Creative Practices to Increase Tier 1 and Tier 2 Spend

During the fourth session of DiversityInc’s Oct. 15 event, “Supplier Diversity: New Trends, Innovative Solutions,” a virtual panel that included Chelsea Slaughter, manager of supplier programs for Cox Communications (No. 17 on The DiversityInc Top 50 Companies for Diversity list in 2020); Glenda Thomas, manager of supplier diversity for Southern Company (No. 26 in 2020); and Ije-enu Udeze Nwosu, executive director of impact spending for Kaiser Permanente (DiversityInc Hall of Fame company) offered their advice, insights and best practices for increasing Tier 1 and Tier 2 spend. The session was moderated by Lissiah Hundley, DiversityInc’s head of strategic partnerships and client fulfillment.

According to data from The DiversityInc Top 50 assessment in 2020, Top 10 and Hall of Fame companies allotted approximately 8.57% of their total procurement spend on racially diverse Tier 1 suppliers (or “prime” contractors) ; 5.86% on women-owned; 0.10% each on LGBTQ and disability-owned companies; and 0.43% on veteran-owned businesses.

Companies that topped DiversityInc’s Specialty List for supplier diversity in 2020 devoted comparable percentages of their total procurement spend on Tier 1 suppliers, but placed a bigger emphasis on Tier 2 (subcontractors or multi-tier contractors) spend, with approximately 6.32% going to racially diverse organizations 6.47% on women-owned companies; 0.99% on veteran-owned businesses. 

Clearly there is still plenty of room for diversification, especially since companies that use diverse suppliers tend to succeed, morally and business-wise. Here are some key takeaways for companies looking to stimulate and diversify both Tier 1 and Tier 2 spend, based on this important event session.

 

Embrace Digital (Especially in Our New Normal of COVID-19)

While the pandemic has brought a slew of stressors and logistic issues for various organizations, the consensus amongst the panelists was that, seemingly against all odds, the shift to a remote/virtual workflow has made supplier diversity and procurement decisions more efficient — from improvements to pace to the centralization of pertinent information.

“We’re getting more done and can move the needle a little faster. When you’re traveling and going face-to-face, you’ve got to wait until somebody gets back to you, passes the card, passes the brochure,” said Thomas. “But when you upload everything, you’re able to move meetings and invite people in quicker — I see the ball moving faster.”

Slaughter added that virtual matchmaking has been particularly successful. “I’m able to pull in more of my business stakeholders to participate with me,” Slaughter said, emphasizing that the diverse suppliers are able to get direct exposure to “the folks that are actually making the buying decisions.”

Nwosu echoed Thomas and Slaughter’s sentiments, saying the pivot has not only been a fruitful learning process but could also set a precedent for new, creative approaches to supplier diversity practices in the future, regardless of COVID-19. “This is a new model that could actually give us more reach. Thinking futuristically, how do we think in a more hybrid way, of leveraging the virtual to get more region touch? You can’t bring everybody to [an in-person] matchmaking event… I think virtual is really going to give us an opportunity to extend our reach even more.”

 

Get Creative with How to Introduce Diverse Suppliers with Decision Makers.

Beyond incorporating diversity language in the “request for proposal” (RFP) process to set up the expectation from the very beginning, Nwosu recommended:

  • Developing supply chain committees that search specifically for opportunities for diverse spend.
  • Leveraging forums (such as inviting small, diverse, minority-owned businesses in the community for capacity building experiences, informal matchmaking and getting-to-know-you sessions).
  • Work with not only national but also local/regional advocacy groups who would have a better sense of the companies that are coming up.

Both smaller suppliers and larger companies looking to increase diverse spend should take advantage of national certifiers like the National Minority Supplier Development Council (NMSDC); Women’s Business Enterprise National Council (WBENC); INROADS; Disability:IN; and the National LGBT Chamber of Commerce (NGLCC).

However, Nwosu also advocated for working with local advocacy groups because they will often have a more accurate picture of company needs, saying “There were opportunities that we did not know were going to be opportunity spaces and needs that came up that we had no idea were on the horizon.”

 

Emphasize Development and Setting Up Smaller Suppliers Up for Success

Beyond informal wellness checks, Thomas has started implementing what she calls a “lunch and learn,” where everyone involved in a supply chain project is invited to a capability session and is encouraged to ask questions. “It gives the supplier the flexibility to work with a prime and talk about ways we can help you and support you,” she said.

Nwosu then proposed the idea of tackling things “systemically and upstream,” underscoring that “Spend is not spend just for the sake of spend. How are you driving both business and social value? How are you really creating economic change in the communities that we serve?” For a big conglomerate like Kaiser Permanente, the expectation is that there will be smaller Tier 2 companies from diverse and underrepresented groups. Nwosu advised primes to “step it up,” stressing that “It is part of the cost of doing business because we want you to be aligned with our values as an organization.”

Thomas also added that, while goal setting is generally set in stone, the relationship between the company and the supplier often makes or breaks the feasibility to meet said goal. She recommended close and frequent monitoring to not only ensure procurement needs are met but also to help the supplier stay on track toward success. “We’re reviewing and sitting down and asking ‘Hey, what do you need to be successful?’ because it’s a win-win,” Thomas said. “Everything is about a partnership and relationship, and we like to marry our suppliers. We date you for a long time, but we marry you. And so, it’s a long-term relationship and we want to make sure that everybody is successful, so we have those check-in points.”

 

Even If a Meeting Doesn’t (Initially) Result in a Contract: Keep in Contact!

Some aspects go beyond sheer numbers. Economic impact and measuring whether it’s making a difference in the communities a company serves are important, but Slaughter says assessing outreach is just as crucial: “How many suppliers are we meeting with and then introducing? Are they participating in [request-for-information] events? How often are the participants successful?” Of the data she and Cox have collected, Slaughter says diverse suppliers just being included in the conversation have resulted in a high success rate. Furthermore, Slaughter is able to leverage that data to advocate for smaller suppliers in the future if there is any doubt or question about their ability to perform and produce.

That being said, Nwosu stressed that large companies like Kaiser Permanente can’t necessarily do business with everyone. “We are a big beast. Quite frankly, it’s not because we don’t want to do business with you, but it’s not a good fit. We could actually destroy you just because of delays in getting payment… or [last-minute] changes that had happened because of the scale,” Nwosu said. “We don’t want to put people out of business as a result of doing of business with us.”

Yet, there still might be opportunity to collaborate: “Even if we can’t do business with you, for us, part of this is how are we also investing in the businesses in our footprint,” Nwosu said, referring to her and Kaiser Permanente’s work of developing business resilience toolkits for small businesses. “Counting the diverse spend and those dollars is critical,” she said. “But seeing a business being able to turn itself around [despite COVID-19] as a result of the tools that are put out there for them — that again is success a hundredfold.”

Thomas also noted that Southern Company is a large conglomerate that affords opportunities for a diverse supplier, whether it’s getting referred to the right company and/or moving across the organization through numerous companies. “I would love to give you all the business [at Alabama Power], but I do not want to be 90% of your client base,” Thomas said. “So, we’re going to help develop you.”

In the same vein, Slaughter said Cox Communications offers a scholarship program for their diverse suppliers, measuring the number of graduates that get funded through a year, as well as facilitating introductions and making sure recipients stay “connected to the right business stakeholders.”

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