Why Supplier Diversity Economic Impact is More Effective than Spend Reporting

January 11, 2019

By Daryle Johnson, Manager of Strategic Business Development and Data Management and Visualization

It's no secret that proving the impact of your supplier diversity program can be a struggle. We all know that supplier diversity benefits are real, but what’s the best way to show them? Your program can't be successful if you don't understand your suppliers, and understanding your suppliers depends on how well you analyze and collect data.
We’ll get into the details of best practices around data collection and analysis on the blog later this month. Today we'll introduce a more powerful way to tell your supplier diversity program’s story beyond simply reporting supplier diversity spend: a supplier diversity economic impact analysis (EIA).

An EIA can take your supplier diversity program’s story beyond just how much you invested to show the impact on real people in the community. It’s tempting to think that your program results should focus on impact to the business only. However, most businesses don’t have the necessary technology or processes to effectively gather and analyze supplier data.

The goal is to show that the use of diverse suppliers is driving down costs and increasing innovation and agility, key potential benefits of any supplier diversity program. But you can only show these benefits if you have data on all businesses in the supply chain – not just the top five or ten.  When that isn’t possible, an economic impact analysis tied to the top suppliers you have stats on is the low-hanging fruit. It can build a more meaningful supplier diversity story and spark stakeholder interest. Can you imagine what's possible if you could combine data from all diverse suppliers?\

What is an Economic Impact Analysis?

Direct dollar spend is an important aspect of supplier diversity reporting. But you can also see the economic impact of doing business with your diverse suppliers by looking at the ripple effects of spend. An EIA looks different from business to business, but typically measures the impact of diverse businesses in your supply chain in four ways:

  1. Revenue Generated – how many dollars of revenue you’ve enabled them to generate
  2. Income Generated – salaries and benefits you’ve enabled them to offer to their employees
  3. Jobs Created – the number of people you’ve enabled them to employ
  4. Tax Revenue – the amount of federal, state and local taxes you’ve enabled them to pay

Why Does an Economic Impact Analysis Matter?

Many studies show that minority-owned businesses will soon power the US economy. This information is too important to ignore. The ability to show how partnering with diverse suppliers keeps your business ahead of the economic curve is pivotal to your program’s success. An EIA is the first step in that direction.

Each dollar spent with diverse suppliers has a multiplier effect on economic growth, and there are standard formulas for making these calculations. In other words, there is a credible process for quantifying the data that you can stand behind. Plus, the data is key to supporting your business case for supplier diversity with the C-suite and below and can be meaningful for functions across the entire business - especially marketing and public relations.

Next Steps

Even if you don't have a standard process or system for collecting detailed supplier metrics, you can still create a basic economic impact analysis that tells a stronger story than simple diversity spend reporting. Just call your top five or ten diverse suppliers and have a conversation. As your data collection efforts mature, the possibilities for demonstrating impact with more detailed supplier diversity metrics expand. You can use an EIA to show how many woman- or veteran-owned businesses you’ve helped to grow, for example. Your task this week is to gather as much information about your top suppliers as you can. Check back next week for best practices around how to create a simple economic impact analysis.

Top-tier supplier diversity programs only get to this stage through first-rate data analysis. Start exploring the possibilities by looking at other top-tier supplier diversity programs and the diversity metrics they report. Have conversations internally with your procurement and IT team to figure out how to get the numbers you need. You may find you need outside help in the form of supplier diversity consultants – most businesses do. Contact us today about making your way to the billion dollar roundtable.

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