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Measuring the ROI of Supplier Diversity Initiatives

Published on
April 5, 2024 at 9:12:55 AM PDT April 5, 2024 at 9:12:55 AM PDTth, April 5, 2024 at 9:12:55 AM PDT

Supplier diversity isn't just social initiative — it's a smart business decision. Businesses that prioritize this, aim to build a supply chain as diverse as their customer base and local communities. Sure, setting up and maintaining a solid supplier diversity program takes planning and time, but how do you calculate how much it's actually worth to your organization?

The Business Case for Supplier Diversity

Before we get knee-deep in ROI metrics, let's talk about why having a diverse set of suppliers is good for business. First off, these diverse suppliers are creative and adaptable, which often means less expense and quicker turnarounds.

By bringing more diverse suppliers into the mix, you help increase the competition for contracts. This doesn't just boost the standard of products - it can also save you money. <Enter COVID-19 Trigger Warning Here 😂> Keeping your options open with various sources doesn't just make our supply chain sturdy and nimble, it's a lifesaver in unpredictable times. According to this Accenture publication, "If supply routes are shut down in one part of the world, a company can quickly shift to alternate suppliers. Or some suppliers may adjust more quickly to emerging needs than others."

But that's not all! They also explore new markets, bring fresh talent to the table, and build an even better brand reputation. If your supply line mirrors your diverse customer base, you're setting yourself up for winning more business deals and improving customer satisfaction.

Understanding the Landscape

The first step is to conduct a thorough analysis of your current supplier network and identify where there are gaps in diversity. This includes assessing supplier demographics to ensure representation across gender, race, ethnicity, and other diverse categories. Understanding this baseline is crucial for setting improvement targets and measuring progress.

Define Your Key Performance Indicators

KPIs are the benchmarks that will tell you whether your supplier diversity initiatives are successful or not. They are valuable as they give you a clear picture of the impact of your efforts and where there might be room for improvement. Your KPIs will depend on the specifics of your program, but some common ones include:

Diverse Supplier Spend

This is the most direct measure of your supplier diversity program's impact—what percentage of your total procurement spend goes to diverse suppliers? Tracking this over time will show if you are meeting your goals and increasing diversity in your supply chain.

Contract Awards

Compare the number and value of contracts awarded to diverse suppliers against the number and value of all contracts awarded. This will show if diversity is a factor in your procurement decisions.

On-Time Delivery and Cost Savings

Analyze the performance of diverse suppliers to see if they bring cost savings or improved on-time delivery performance. This can be a strong argument for the value of diversity in your supply chain.

New Market Reach

Look at the contracts won with diverse suppliers and see if they are helping you enter new markets or serve new customer segments.

One important KPI, according to Vendorful, is Internal stakeholder satisfaction.

An important measure in general, and a good way of measuring how your organization thinks the supplier diversity program is going.

Data Collection and Analysis

To effectively measure ROI, you need a robust data collection process. This includes not only tracking the diversity of your suppliers but also keeping detailed records of their performance against your KPIs. Data should be collected regularly and analyzed in real-time where possible to allow for quick adjustments to your strategies.

The Technology Component

Specialized software can streamline data collection and make analysis more efficient. Tools that offer spend visibility, supplier performance tracking, and diversity reporting can provide the necessary data to inform strategic decisions. If you don't know where to start when it comes to supplier diversity procure-tech, then check out Supplier.io, Scoutbee or Simfoni.


Don't ignore the "Soft Metrics"

Not all the benefits of supplier diversity can be quantified in dollars. Soft metrics, like brand enhancement and employee morale, are still vital components of your program's ROI. A supplier diversity program can improve your corporate reputation and make your company more attractive to prospective employees. These impacts are harder to measure but can still bring tangible benefits to your bottom line.

Brand Loyalty and Market Differentiation

Conduct surveys and market research to understand how your supplier diversity initiatives affect customer perceptions and loyalty. Are customers more likely to do business with you because of your commitment to diversity?

Employee Engagement and Recruitment

Track employee satisfaction and engagement with your supplier diversity initiatives. Are you more successful at recruiting and retaining a diverse workforce? Happy, engaged employees often equal a more productive and innovative company.

Communicating Your "ROI Story"

Finally, the most critical part of measuring ROI is telling the story of your program's success. Use both quantitative and qualitative data to demonstrate the financial and non-financial benefits of supplier diversity. Create compelling reports and presentations that showcase the positive impacts of your program on the company's objectives and strategic goals.

Case Studies and Success Stories

Share specific examples of how diverse suppliers have brought value to your business, such as introducing innovative products or helping you enter new markets. These stories can bring your metrics to life and make the impact of diversity feel tangible and real to stakeholders, investors and your customers.

Continuous Improvement

Always be looking for ways to improve your program and its ROI. Seek feedback from your diverse suppliers and your internal stakeholders, track industry best practices, and stay current with diversity and inclusion advancements. A program that is always evolving is more likely to deliver sustained ROI.

Measuring the ROI of your supplier diversity initiatives is challenging but not impossible. With the right KPIs, data collection processes, and an understanding of the diverse benefits that diversity can bring to your organization, you can effectively demonstrate the value of your program. Remember, supplier diversity is more than a business requirement—it’s a path to a more inclusive and ultimately more profitable future for your company.