How to Build a Supplier Diversity Program
In your typical sourcing process, procurement will identify suppliers for the goods or services based on need and complete some due diligence on potential suppliers. During that process, they ensure both sides are aligned on expectations, that the supplier is not on a sanctioned list, and that they have reasonable ESG compliance. If all boxes are checked, the business begins using that supplier and the sourcing teams move on to a new project – but responsible sourcing doesn’t end the moment the contract is signed, and your supplier diversity program begins before your due diligence begins.
Establishing a supplier diversity program begins with reflection. Your organization needs to reflect on what values are important to you and how they should be represented in your supplier diversity program. To start, decision makers need to identify whether and to what degree diversity, social responsibility, environmental sustainability, and similar factors align with your company’s mission and values. Once these values are determined, identifying how these factors can be rated and tracked is necessary. For example, money spent with diverse suppliers and the number of diverse suppliers present in your supply base are simple, straight-forward metrics to track for supplier diversity. For environmental factors, suppliers with ISO14000 certification, yearly CO2 emissions, and water consumption per product produced may be useful for keeping tabs on environmentally friendly suppliers. There are a number of metrics which can be used to provide a portrait of a supplier’s responsibility based on exactly what your company values and what products are being produced.
Once your company’s values and the applicable metrics are identified, it is necessary to collect information in order to inform your organization’s policies on supplier diversity and social responsibility. A common starting point for this step is publicly available government sources. Another valuable resource can also be interest groups on supplier diversity, sustainability, and social responsibility. With both sets of sources, deliberate research is performed, and statistics compiled providing averages for companies across the country. You can also look to your internal organization and existing suppliers for information to inform policies. Performing an audit of your existing supply base and/or requesting questionnaires and evidence from suppliers you already are engaged will furnish you with a baseline idea of your operations and expose areas for improvement.
After collecting your evidence, the next step is setting your company’s ESG requirements. These requirements may also be known as a “Responsible sourcing policy” or “Supplier code of conduct.” This policy is the set of requirements that your organization puts in place to guarantee the ethical compliance of any suppliers to the standards of your organization. The sourcing policy should align ESG values with procurement metrics and set clear expectations for the requisite levels of metrics and how they will be tracked. Once adopted, your responsible sourcing policy should be clearly communicated with new, potential suppliers and applied to existing suppliers. In order to facilitate adherence to responsible sourcing policies, supply chain leaders may utilize incentives or recommend a policy gap analysis to engaged suppliers.
The final step in establishing a supplier diversity program is creating a system to track your suppliers’ ESG factors. The creation of a policy for diversity and sustainability is nothing if the metrics you have identified are not properly tracked or easily accessible for comparison. The right tracking system improves visibility into your ESG supplier data and ensures that suppliers which fall out of compliance with your policies are clearly detectable. A flexible tracking system also allows for policy improvements and scalability over time. Crafting a new supplier diversity or ethical sourcing policy takes effort and review. Flexibility in your tracking system gives you the opportunity to add or remove tracked ESG factors and surfaces information useful to inform later iterations of your policy. Take the metrics and insight you gain from this system and improve your processes over time.
In conclusion, building out a supplier diversity program is a 6-step process:
- Reflect on your company values
- Identify what metrics align with those values and require tracking
- Research to inform your policy and performance expectations
- Set your code of conduct
- Create system for tracking supplier performance against established metrics
- Track metrics, analyze, and iterate