In the United States, almost all supplier diversity programs define their target suppliers in the same way – a business that is at least 51% owned and operated by an individual or group that is part of a traditionally underrepresented or underserved group, particularly minorities, women, veterans and members of the LGBTQ community. But apart from that, each company structures their program very differently – some provide additional support for diverse suppliers, while others offer favorable payment terms, and another set of companies may offer a combination of both.
There is also ongoing debate over whether companies’ supplier diversity programs should accept self-certified suppliers, or if they should require that they have a diversity certification from a third party agency. But an increase in investment and resources in these types of programs has made it quite apparent that the latter provides the necessary level of accountability and should be the gold standard.
Not only does this prevent the ESG equivalent of “greenwashing”, but having up-to-date third party certifications is typically required for large government contracts who are seeking diverse suppliers, and other large bidding opportunities in both the public and private sectors that seek out diverse suppliers or partners will typically require documentation. This in turn opens up the possibility that your program is subjected to some sort of auditing or alternative accountability measures, and first party data often reveals large discrepancies and inconsistencies upon close examination.
Large firms’ supplier diversity programs are oftentimes accountable to board-level scrutiny as well, and inflated metrics on the number of diverse suppliers and overall diverse spend could jeopardize future investment and resources – not to mention the potential loss of credibility for your organization. One of the other risks of relying on first party certification is that, as a company’s program grows, so will the accompanying incentives, support and ownership for diverse suppliers. This means that if these resources are going to suppliers who do not fall in an underrepresented category, it’s not just a waste of your company’s own budget and investment, but it doesn’t get to the recipients it’s intended to.
Third Party Validation Checklist
There are several pieces of critical information your supplier intelligence platform should provide in order to ensure you’re tracking diverse suppliers accurately and fairly. The first and perhaps most obvious data point is the certifying agency. There are a handful of agencies in the US, but some of the most common include:
- National Minority Supplier Development Council
- Women’s Business Enterprise National Council
- National Gay & Lesbian Chamber of Commerce
- Vets First
- National Veteran Business Development Council
If you haven’t heard of the certifying agency’s name, be sure to check their credentials and that they are located within the US or applicable country.
While the agency’s name might state it explicitly, make sure you understand which diversity category each supplier falls into, as it’ll ensure you are not selecting suppliers that are highly concentrated in only one category.
Alongside the agency information should be the expiration date explicitly mentioned as part of the certification. Your supplier intelligence platform should not only list this date, but the current status (i.e., active, inactive, expiring soon), so you can quickly view which suppliers should be followed up with and when. Having customized alerts to notify your team when a certification is close to expiration can save countless hours of manual searches.
And while partnering with one data provider to access this information can be a good start, having a variety of objective, third party data sources at your fingertips is the best way to ensure the information you’re relying on is accurate and regularly updated.
Being able to use a combination of third party data from external data providers is critical, but contextualizing that with first party data, particularly when it comes to supplier spend, is paramount to running a successful program. Your supplier intelligence platform should integrate with your ERP so you can see certification validation data alongside internal spend data to make more precise and easier-to-calculate diverse spend reports, plans and goals.
And when it comes time to expand the program and offer other forms of support – such as immediate payment terms for example – you can easily oversee those within one centralized platform. It’s important to take into consideration that certifications can be time consuming and costly, which adds additional burdens to diverse suppliers, especially if they’re a small business. Being able to offer an incentive to receive third party certification could also be managed through your ERP.
Supplier Intelligence Features
While it’s pretty common for diversity programs to offer favorable payment terms to their diverse suppliers, offering additional incentives or partnerships for your suppliers who also have a diverse supplier base has become increasingly common. With more legislation holding companies accountable for human rights and sustainability standards throughout their entire value chain, insight and accountability over tier 2 suppliers and beyond is only a matter of time.
Note-taking & Collaboration Capabilities
Chances are the third party certification data you are relying on will not live in your ERP, but rather your supplier intelligence platform. And even with an integration, the latter should allow for comments and note-taking so that the right stakeholders can be informed and alerted immediately. For example, a user should be able to easily tag and alert a colleague over an impending certification expiration date without ever leaving the platform. Conversely, the colleague could attach relevant documentation, such as an updated certification or diverse spend report, so that all information is centralized and stays up-to-date.
Obtaining certification for suppliers can be time-consuming, and for buyers, monitoring certification status can also be cumbersome. But the long-term benefits will yield not only more business opportunities and better risk evaluation, but a program that is reaching the groups it should be.