“What is the ROI of this program?”
This is the million-dollar question that supplier diversity managers and procurement leads hear constantly.
It is no small task to quantify the financial results and economic impact of a corporate supplier diversity program. Companies track a few different metrics to measure their ROI, including:
- Savings when a diverse supplier is selected over the next-lowest bidder
- The dollar value of customer and government contracts that mandate Tier 2 reporting
- Increase in business-to-consumer sales based on a supplier diversity program purchasing decision
Although all of these metrics offer value, there are two issues. One, it is difficult to arrive at a specific dollar amount without making multiple general assumptions along the way. Two, these methods do not consider residual savings, sales, retention, innovation, social impact, and other intangibles.
Economic Impact Reports
Another way to strengthen the quantitative business case for supplier diversity is to measure the effects your program has on the economy through specific supplier awards. Here are the primary data points you should collect from diverse-owned suppliers:
- How many jobs did you create this year?
- What level of workforce diversity have you achieved?
- What percentage of your spend is with diverse-owned companies?
To gather this information, companies must survey diverse-owned suppliers on an annual basis. The data gathered will illustrate to leadership how the suppliers, program, resources, and commitment are strengthening the economy on a local, state, and national level. This quantifiable data strengthens the business case far beyond abstract notions of corporate social responsibility.
There are multiple effective examples of economic impact studies that measure diverse businesses as a part of national and state economies. These studies measure jobs, taxes, sales, and indirect financial expenditures. Below is an example of economic impact analysis findings as well as links to a full report.
Example: Blue Cross Blue Shield
Blue Cross Blue Shield of Massachusetts commissioned an economic impact report from supplier.io in 2020. They know diverse businesses help create vibrant, thriving communities. For 20 years, the Blue Cross supplier diversity program has been a critical component of its business success as well as a cornerstone of its community and diversity efforts. With this economic impact analysis, the company hopes to demonstrate the breadth of its supplier diversity program and the impact its efforts have had in the communities it serves and on the broader economy.
Key highlights include:
- Blue Cross's direct diversity spending totaled $43 million, growing 22.9 percent since 2016. Of this, $11.5 million was spent with small and diverse suppliers in Massachusetts.
- The company's purchases with small and diverse businesses contributed $82 million to the national economy, up from $67 million in 2016.
- Blue Cross's direct spending with diverse businesses supported 640 jobs nationwide and nearly 200 jobs in Massachusetts.
- $37 million in salaries and benefits were paid to employees from the jobs supported by Blue Cross's supplier diversity program.
Blue Cross's supplier diversity program is part of its broader commitment to addressing equity and racial justice.
Would you like to be able to visualize your company's impact on diverse businesses and their communities? Check out the Blue Cross Blue Shield of Massachusetts 2020 Supplier Diversity Economic Impact Report to see how we helped uncovered deep insights into their diversity program’s impact on the communities they serve with our economic impact analysis.