Supplier Diversity, Data Analytics, and Economic Impact
You have probably heard lots of buzz lately about the “economic impact of Supplier Diversity.” Various councils and groups have touted this as a means to build a better business case for Supplier Diversity. The numbers we see are impressive. Three years ago NMSDC released a report citing a total economic impact of over $400 billion dollars and 2.2 million jobs[1] – and that is only from MBEs, and does not count WBEs, LGBTBEs, DBEs, and others.
But what does this mean to you, the Supplier Diversity or Procurement professional at a major US corporation?
Supplier Diversity as a whole is well beyond its formative years in the US. Some programs have been in place for decades. As a business function that is no longer shiny and new, you’re asked to justify your time and budget as any other business function does – what value are you delivering to the company? How are you giving us an advantage?
You count suppliers used, and suppliers met at conferences; you know your spend per diverse classification and commodity. That can show growth in your program, but to what end? Safe to say those numbers may not “sizzle” the way they once did. We’ve all read the Hackett Group studies that link Supplier Diversity programs to increased sales[2], or that 99% of diverse suppliers meet or exceed expectations[3]. And of course you can cite the aforementioned NMSDC study on the general economic impact of Supplier Diversity.
So what does this mean to your company? In today’s data-driven world, your stakeholders would like to know what actual information you have to justify your efforts in this area. That is something that has eluded many Supplier Diversity programs – hard and quantifiable data that gives you analytics and insights about your impact.
That’s where a proper economic impact analysis comes into play. What you really need is to be able to find the impact your spend is having on diverse communities. To say you spend some number of millions on diverse suppliers is one thing; to say that that spend has helped to create dozens or hundreds of jobs last year is another. That kind of information not only helps to tell a good story about your program, but also provides useful data to public affairs who communicates with diverse communities, sales & marketing teams who sell into diverse communities, and government affairs people who like good news on jobs and taxes for regulators.
There are several ways to do these impact analyses, most of which are beyond the purview of this single article. To borrow terminology from other areas, primary research is preferred as a general “data rule of thumb.” Get your data from the source – no one has as accurate a count of its jobs data as the supplier who created those jobs. Secondary research, which will infer data from third-party summarized sources, may work in a pinch, but you can’t be as confident in the data correlation as you’d have with primary research.
Ideally, you are also looking at the data in new ways to build a better internal business case for Supplier Diversity. Do I spend less with diverse vendors compared to non-diverse, but receive the same value? Can I correlate increases in spend with a specific diverse community with sales to that community? Does my brand perception improve as diverse spend increases?
Some of this may sound daunting to the Supplier Diversity professional who struggles with a tight budget and limited human resources. So I recommend doing what your co-workers in other departments do when they want to use data to gain insights and make better decisions – ask an expert. A data analyst may be available internally for you to tap, and there are plenty of data professionals outside who can help, or at least provide advice. Having a conversation about what is possible is the first step. Tools and methodologies exist for you to figure out the impact you are having.
The author, David Ricciardi, is President of Proximo, a twenty-two-year old data and analytics company headquartered in Jersey City, NJ. Proximo is an LGBTBE can be found at www.proximo.com. You can reach David at dricciardi@proximo.com or on Twitter at @david_ricciardi.
This article was originally published by the Chicago Minority Supplier Development Council in 2017.
[1] Economic Impact Report Shows Pivotal Role of Minority-Owned Businesses In U.S. Economy http://www.nmsdc.org/economic-impact-study-shows-pivotal-role-minority-owned-businesses-u-s-economy-2/
[2] Hackett Research Proves Supplier Diversity is More Than Just About “Getting the Warm Fuzzies” https://spendmatters.com/2017/02/21/hackett-research-proves-supplier-diversity-just-getting-warm-fuzzies/
[3] Top Supplier Diversity Programs Broaden Value Proposition To Drive Increased Market Share, Other Revenue Opportunities http://www.thehackettgroup.com/about/research-alerts-press-releases/2017/02162017-top-supplier-diversity-programs-broaden-value-proposition.jsp