Organizations of every size are setting lofty goals and allocating money and time toward supplier diversity programs, recognizing that disadvantaged groups should get a bigger slice of their vendor pies.

Is it working? Probably not as well as they’d like. A robust 85% of Fortune 100 companies have dedicated programs designed to source goods or services from companies helmed by women, veterans, people of color and other non-majority groups, according to a recent report by MIT Sloan Management Review. Yet only 59% of that segment reports how much they source from diverse suppliers. And how much do they utilize? A mere 10% of their supplies and services come via diverse firms. 

The most common complaint I hear from companies is: “We can’t find vendors who meet the criteria.” In response, organizations throw even more resources at the traditional outreach and development.

But the problem isn’t funding. It’s program design      

While well intended, most existing programs are far too generic and badly designed. They don’t focus on building pipelines based on specific diverse supplier competencies. The result? They don’t yield significant ROI for companies — or significant increases in contracts for diverse suppliers.

It’s time for companies to increase their diverse vendor base — and their ROI — by using a systems-based design to identify and develop sustainable pipelines of contract-ready suppliers. This approach, applicable to industries and individual organizations alike, is critical given how much the digital age requires supplier reskilling. 

Here’s how to go about it: 

Achieve Better ROI by Designing a Diverse Supplier Competency Demand Map  

Currently, most organizations try to find at least one diverse supplier to bid on every RFP.  While this is commendable, the challenge is to find suppliers who are both qualified and contract-ready. You can achieve better ROI if you first assess supplier competencies, then follow through with targeted recruitment and development programs.  

Let’s use the hypothetical example of a manufacturer that has projected it needs 40 more suppliers who have expertise in data analytics over the next five years. As their CPO, you and your team should:  

• Set targets for the percentage of diverse suppliers that would be part of the new supplier base. Perhaps a reasonable goal would be 20%, or eight vendors.
• Assess the gaps between your company’s goals and what its current diverse suppliers can provide. Let’s say this manufacturer currently only has one or two with competencies in data analytics. 
• Map out a targeted short- and long-term outreach and pipeline development program for new diverse suppliers by identifying those that can be engaged as Tier I or Tier II, as well as the others which need development to become contract-ready. 
• Engage with other companies in your industry to help you improve supplier diversity. Together, you can gauge gaps in supplier competencies and invest in programs and development centers that can get these vendors contract-ready. An industry-level approach can result in better ROI for all.
• Add targeted competency and capacity building goals as metrics on your supplier diversity dashboards. It helps your company remain accountable.       

Make Better Use of Your Tier 1 Suppliers 

Companies don’t have to do everything themselves to reach diversity goals. They can — and should — use their clout with prime vendors by insisting those prime vendors hire and develop diverse suppliers to perform a certain proportion of the contracted work.  

This use of indirect spending is a smart and efficient way of broadening your ecosystem. It also helps you meet diversity goals since you’re able to allocate work to companies that are too small to meet your own company’s size-restriction criteria.  

For example, as a CPO at our hypothetical manufacturing company, you can include a clause in your contract with a prime vendor that 10% of their spend must go to companies run by under-represented groups. If possible, help that prime vendor by giving them a list of pre-qualified providers you’ve already identified.  

Leverage Your Organization’s Other Social Justice Initiatives             

A systems-based approach comes full circle when CPOs connect their supplier diversity programs with their organization’s other social justice initiatives, such as groups dedicated to diversity, equity and inclusion (DEI), corporate social responsibility (CSR), or foundation and community development.  

First, meet with these groups and demonstrate how your supplier program impacts economic inclusion by promoting equitable access to the company’s contracting opportunities.  

Then agree to partner with one or more of these groups. Ask them to help you form alliances with external foundations and funds that can provide your diverse potential suppliers with preferred access to capital, credit, re-skilling, and training.          

Trickle-Down Impacts 

A well-designed, systems-based program can be the single biggest catalyst for wealth creation and entrepreneurship for disadvantaged groups and communities. It can have a transformational impact on promoting social equity in society at large and in local communities. 

Read more: Four Compelling Reasons to Integrate Diversity Into The Rethink of Your Supply Chain

Your ROI grows as well. When companies’ use more diverse suppliers, they report higher supplier innovation and competition,  as well as lower costs, according to a 2021 survey by TealBook and Jagger.  

Anyone who works in sourcing, procurement, or supply management, from the CPO on down, can make a significant impact on diverse communities when they take a systems-based approach. 

Dr. Suj Chandrasekhar is a founder and principal at Strategic Insights Inc.