7 Supplier Diversity Challenges, Part I

PurchTips - Edition # 121 March 6, 2007

By Charles Dominick, SPSM

What Are The Challenges Of Using Diverse Suppliers?

As corporate social responsibility becomes more widely discussed, more organizations are asking purchasing departments to increase supplier diversity spend. But supplier diversity programs have unique challenges.

Challenge #1: Deciding what types of suppliers will be considered diverse suppliers. While this may seem like a no- brainer, it is actually very important to think through the options at the very beginning. Not recognizing one supplier group as diverse suppliers can cause problems later. Recognizing diverse supplier groups later can negatively impact your year-over-year comparison of metrics. Here are some common types of suppliers considered to be diverse suppliers:

• Businesses that are at least 51% owned, controlled and operated by an ethnic minority, ethnic minorities, a woman, women, a veteran, or veterans
• Small businesses
• Business that are located in formally recognized economically distressed areas

Challenge #2: Tracking the use of diverse suppliers. There’s an old business saying “What gets measured gets done.” So to ensure actual use of diverse suppliers, you need an easy way to determine how much your organization is spending with them.

There is a lot of “behind the scenes” work in order to make this happen, including:

• Setting up fields in your purchasing system to accommodate a supplier diversity classification
• Identifying diverse suppliers in your system and updating their profiles with the appropriate diversity classification
• Revising your supplier registration process so that the appropriate diversity classification is applied to new suppliers entered in the system
• Having your information systems specialists create custom reports based on the entries in the supplier diversity classification fields

In addition, you also must strategize how to handle “double counting” supplier diversity spend. Double counting can occur when doing business with a supplier that qualifies for two or more diversity classifications,such as a supplier that is both a woman-owned business and a minority-owned business. You need to decide whether to pick one of those classifications for reporting purposes in accordance with a hierarchy, divide the spend among the classifications, or report the whole amount in multiple categories.

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