the hackett group overview - bdrusa.org · the hackett group 2008 supplier diversity study results:...

The Hackett Group 2008 Supplier Diversity Study Results: Insights into Program Performance and Practices

Highlights of Results

Kurt Albertson

Director of Advisory Services

May 30, 2009

2008 Supplier Diversity Study Results© 2009 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

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Copyright © 2009 The Hackett Group, World-Class Defined. All rights reserved.


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Continuing Economic Instability and Global Markets will Challenge Supplier Diversity Managers to Create Real Value and Rethink Program Scope

A complex set of objectives drive supplier diversity programs with direct to consumer organizations stressing

brand recognition and non-direct to consumer organizations emphasizing customer and government

requirements. ..both objectives can be directly tied to revenue which is critical to success

Nearly three quarters of diversity suppliers have less than $100k in annual spend with any one participant

and account for less than six percent of the total supplier diversity spend reported. An organization’s

objectives should dictate the optimal approach for their diverse supplier adoption strategy

Temporary staffing, facilities mgmt, construction services, contract manufacturing, and IT consulting were

identified by participants as the categories with the highest opportunity for diversity suppliers

While percent of spend with diverse suppliers is tracked by most participants there are a broad range of

metrics measured depending on an organization’s objectives and we are seeing more organization

quantifying the value delivered from these programs

Participation in supplier diversity associations, embedding practices within existing processes, and

executive level support were identified as having the highest positive impact on supplier diversity success

while availability of resources and acquisitions of diverse suppliers had the greatest negative impact

Procurement is typically responsible and accountable for supplier diversity programs although a broad array

of functions are consulted and informed with the CEO most often reviewing program performance

Global sourcing is critically/very important for more than two-thirds of participants and over half believe

global sourcing will have a negative impact on supplier diversity programs


Table of Content

Supplier Diversity Study Overview

Supplier Diversity Objectives

Supplier Diversity Spend Analysis

Measuring Supplier Diversity Performance

Keys to a Successful Supplier Diversity Program

Supplier Diversity Program Governance

The Impact of Global Sourcing on Supplier Diversity

Looking Ahead


Supplier Diversity Study Objectives and Scope

The Supplier Diversity Study was conducted to better understand…

The objectives of organizations related to their supplier diversity programs

The measurements that organizations use to gauge success against these objectives

The factors that drive and hinder supplier diversity success

The impact of globalization on supplier diversity programs

The Supplier Diversity Study focused on…

Supplier Diversity performance within the United States

In many instances supplier diversity was defined broadly and based on the scope of the

study participants


Participants Ranged Across a Broad Types of Industries with an Even Split Between Service and Manufacturing Segments

Industry Demographics

Financial, Insurance, and Professional Services

Pharmaceuticals & Biotechnology

Utilities and Chemicals

Consumer Products and Retail

Healthcare Equipment & Services

Telecommunication and Transportation Services

Technology and Automotive

Transportation

$4,797

$17,747

$22,578

US Spend US Revenue Global Revenue

Average Participant Size(million)


Table of Content








Looking Ahead


While the Need to Tie Supplier Diversity Objectives to Tangible Benefits is Critical Particularly in Today’s Economic Environment, Intangible Benefits Still Rank High on the Priority List

9%

13%

16%

16%

38%

13%

28%

31%

31%

31%

34%

28%

47%

38%

31%

38%

28%

28%

13%

34%

31%

19%

19%

16%

22%

22%

6%

3%

3%

9%

13%

0% 25% 50% 75% 100%

Improve service/ quality through local supply

Achieve social recognition by industry and supplier diversity associations

Increase market penetration/ recognition in targeted diversity markets

Drive social and economic benefits within targeted communities

Meet supplier diversity requirements of customers/ government contracts

Drive corporate image through supplier diversity initiatives

Support corporate culture around diversity and social responsibility

Critically Important Very Important Important Somewhat Important Not Important

Tangible Benefit Intangible Benefit


B2C Organizations Tend to Put Greater Importance on Objectives Tied to Brand Recognition within Target Markets While B2B Organizations Emphasized Requirements of Customers and Government

3.93.7 3.8

3.4

3.9

3.4 3.4

2.6

3.23.5

3.1

3.9

3.4

4.0

Increase market penetration/

recognition in targeted diversity

markets

Drive social and economic benefits

within targeted communities

Drive corporate image through

supplier diversity initiatives

Improve service/ quality through local

supply

Support corporate culture around

diversity and social responsibility

Achieve social recognition by

industry and supplier diversity

associations

Meet supplier diversity

requirements of customers/ government

contracts

Importance of Objectives for Supplier Diversity Program

B2C B2B

Importance of Supplier Diversity Objectives

5 – Critically Important 3 – Important 1 – Not Important

4 – Very Important 2 – Somewhat Important


Table of Content








Looking Ahead


70% of the Diverse Suppliers Have Less than $100k in Annual Spend Although these Suppliers Represents only about 6% of Total Diversity Spend

69.9%

23.2%

5.3%0.8% 0.4% 0.3% 0.1% 0.0% 0.0%

< $100K $100K -$1M

$1M -$5M

$5M -$10M

$10M -$20M

$20M -$50M

$50M -$100M

$100M -$250M

> $250M

Percent of Diversity Suppliers by Average Annual Spend with Supplier

5.6%

20.4%

25.6%

9.0%10.2%

14.5%

8.4%

4.9%

1.4%

< $100K $100K -$1M

$1M -$5M

$5M -$10M

$10M -$20M

$20M -$50M

$50M -$100M

$100M -$250M

> $250M

Percent of Diversity Spend by Average Annual Spend with Supplier

Organizations targeting percent of diverse supplier spend may be best served with several large divers suppliers

while organizations targeting corporate image market awareness may be best served developing smaller suppliers

74% of Diversity

Spend is with 7% of

the Diversity Suppliers


The Chart Below Compares the Frequency and the Magnitude of the Supplier Diversity Opportunity by Category

Contract Mfg Services

Temporary Staffing

Construction Services

IT - Consulting Services

Facility Mgmt and Maintenance Services

Engineering Services (non-IT)

Other Direct Materials

Packaging Materials

Facility Maintenance Supplies

Other Professional Services

Other Services

Legal Services

Research & Development Services Logistics Services

Capital Assets

IT - Software

Marketing - Professsonal Agency

Supply Chain Services

Consulting/Audit/Tax Services

IT - Other Services

Parts and Assemblies

Commercial Print

Warehousing and Distribution Services

IT - Hardware

Office Furniture and Equipment

Training and Development Services

Executive Search

Telecom Services

HR Services

Purchased Finished Goods

Office Supplies

IT - Maintenance Services

Telecom Equipment

Other MaterialsBulk Commodities

Airlines, Car rentals, Lodging

Subscription and Memberships

Catering and Food

Real Estate

IT - Peripherals and Consumables

Other T&E Expenses

Travel Agency

Fre

qu

ency

Op

po

rtu

nit

y

Spend Opportunity

Supplier Diversity Category Opportunity

Service-based Product-based


Table of Content








Looking Ahead


Percent of Spend with Diverse Suppliers is Tracked by Most Participants but there are Also a Broad Range of Other Metrics Measured Depending on an Organization’s Objectives

93%

46%

11%7%

32%

18%14%

4% 4%

89%

% spend with diverse

suppliers

Diverse suppliers as a % of total

% increase in revenue

% increase in market

share

% of RFPs participation

Dollar value of RFPs

participation

% proposals won w/

diversity a criteria

Dollar value proposals

won w/ diversity a

criteria

Dollar value economic

impact

Recognition by industry

Percent of Participants Reporting Metrics


Percent of Spend and Percent of Suppliers Reported by Participants: Diverse Suppliers and Small Businesses

18%

8%

4%

15%

8%

4%

1st Quartile Median 3rd Quartile

Diverse Suppliers

Percent of Spend with Diverse Suppliers

Percent of Suppliers that are Diverse

28%

17%

5%

40%

14%

5%

1st Quartile Median 3rd Quartile

Small Businesses

Percent of Spend with Small Businesses

Percent of Suppliers that are Small Businesses

Metrics were self-reported across all supplier diversity categories considered in-scope of the participants program


Table of Content








Looking Ahead


Participants were Asked the Level of Impact that a Variety of Factors Have Had on the Success of the Supplier Diversity Programs

0% 25% 50% 75% 100%

Recent acquisition(s) involving your diverse supplier(s)

Business Process Outsourcing Initiatives

Availability of qualified diverse suppliers

Availability of internal resources to support program

Recent acquisition(s) involving your organization

Existing supplier support for driving 2nd tier participation

Tying diversity objectives with higher level company objectives

Supplier development and mentoring programs

Aligning Supplier Diversity Program with CSR Initiative

Acceptance by Business Units/ Operations

Level of engagement with internal stakeholders

Networking with other organizations within your industry

Level of support from Executives of your organization

Embedding supplier diversity practices w/i existing processes

Participation in diverse supplier associations

Significant Positive Moderate Positive Minimal or No Moderate Negative Significant Negative


Participation in Associations, Embedding Practices within Existing Processes, Executive Level Support and Networking Had the Highest Positive Impact on Program Success

87%83%

79%77%

Participation in diverse supplier associations

Embedding supplier diversity practices within

existing Procurement processes

Level of support from Executives of your

organization

Networking with other organizations within your

industry

Percent of Participants Stating the Factor Had a Positive Impact on Supplier Diversity Program

• Participating in diverse supplier associations provides access to diverse supplier, networking

opportunities, information on diversity events, and best practices

• Embedding supplier diversity requirements into existing sourcing, purchasing, and supplier

management processes align supplier diversity objectives with the overall objectives of Procurement

• Executive level support for supplier diversity programs is critical as program objectives are most

commonly aligned with high-level business objectives like revenue growth and corporate image

• Many organizations noted that networking with industry peers has been helpful in exchanging best

practices, identifying new sources of supply, and driving adoption of 2nd tier usage


Availability of Resources and Acquisitions of Diverse Suppliers were Factors Most Stated as Having a Negative Impact on Supplier Diversity Programs

43%

26% 23% 21%

Availability of internal resources to support

program

Recent acquisition(s) involving your diverse

supplier(s)

Availability of qualified diverse suppliers

Business Process Outsourcing Initiatives

Percent of Participants Stating the Factor Had a Negative Impact on Supplier Diversity Program

• A broad range of available resources to support supplier diversity programs existed but an unclear

ROI could drive an under allocation of resources for some programs

• As diverse suppliers become larger they are often acquired losing their diverse supplier status

• The availability of qualified diverse supplier is hindering success, however, only half identified

supplier development and mentoring programs as a driver of success and many organizations rated

the availability of qualified diverse suppliers as an enabler of success

• Outsourcing initiatives can impact diverse suppliers by reallocating services to an outsource provider


Table of Content








Looking Ahead


Procurement is Most Typically the Responsible and Accountable Function for Supplier Diversity Programs Although A Broad Array of Functions are Consulted and Informed

Responsible Accountable Consults Informed

Procurement Common Rarely

Sales & Marketing Sometimes

Human Resources

Communications

Finance

Businesses/ Operations

CEO

Board of Director

Responsible –This is the person or group responsible for performing the activities associated with the supplier diversity program.

Accountable – To whom the responsible person is accountable; this is the person who is held accountable for the supplier

diversity program.

Consults - Provides input and advice to the responsible group or person; these are the people communicated with prior to

actions being taken or decision made.

Informed – Must be notified of results, but need not be consulted; these are the parties who are notified about an action after it

has been performed.

Cross-

functional

reporting is

quite

common

Procurement is

commonly

responsible and

accountable

Tie to Sales & Marketing

is critical for some

organizations


Participants Most Often Positioned Supplier Diversity as a Stand-Alone Initiative Rather than as Part of a Broader Initiative of the Organization

63%

34%

22%16%

13%

Stand-alone initiative focused solely on supplier

diversity

Part of a broader corporate social

responsibility initiative

Part of a broader initiative around

building/maintaining organization's culture

Part of a broader initiative focused on improving

corporate image

Other

Positioning of Supplier Diversity Program

Tying supplier diversity programs to broader initiatives can be helpful in gaining

visibility as well as freeing up resources to support the program


Table of Content








Looking Ahead


Global Sourcing is Critically/Very Important for 68% of Participants and 55% of Participants Believe It will Have a Negative Impact on Domestic Supplier Diversity Programs

39%

29%

13%

6%

10%

3%

Importance of Global Sourcing

Critically important Very important

Important Somewhat important

Not important Unclear

3%

14%

14%

21%

34%

14%

Impact on Spend with US-based Diverse Suppliers due to Global Sourcing

Significant positive impact Moderate positive impact

Minimal impact Significant negative impact

Moderate negative impact Have not considered

As organizations look globally for new sources of supply domestic diverse suppliers face greater cost

and scope of service pressures resulting in increase competition and fewer opportunities


More than Half the Participants Have No Plans to Help US-based Diverse Supplier Compete Globally and 80% Have No Time Frame Established to Expand Supplier Diversity Program Outside the US

17%

24%

28%

52%

Establishing targets for globally sourced spend w/ US-

based diverse suppliers

Supplier development to help US-based diverse suppliers

compete globally

Establishing policies to include US-based diverse suppliers in

globally sourcing

No action

Plan to Support US-based Diverse Suppliers Competing in Global Markets

10%

3%

7%

24%

55%

Currently included

We plan include within 3 years

Plan to include within next year

Plan to include but no timeframe

No plans to include

Plans for Including Diverse Suppliers Outside the United States


There Are Numerous Hurdles Facing Organizations for Including Suppliers Outside the US within Their Supplier Diversity Programs

3%

10%

45%

45%

61%

Resources and funding

No major hurdles

Certification of diverse supplier status outside the US not well established

Non-U.S. diverse supplier spend is not currently recognized

Identifying and defining diversity categories outside US

Hurdles to Including Diverse Suppliers Outside the United States within Scope of Supplier Diversity Program


Table of Content








Looking Ahead


Looking Ahead…It will be a Turbulent Time

Economic instability will continue and supplier diversity managers will need to insure alignment with

changing corporate objectives and that performance reflects the real value created. Wrapping supplier

diversity around higher level initiatives like social responsibility will drive greater visibility and support

Globalization will continue and organizations will focus on policies and practices to support their domestic

diverse suppliers while rethinking how they define diversity taking into account the broader notion of

“responsible supply” and such factors as localization

Business line managers will focus on operational efficiency so embedding diversity requirements within

standard procurement processes and effectively communicating objectives will be as important as ever

Acquisitions and financial problems will continue within the diverse supplier community driving the need for

robust supplier management and development programs identifying diverse sources of supply and nurturing

diverse supplier growth and financial stability

Networking with peers and industry groups will continue to provide valuable insight for supplier diversity

managers and help drive support for second tier supplier diversity targets

Efficiency will be the focus of most organizations in 2009 and supplier diversity mangers will be asked to do

more with less

Advanced sourcing optimization techniques will be leveraged to include diversity status as a parameter in

complex and global sourcing events resulting in multiple suppliers and closer alignment with requirements


Contact Information

The Hackett Group

World Headquarters

1117 Perimeter Center West

Suite N-500

Atlanta, GA 30338

Phone: +1 770 225 3600

Aldermary House

10-15 Queen Street

London EC4N 1ST

Phone: +44 207 003 8150

Rathausplatz 12-14

65760 Eschborn/Frankfurt A.M.

Germany

Phone: +49 6196 77726 0

18 rue La Boetie

Paris 75008 France

Phone: +33 1 53 43 0400

Strawinskylaan 3051G, 1077 ZX

Amsterdam, The Netherlands

Phone: +31 20 301 2210

Kurt Albertson

Director, Procurement Advisory

Phone: +1 770.225.7570

[email protected]

www.TheHackettGroup.com

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