You’d be hard pressed to find a major corporation today that doesn’t have some form of supplier diversity initiative. A key component of these programs is the periodic reporting of progress against established goals and objectives. As more organizations move from compliance-driven to market-driven programs, they’re raising the bar in program investment, management, marketing and reporting of performance metrics.
These corporate trendsetters provide their investors, board members, government agencies and other stakeholders real value: a baseline from which to evaluate and benchmark supplier diversity program performance and impact.
In my nearly 20 years in supply chain and procurement as a management consultant and former chief procurement officer, I have had the opportunity to witness an evolution in supplier diversity reporting among the best companies, which has resulted in a shift from unsophisticated, manual processes that limited scale and data accuracy to scalable, technology-enabled processes that greatly improve accuracy and reliability. I believe this trend will continue.
Here are four factors driving this increased sophistication:
1. Comprehensive quantitative disclosure requirements will become the norm for domestic publically traded companies.
In April 2014, New York City Comptroller Scott Stringer, on behalf of the New York City Pension Funds, wrote the funds’ largest holdings, including Apple, Pfizer, Oracle and American Express, asking them to disclose performance figures on their supplier diversity programs. The announcement (“NYC Comptroller Calls For Greater Supplier Diversity at 20 of NYC Pension Funds’ Largest Holdings“) further stated that 90 percent of Standard & Poor’s 100 companies have supplier diversity programs, but less than half of that group discloses data on program performance. The letter requested that companies disclose annually qualitative and quantitative performance data that sheds light on program effectiveness.
My initial reaction to this news was, “Wow! That’s strong.” But considering the significant diverse representation of pension fund participants, these requests are quite reasonable. Connecticut followed a similar path but went a step further by recently filing a shareholder resolution demanding that Monster Beverage appoint a female or minority board member.
Pushing for more information isn’t an anomaly. The diversity disclosure demands of large public investors, investment advisers and custodians will continue to increase. Meanwhile, corporate supplier diversity program metrics will be evaluated and benchmarked just like any other key performance indicator—as it should be.
2. Increased focus will be placed on supplier diversity spending data integrity.
More disclosure requirements come with increased data scrutiny. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires six federal regulators, including the Securities and Exchange Commission, to assess the diversity practices of regulated entities, including publically traded companies. As such, the accuracy and reliability of supplier diversity status and spending data will be critical.
3. Diverse supplier relationship management will become a model for broader supplier relationship and risk management.
Many companies with best practices for supplier diversity require suppliers to register on a dedicated portal that captures relevant supplier qualification data, including valid diversity certification documents. While this provides companies with great visibility into their diverse supplier base, nondiverse suppliers are typically not required to register on a portal that provides such transparency.
There is no better example of why this level of transparency will be required for all suppliers in the future than in the financial services industry. According to the McKinsey Quarterly article, “Managing When Vendor and Supplier Risk Becomes Your Own,” the increase in scrutiny stemming from the financial crisis has reached beyond banks to the companies that supply them. The Consumer Financial Protection Bureau (CFPB) and other regulators are holding financial institutions responsible for the actions of their suppliers. In 2012, several big banks paid more than $500 million to settle complaints resulting from the actions of third-party suppliers.
4. The focus on Tier 2 spend tracking and reporting is heightened.
Many progressive companies use technology to collect, track and analyze the relevant diversity spend of several of their prime suppliers. In light of more scrutiny and focus around supplier risk management, some companies are starting to use their Tier 2 program as a basis for increasing supply chain transparency. Some are even looking to track down to the Tier 3 level and beyond.
Why not? The more information a company can have about its key suppliers (and their suppliers), the better. Technology removes the limitations that may have existed in years past.