How to Build Tier II Supplier Diversity

Best Practices From EY, WellPoint, Wyndham Worldwide, KeyCorp and Hilton Worldwide

By Barbara Frankel

Tier II (subcontractor) supplier diversity builds community wealth and creates jobs by helping smaller businesses flourish. It builds corporate reputations and improves performance of prime suppliers.

As the importance of Tier II supplier diversity grows, its recognition in The DiversityInc Top 50 Companies for Diversity survey has increased. Starting last year, Tier II supplier diversity was a significant scoring factor in the survey. In addition, all companies on DiversityInc’s Top 10 Companies for Supplier Diversity list had significant Tier II efforts and results.

We interviewed five of the companies on that top 10 list—Wyndham Worldwide, WellPoint, EY, Hilton Worldwide and KeyCorp—to tell you how to successfully implement Tier II supplier diversity.

Case Study: EY Makes Supplier Diversity Work With Compass Group & Thompson Hospitality

1. Have Solid Tier I Diversity First

Brenda Burke, WellPoint

While building subcontractor diversity is important, you have to be ready by first having diversity at the prime-contractor level. Brenda Burke, Staff Vice President, Supplier Diversity at WellPoint (No. 29 in the DiversityInc Top 50), notes that when she was hired to start the supplier-diversity program in 2005–2006, “we were already aware of Tier II. … I did a lot of research and knew it was a best-in-class initiative. It creates opportunities for suppliers who are not quite ready in capacity or scale.”

But she noted that the Tier 1 program had to be established first, including getting senior leaders to understand the relevance to business goals.

“After a couple of years of monitoring, we had the ability to track spend, establish a threshold, incorporate supplier-diversity language in RFPs, and had sufficient resources to manage all this. We were ready [in 2008],” she says.

Fred Lona, HIlton Worldwide

At Hilton Worldwide (one of DiversityInc’s 25 Noteworthy Companies), “we decided that second tier was always in the strategy, but we wanted to implement it after the first tier was solid and sustainable,” says Fred Lona, Senior Director, Supplier Diversity. The company rolled out its Tier II supplier diversity “in a controlled and cautious manner. We added more each year as we wanted to manage the system and have adequate reporting,” he says.

Poppie Parish, Senior Vice President, Diversity & Inclusion at KeyCorp (No. 47), notes, “Obviously, our first-tier strategy is our most important push, it’s where we can have the most impact, but as we continue to become more strategic in our approach to procurement, the number of suppliers we engage is shrinking so we realized there is a growing need to encourage our non-diverse, strategic partners to become a part of our efforts.”

2. Find Internal Champions

KeyCorp started its Tier II strategy about four years ago but didn’t really emphasize it until last year. The company leveraged its Supplier Diversity Advisory Council and its senior executives to help identify individuals in each line of business who would be Tier II line-of-business champions.

“We asked them to be the catalyst in their own lines of business and to have a communication strategy that supported the expansion and growth of our Tier II strategy … and it is working,” Parish says.

3. Start With Your Biggest Suppliers

José Nido, Wyndham Worldwide

Not every supplier has the bandwidth to hire subcontractors and to start its own supplier-diversity effort. Wyndham Worldwide (No. 39) annually reviews its top 200 suppliers and identifies which ones are likely Tier II reporting candidates, says José Nido, Vice President, Global Supplier Diversity. They then narrow that list to 40 to 50 suppliers who are most likely to have successful Tier II relationships.

“The more diverse suppliers that are used throughout the entire process, the larger the impact on the diverse business community. Especially in those communities where we work, it develops business,” Nido says.

WellPoint assesses its prime suppliers to see which ones will be good candidates for Tier II, especially in commodity categories. “We are looking for suppliers for a year or two before we have the need,” Burke says.

4. Contract Language Is Critical

Theresa Harrison, Global Director of Supplier Diversity at EY (No. 3), says the firm has revised its contract language so prime suppliers are more specific about which diverse suppliers they are using and what percentage of their contracts are going to diverse suppliers.

Although Wyndham Worldwide doesn’t mandate that prime contractors hire diverse suppliers themselves, the contract language strongly advocates it. “We cannot tell the suppliers which suppliers to use but we ask for their support and we track it carefully,” Nido says.

5. Don’t Exclude Any Groups

Theresa Harrison, EY

All of the companies we interviewed make sure that every underrepresented group was part of Tier I and Tier II supplier diversity. That includes LGBT suppliers (certified by the National Gay & Lesbian Chamber of Commerce), people with disabilities (certified by USBLN), veterans, Blacks, Latinos, Asians, American Indians and women.

EY’s Harrison admits it’s a little more difficult to find LGBT and disability-owned suppliers, “but only because they are newer to the game. It’s about education and traction. … Increasingly, as we go to networking events, we connect with these groups.”

6. Clear Communication Is Essential

It’s important to communicate to prime suppliers what a diverse supplier is. Wyndham Worldwide has a one-hour online or phone training to define Tier II, what it includes, and the importance of reporting on time. It includes a definition of direct spend (purchases that directly support the company) and indirect spend (purchases that support a supplier’s business strategy).

WellPoint makes sure its staff understands what this is all about as well. The company has a Supplier Diversity 101 web seminar for all new hires, as part of its on-boarding process.

Hilton Worldwide communicates with its contractors about the importance of supplier diversity. “It’s a learning process for subcontractors to be able to understand how to do business with us and be more successful,” Lona says. “Tier II helps smaller suppliers in our supply chain. Smaller grows into larger, subcontractors into prime contractors.”

7. Mentor Suppliers

Poppie Parish, KeyCorp

WellPoint helps its prime contractors conduct gap analyses to ascertain what’s working well with subcontractors and what areas they can improve on. A senior-level executive serves as a mentor to help the suppliers grow their program.

“We are training our Tier I suppliers and they are replicating it with their subcontractors,” Burke says.

Patience is important. “You would think this would be an easy process,” says Parish. “But there are still companies that are years behind. When our strategic partners aren’t reaching out for new knowledge or setting new goals to engage diverse firms, I see it as our job to educate our partners in the process.”

8. The Hardest Challenge Is Tracking

Nido and others say the biggest issue with Tier II is keeping track of the contacts and making sure the data are accurate. “People retire, pass away, change jobs and no one tells us. We end up finding out when we see that data aren’t reported,” he says. The solution? “We follow up and stay in touch with our prime suppliers all the time and get them to report on time.”

Case Study: EY Makes Supplier Diversity Work With Compass Group & Thompson Hospitality

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