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Supplier Diversity Programs Expand in Light of Call for Social Reform

Supplier Diversity Programs Expand in Light of Call for Social Reform

June 18, 2021
Currently, companies dedicate just 7.2% of their spend to diverse-owned businesses but hope to increase that by 50% by 2025.

According to The Hackett Group, in response to the worldwide calls for social reform and racial equality, companies are making plans to dramatically expand their Supplier Diversity programs over the next few years.

The study, which surveyed more than 100 large global and U.S. companies across an array of industries,  reports that companies globally dedicate 7.2% of their spend to diverse-owned businesses currently, which is equal to $72 million per billion of total spend.

But by 2025, companies expect a more than 50% increase in their diversity spend goals, with an average target of 13% of their spend dedicated to companies across a wide range of under-represented diversity groups.

While the list can vary globally, most organizations include one or more of the following categories: minority-owned, women-owned, veteran-owned, service-disabled veteran-owned, historically underutilized business-zone located businesses, LGBTQ-owned businesses, and indigenous businesses.

 “As a direct result of the worldwide social reform movement this has become a board-level issue,” said Laura Gibbons, senior research director, Procurement Executive Advisory Programs for The Hackett Group, who co-authored the study. “Companies are seeing calls to action from consumers and employees to invest in areas of environmental, social and corporate governance. It’s encouraging to see that an increased focus on supplier diversity is a clear part of this effort for most companies.”

The study reveals several pivotal changes and opportunities that organizations must address to align with characteristics of top-performing supplier diversity programs. Nearly 30% of organizations say they are now setting formal diversity spend goals for the first time, in response to the increased focus on social reform and racial injustice in 2020.

By 2025, top-quartile supplier diversity organizations plan to spend 54% more of their total spend with diverse-owned businesses compared to median organizations (20% goal versus 13%).

Achieving these goals is ultimately dependent on the ability of organizations to include diverse suppliers in their sourcing opportunities. Currently, only 36% of procurement policies mandate inclusion of at least one diverse supplier in each sourcing event. Finding quality diverse suppliers will be a growing challenge for supplier diversity programs as program goals and ambitions rise. Organizations will also need to actively develop diverse suppliers. Currently, only 44% of companies allocate funds specifically for supplier development activities while another 39% of companies plan to do so.

Major spending increases are expected across different diversity groups including:

  • 77% said that they are planning an increase in spend with black-owned businesses
  • 66% with LGBTQ-owned businesses
  •  65% with women-owned businesses
  •  62% with Hispanic-owned businesses
  • 63% with service-disabled veteran-owned businesses   

Finally, the study offered seven areas of focus for companies hoping to expand their supplier diversity programs. These include:

  •  ensure enterprise alignment through collaboration with activities in other related areas
  •  invest in supplier diversity, with both budget and dedicated headcount
  •  join supplier diversity organizations
  •  invest in the development of diverse suppliers
  •  ensure high-quality data and reporting to measure program performance
  •  measure program ROI by going beyond diverse spend totals
  •  create policies to encourage success.

 “Starting, growing or improving an established supplier diversity program is top of mind for many procurement programs around the world,” said Tarun Puri, senior director at The Hackett Group and a co-author of the study. “But to truly succeed, it’s critical for companies to set the right scope for program activities and ensure that they have an adequate level of support.”

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