, especially as your requirements grow, but keeping your objectives in mind will help
- Create a pilot project: To introduce a new scheme into Europe, Jones recommends undertaking a trial in the UK - not only are pilots already common practice there, but people are also used to working with metrics and data. Once the data is available, it becomes easier to demonstrate the benefits and illustrate what you are trying to do to help overcome internal resistance
- Undertake supplier audits: Audits enable you to understand your supplier base, what it is doing in diversity terms and the nature of any particular issues. Also engage in conversation with your suppliers and share information rather than it simply being a one-way street
- Don’t be afraid to use spreadsheets to collect data: When first starting out in this area, it is not necessary to spend lots of money on expensive enterprise software to gather and store data. Spreadsheets will be fine, but do ask for help from data experts if you get stuck.
As for the secrets to success, Jones believes these are:
- Rather than ask lots of questions, ask the right ones, both of yourself and your suppliers. A pertinent one for you might be ‘why are we doing this?’
- Make it as easy as possible for providers to work with you, for example, by removing unnecessary bureaucracy
- Network and share information with peers as everyone wants to work with the best suppliers and you will be able to learn a lot from each other
- If resources are limited, join forces with organisations such as WeConnect and MSDUK, a non-profit that supports inclusive procurement
- Use data to make comparative analyses in order to demonstrate value and break down internal resistance
- Start small but build a strategy that can grow in length and depth.
But Roche’s Lambert has his own checklist of must-dos too. These include:
- Define what diverse means to your organisation and to your customers and ensure both agendas are linked
- Getting this kind of initiative right is all about people, relationships and opportunities and how they intertwine together rather than process or technology. Developing cooperative relationships with colleagues across the business ranging from corporate social responsibility and external affairs to business unit managers is vital to ensure they see the value of the initiative so it can gain traction
- Think positive action, not positive discrimination. The programme should not be about metrics or giving one group an advantage over another. It is about providing opportunities to underrepresented groups in a bid to even the playing field.
Given the huge focus on employee diversity and inclusion among European companies at the moment, it is only a matter of time before the issue of supplier diversity starts creeping up the boardroom agenda too. Luckily, there are already lots of lessons that can be learned from large US corporates such as IBM and Intel, which already have mature domestic programmes in place – although given the lack of legislative support, international expansion is proving more tricky.