Supplier Diversity – 3 Mistakes to Avoid While Identifying Spend Categories
Published on 29 Jul, 2016
Identifying right spend categories to source from Minority & Women’s Business Enterprise (MBWE) suppliers is a crucial element of a successful supplier diversity program. However, there are three basic mistakes we have seen organizations mostly make while figuring out what to purchase from whom. Make a note.
Most conversations among procurement professionals and supplier diversity experts on how to conduct a successful supplier diversity program are usually rife with two set of questions – whom should we benchmark against, and how to source such suppliers. In fact, we had also discussed in our earlier blog how to benchmark correctly to set the organizational goals and chart out the diversity plan.
While these are indeed critical questions to ask, identifying and prioritizing right spend categories – aligned with supplier availability and the business objectives – is a crucial link between the two stages. Unfortunately, it is also most often a hastened and neglected stage, which generally leads to a widespread problem of “we are unable to find the right diverse suppliers”, and misalignment with the organization’s conventional procurement tactics.
In our experience working closely with procurement professionals, we have noticed three fundamental mistakes that plague any supplier diversity program, especially while prioritizing spend categories.
Note and avoid.
Focusing just on compliance and peer recognition at the cost of real benefits.
We have seen several instances where an enterprise is quite focused on running its supplier diversity program just to meet the government regulations and perhaps, gain peer and industry recognition. They usually take the easier route to select low-priority categories, as their larger spends in broader categories are anyway conventionally conducted by their procurement teams. The required attention to detail is missing, and it’s just the matter of getting certain numbers met and boxes ticked in their performance measurement metrics. Obviously, such organizations rarely see the real benefits of supplier diversity programs.
Using simpler performance metrics to measure progress and not aligning objectives at operational level.
The ineffective route of selecting low-priority spend categories is further marred by loosely calculating broader and traditional metrics in defining organizational spend categories. It is not uncommon to find organizations excluding large spend categories based on pre-conceived, ill-informed and under-researched notions of such categories not being realistic opportunities to tap supplier diversity. These exclusions are generally not standardized and are usually driven by guesstimates, unfortunately.
Moreover, we have noticed clear misalignment between the strategic objectives of supplier diversity programs and operational tactics. As per Hackett Group’s study, while 90 percent of the study’s participating companies relied on metrics of ‘Percent Spend with Diverse Suppliers’ or ‘Recognition by Industry’, just about a tenth actually assessed the impact of their supplier diversity programs on their revenue or market share. Quite a lot of such companies, thus, continue to grapple with the basic decision of how many diverse suppliers they actually need to work with to gain effective results. Naturally, by tracking the incorrect metrics and not driving the on-ground efforts to maximize the impact of such programs, these enterprises fail to align program objectives with organizational action and business results.
Not developing a comprehensive understanding of specific category profiles.
When the required attention to detail is missing, and incorrect assumptions and metrics drive the agenda, most of the organizations fail to really understand fundamental details on what is bought, from whom it’s purchased, what are its specifications, its cost dynamics, how the spend is to be managed internally, and which MWBE suppliers can be roped in. For effective strategic procurement, we reckon enterprises also need to analyze prevailing market trends and economics that significantly impact negotiations and purchases. Not studying category profiles and conducting relevant opportunity analyses can reduce an organization’s ability to leverage its supplier diversity program, and perhaps be counterproductive to its overall procurement objectives.
Our procurement research analyst teams have worked with organizations across industries to help overcome such key diversity program challenges — identifying the correct categories to focus on, finding diverse suppliers, verifying & understanding diverse suppliers, as well as developing and tracking performance metrics for supplier diversity programs.
In case you are interested to know how we can enable and support your supplier diversity programs — and help you maximize business benefits — do let us know. We’d be glad to get on a call for a quick chat. Feel free to drop us a line or check out how we can help.