Supplier diversity has been around and evolving for more than 50 years. Your program has been around for less time (unless you’re IBM), but it is still an important part of the goal to level the playing field for minorities, women, LGBTQ folks, veterans, and other marginalized business owners.
We talk about the importance of removing barriers and increasing access to capital, networking, and other resources. We implement programs to give diverse businesses the same opportunities as their majority-owned counterparts. We celebrate our successes in terms of diverse spend and economic impact. But are our supplier diversity programs really doing as much as we think they are?
In a recent study commissioned by the Michigan Minority Supplier Development Council (MMSDC) using research by supplier.io, the data shows a stark reality: If minority-owned businesses (MBEs) continue to grow at the current rate, it will take over 333 years for MBEs to achieve revenue parity with white-owned businesses.
Changing that trajectory requires quadrupling diverse spend within the next 20 years. At first glance, that sounds daunting. But what if our supplier diversity programs have more room to grow than we realize? What if average performers—by definition, the majority of supplier diversity programs—increased their spend goals and supplier engagement? What if industry leaders set their sights even higher?
We’ll be talking about the 333 Years to Parity report more in the coming months. For now, let’s talk about what it means to be an average performer versus an industry leader, and how both types of programs can move the needle.
Somewhere along the line, “average” has taken on a negative connotation. People hear that their efforts are average and equate that to failure.
In reality, average simply means you’re in the middle of the bell curve. Your performance is midway between two extremes.
Let’s talk about what it means to be an average performer in the context of supplier diversity. It means you’re putting in effort and seeing results. Your program has some economic impact and your company sees some benefits. These are good things!
Young supplier diversity programs, in particular, should look to industry averages for guidance when setting those initial KPIs.
The Downside of an Average Supplier Diversity Program
The potential dangers in being satisfied with an average supplier diversity program come from three places:
- Overall performance is weak, so an average program is not effective.
- You don’t actually know what average means in context.
- Thinking today’s average will always be good enough.
First, if your industry has poor adoption and implementation of supplier diversity programs and best practices overall, then an average performer is still a low performer. For example, suppose diverse spend in your sector averages $100,000 per year. That is an extremely low benchmark to reach the middle of the bell curve and does little to advance toward a truly inclusive marketplace.
Second, without context, how do you know what average actually is? How do you know where your supplier diversity program ranks among your peers? If you set your diverse spend goal at 5 percent of overall spend, does that put you above or below the average in your industry? If diverse suppliers make up 3 percent of your supply chain, is your company ahead of or behind the average?
Third, sometimes being content with average can be an excuse to stop growing. What constitutes average now should not be the same in five years. As the 333 Years to Parity report shows us, maintaining the status quo will not bring revenue parity to MBEs in our lifetimes. Our collective goal should be to grow and evolve our programs so that the bar for “average” continually rises.
A Real-World Example of “Average” in Context
Let’s look at a real example of the current average using Supplier Diversity Benchmarking, supplier.io’s new tool powered by data across more than 450 businesses, over a trillion dollars of annual spending across millions of suppliers.
Aggregate data for the energy sector shows that the average diverse spend is 9.4 percent of overall spend. Additionally, diverse suppliers make up 4.8 percent of overall suppliers used on average.
With this information, companies in the energy sector can evaluate their supplier diversity programs to determine how they measure up. Although the energy sector is one of the highest performers in supplier diversity, that data also shows how far there is to go to reach true parity.
Being an average performer is fine. Necessary, even. After all, the majority of supplier diversity programs will fall in the average range. Just be sure that “average” means what you think it means, and that you continue to push the average to higher levels.
While average is normal, most of us want to be above average. We want to break the status quo. We want our efforts to have a greater impact, to inspire others to achieve more. We want to be leaders in the field.
Best-in-Class Supplier Diversity
As our supplier diversity programs mature, the focus might turn from establishing a sustainable program to achieving best-in-class status. Becoming an industry leader in supplier diversity means creating a strategic plan, committing resources, thinking outside the box, and relentlessly pursuing inclusive sourcing. It also means knowing what others in your industry are achieving so you can both aspire to and be inspired by their results.
Real-World Averages for Industry Leaders
Let’s look at the energy sector again, for example. Supplier Diversity Benchmarking provides best-in-class data, averaging the top 20 percent of values. According to that data, supplier diversity leaders in the energy industry have a diverse spend of 17.6 percent, and diverse suppliers make up 10.9 percent of the supply chain.
Compare those numbers to the average performance listed above. The differences are significant. Knowing what the leaders are achieving in supplier diversity, how do you feel about your program’s goals? Is it time for an adjustment? A new strategic plan?
Consider that, eventually, the goal is for those diverse spend and supplier percentages to become the new average. Is your program built and supported in a way that makes the new average not only achievable but also sustainable? Is your company committed to being an industry leader when the average supplier diversity spend is 20 percent of overall spend?
Keep Moving the Needle
If we genuinely mean for supplier diversity to translate into revenue parity, then today’s industry leader results should be tomorrow’s averages. Whether your supplier diversity program is an industry leader or falls in with the average crowd, it can always be better, stronger, more effective, and more impactful.
Through strategic planning, clear goals, and genuine commitment, we can keep moving the needle.