In response to worldwide calls for social reform and racial equality, companies on both sides of the Atlantic are making plans to double their spend with diverse suppliers by 2025; as well as expand their supplier diversity programmes over the next few years, confirmed a new study.
According to The Hackett Group’s study, companies globally currently dedicate 7.2% of their spend to diverse-owned business currently, which is equal to $72 million per billion of total spend. But by 2025, companies expect more than a 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 organisations include one or more of the following categories: minority-owned, women-owned, veteran-owned, service-disabled veteran-owned, historically under-utilised 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,” stated 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.”
SETTING DIVERSITY SPENDING GOALS
The study reveals several pivotal changes and opportunities that organisations must address to align with characteristics of top-performing supplier diversity programmes. Nearly 30% of companies 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 organisations plan to spend 54% more of their total spend with diverse-owned businesses; compared to median companies (20% goal versus 13%).
Achieving these goals is ultimately dependent on the ability of organisations to include diverse suppliers in their sourcing opportunities, noted the study. 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 programmes as goals and ambitions rise. Organisations 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.
Organisations are also becoming more inclusive and intentional with the diversity groups their programmes target; with 53% of companies reporting a greater focus on spending with specific diversity groups. Nearly a third of all tier-1 diversity spend currently goes to women-owned business, the study found. Around 13% goes to Black-owned businesses; 11% to Asian/Indian-owned; and 9% to Hispanic-owned.
DIVERSITY PROGRAMME EXPANSION PLANS
While women-owned businesses are currently the top diversity category globally, major spending increases are expected across different diversity groups. For example, 77% of business leaders said that they are planning to increase spend with Black-owned businesses; 66% with LGBTQ-owned businesses; 65% with women-owned businesses; 62% with Hispanic-owned businesses; and 63% with service-disabled veteran-owned businesses.
Finally, the study offered seven areas of focus for companies hoping to expand their supplier diversity programme. These included: ensure enterprise alignment through collaboration with activities in other related areas; invest in supplier diversity, with both budget and dedicated headcount; join supplier diversity organisations; invest in the development of diverse suppliers; ensure high-quality data and reporting to measure program performance; measure programme ROI by going beyond diverse spend totals; and create policies to encourage success.
“Starting, growing or improving an established supplier diversity programme is top of mind for many procurement programmes around the world,” said Tarun Puri, Senior Director at The Hackett Group and co-author of the study. “But to truly succeed, it’s critical for companies to set the right scope for programme activities and ensure that they have an adequate level of support.”
More than 100 large global and US companies across an array of industries participated in The Hackett Group’s 2021 Supplier Diversity study, with a median global revenue of $11.8 billion. Click here for more information.
Although the UK, is lagging behind countries like the US in supplier diversity, here’s some useful advice on why organisations should make a start and how.
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