“You can’t manage what you can’t measure.” – Peter Drucker
Austrian-American management consultant, educator, and author Peter Drucker is considered
by many to be the founder of modern business management. One of his key beliefs is that
measurement is essential to achievement, and professionals in all functions often repeat the
quote above as a mantra.
The principle holds true for supplier diversity programs, and while each company will have metrics that are unique to their program, most are common across program maturity levels and industries.
Supplier diversity programs should use these metrics to stay on track and maximize their performance year over year. They should also make sure these metrics are continually visible to business leaders and easily accessible by all who need them.
Spend with diverse suppliers should be analyzed by total amount and percentage as well as
segmenting it by:
- Spend Category: This should be captured in a centralized spend analysis program for
easy updating and reporting.
- Business Unit: Reporting spend by management unit makes information available to
decision makers in a way that allows them to actively engage and have visibility into
supplier diversity efforts.
- Geography: Since the definition of ‘diverse’ varies by region and country, tracking
supplier diversity by geographical area can provide increased insight and understanding
of the program’s impact.
- Supplier Industry: Which external markets are the most diverse, and are those the ones
where your company has the highest number of diverse suppliers?
Next-level opportunity metrics to track include:
- What portion of diverse spend is associated with small businesses? According to the
2023 Supplier Diversity Benchmarking report, small businesses account for 4.2 percent
of their spend, while woman-owned businesses account for 1.3 percent, and minority owned businesses account for 1.1 percent.
- Depending on the motivation for founding the program, this detail may or may not align
with customer expectations. Identifying the actual beneficiaries of the supplier diversity
program positions the team to make adjustments or alter their supplier discovery efforts.
- How many certified diverse suppliers make up the majority of the company’s spend?
One of the goals of a supplier diversity program is helping certified businesses grow. In
some cases, they grow in such a way that they are positioned to get outside funding or
investment that dilutes the ownership of the business and prevents them from
maintaining their certification. Knowing what percentage of the company’s spend is
associated with a few large diverse businesses addresses an important risk factor.
Trends over time are also important when trying to capture and demonstrate the trajectory of the program. Ideally, these trends will show increases, but where – and how significant are the changes? These metrics offer decision makers in the business an opportunity to learn from each other and to hold true to the company’s stated mission and vision.
It’s also important for supplier diversity programs to measure the gaps between commitments made and results delivered. The results of these comparisons may not be something that the company wants to share externally, but they should be calculated and discussed internally.
Ask questions like:
● Which business units did and didn’t hit their targets?
● Why were targets not hit?
● Does the actual performance create any liabilities?
● How vocally were the external commitments made?
The answers to these questions, plus the size of the shortfall, can be used to guide the
company’s response as well as to refine future commitments.
Another internal metric that companies should track is the gap between the number of suppliers invited to bid on projects and the number of suppliers who were awarded contracts. Sourcing teams and decision makers are often incentivized to include certified diverse suppliers in each sourcing project, but if they do not win a portion of the business, this will not move the needle on the company’s goals.
Coming up with a list of supplier diversity metrics and using them to assess the program’s
success is just the beginning of the effort, but it is an essential step that can not be skipped.
Once that baseline is set, all future goals, strategies, and tactics can be tracked for their relative effectiveness and impact.