SMI Supplier Diversity Playbook

Chapter 3. Measure What Matters, Supplier Diversity Metrics

Executive Summary

Successful supplier diversity programs are imbedded into the organization through measurable goals aligned with organizational priorities and/or strategic initiatives. When considering the metrics of success, review any existing tools, technologies and processes that are a standard throughout the organization. For example, an organization often resources supply chain with business, financial or data analysts to support measuring cost savings and track progress towards goals.

When cultivating metrics to move your program forward, consider how easy they are to measure and report. It’s important that any metric in place is clearly defined for organizational leaders and management. In Chapter 2, we covered methods to determine organizational priorities and goals of a supplier diversity program, and in this chapter we will focus on components of program measurement.

Establish the Addressable Spend Baseline

When beginning to measure a supplier diversity program, the first step is to establish the institution’s current total addressable spend to identify potential opportunities and current efforts underway. Use clear definitions of your supplier diversity program and common language as outlined throughout the toolkit, for example a clear definition of total addressable spend

Leverage external technology providers to support the validation of existing third-party certified diverse suppliers.

Supplier Diversity Metrics of Success

Successful goals are clearly defined and measurable with objectives that are both qualitative and quantitative. Momentum is built upon small successes over time, building relationships with stakeholders, and clear goals that incentivize this work for organization leadership. Examples of goals that could be established to achieve incremental change might include the number of contracts awarded to diverse suppliers, attendance of sourcing team members at “meet the buyers” events, and the number of presentations in the community to increase transparency on the purchasing process.

Introduction

Key Terminology and Metrics to Track and Assess Progress Over Time

Best practice supplier diversity programs include guidance on definitions and program measurement to achieve success. While the program may evolve, including measurements of the program is critical at every stage. A crucial start to a successful supplier diversity program is clearly defined program objectives. Understanding your business case provides a foundation to shift into defining what your supplier diversity program will include. Examples of considerations for inclusion in or exclusion from scope can be found here.

Additional Resources to Support Program Definition and Measurement

Supplier diversity definitions to know
Government programs and certifying agencies to know

including programs that align with the above definitions of supplier diversity.

Achieving Supplier Diversity Goals with Data

To begin measuring your supplier diversity program, create a baseline of your current spend that excludes categories such as government transfer payments, employee compensation, and depreciation and amortization. Creating a clear internal process to pull spend information on a consistent basis is key to accurate measurement. Below are the recommended methods of establishing supplier diversity spend in alignment with leading healthcare organizations. This includes:

Define your data spend parameters including which categories of supplier diversity you will be setting goals for and measuring. For example, the Healthcare Anchor Network Impact Purchasing Commitment focuses on doubling the spending of third-party certified women and minority-owned businesses explicitly.
Build internal awareness, support, and agreement for total procurement spend

and addressable procurement spend

as defined by the Healthcare Anchor Network (HAN).
Construction spend (defined)

is variable based upon many unique factors of each organization. It’s recommended that construction expenses and construction-related capital expenses such as furnishing the building are measured separately from total addressable spend. It’s best practice to create a separate supplier diversity construction measurement, strategy, and goals.
Work with your finance department to obtain a financial report including the total addressable procurement spend

which includes summed dollar amount of all operating, non-construction capital, AND construction expenses incurred during the fiscal year with direct vendors to your health system, minus the expense categories outlined here.

Once you’ve pulled your total procurement spend report for a one-year period, organize the data by total spend, addressable spend, construction spend, and excluded spend.

Validate your addressable spending to create a comprehensive list of cost centers and account numbers to include for baseline and future tracking within the ERP system.
The first step to measuring your existing supplier diversity spend is through a clear financial view of the organization’s total addressable spend. Once you’ve calculated your total addressable spend, utilize your comprehensive list of cost centers within scope to pull a report with your baseline spend for the specified year. Additional tips when developing your spend reports can be found here.
Determine what year your organization’s baseline spend will be pulled from. Consider any major shifts in business or economy that are abnormal when setting the baseline spend. Consider any major events or purchasing decisions that would skew the baseline data (e.g. covid pandemic).
Once you’ve obtained your total spend, utilize your comprehensive list of addressable spend cost centers or general ledger accounts to pull a report with your baseline spend for the specified year.
- House data in a specified location with clear guidelines of cost centers or general ledger accounts included and excluded for the future.
- When developing a spend report for diverse suppliers, include the following variables: business name, certification type, headquarters address, primary contact, total spend over a one-year period, cost center, and account number.
Once you’ve reviewed your baseline diverse supplier spend report is accurate, engage a third party to provide data enrichment. This is a process by which a third-party business reviews the business name and headquarters information to confirm if that business is a certified diverse supplier.
- Review the data enrichment process and confirm all priority certification types and certifying bodies of interest are included.
  
  Request a transparent overview of the verification process from the data enrichment vendor.
- Once addressable spend is determined, use a third-party data enrichment partner to determine which suppliers are diverse.
- Confirm if they include/exclude self-certifying suppliers.
With data enrichment complete, the organization now understands the current spending with diverse business suppliers. With this data, evaluate current diverse supplier spend and future goals by department or executive leader. More detail on goal setting can be found in chapter 2.

Supplier Diversity Measurements of Success

Common measurements of supplier diversity include but are not limited to:

Diversity Spend

Diversity spend includes the percentage or total dollar amount spent with diverse suppliers. Diverse supplier spend data may be disaggregated by:

Tier One Spend

and Tier Two Spend
Diverse Supplier by category such as Minority-owned businesses.
Organizational metrics (e.g. division or dept.)
Number of diverse suppliers awarded contracts.
Growth of spend with specific diverse suppliers over time.
Number of diverse suppliers on contract over a period.

Leading and lagging measures

It’s important to create a measurement system that aligns with tactics (leading measures) that when implemented collectively create outcomes (lagging measures).

Leading measures are internal measurements of short-term progress. Focus on activities that move toward a larger goal. Leading measures can sometimes be more challenging to determine due to their short-term nature and the assumption that they will contribute to long-term outcomes. An example of a leading measure is the number of diverse suppliers included in the bid process. Increasing the inclusion of diverse suppliers in the bid process assumes the long-term (lagging) impact would be an increase in the number of diverse suppliers awarded the contracts.

Intentional metrics reinforce a process for the sourcing team members. For example, measuring the inclusion of diverse businesses throughout the year keeps supplier diversity efforts top of mind. By creating a goal focused on including more diverse suppliers, team members responsible for achieving this metric learn more about how to identify diverse businesses during a bid process and build relationships with new diverse suppliers. Leading metrics that are regularly reviewed and supported create a problem-solving culture and hold team members accountable for engaging in the program.

Lagging measures are aligned with outcomes and impact. An example would be the number of new diverse suppliers awarded contracts in a given fiscal year. Lagging measures focus on total impact over time, typically established before the fiscal year begins, and are reported annually. An example of a lagging measure would be the percentage of total spend in a given fiscal year with Minority Business Enterprises.

External reporting of outcomes is a method of celebration, promotion, transparency, and organizational commitment to the integrity of the program. Many organizations place goals and annual outcomes on their customer-facing websites. When reporting information publicly, it is important to have high confidence and integrity in the supplier diversity data. Requiring all reported supplier diversity spend to be verified as third-party certified increases efficacy and confidence in the information shared.

Self-Certified and Third-Party Certified

A vendor is third-party certified when they have obtained a certification from an external certifier (third-party certifier), such as the National Minority Supplier Diversity Council. Comparatively, a self-certified diverse business has made a proclamation of diverse ownership without additional verification from a neutral external third-party. Learn more as to why third-party and self-certification are of value to collect internally here.

Reporting spend with suppliers that are certified diverse by a third-party is required in best practice supplier diversity programs, such as the Healthcare Anchor Network Impact Purchasing Commitment. Third-party verification is a process for a diverse supplier to verify the accuracy of the declared business ownership and is conducted by approved organizations. This increases the confidence and integrity of tracking your program and reporting transparently to the community. Methods to support third-party verification within the industry can include sponsoring the cost to certify diverse businesses or connecting them with an entrepreneurial support organization to support the journey. Some examples of certifiers can be found here.

Classification for Multiple Diverse Certifications Reported

Consistent with federal government reporting standards, a supplier should be classified in only ONE diverse category, regardless of whether that supplier meets multiple diverse criteria. In other words, don’t double count the spend among the diverse categories (minority, women, veteran, and other diverse). If a supplier is both minority-owned and of another ownership category, most institutions have historically opted to report this vendor as “minority-owned”. It is recommended as an industry standard that healthcare organizations adopt this defined reporting criteria to create consistency and accuracy in reporting.

Balanced Scorecard of Program Impact

Leverage the Supplier Diversity Maturity Model to evaluate your current program and to determine what to measure. Review each focus area to determine the current level of your supplier diversity program is at within your organization. Track the associated points for that level and review what opportunities exist for your organization to shift to a higher level. Details on tracking an organization’s progress can be found here.

This information can be utilized for goal setting and standardization for reporting overall progress of a supplier diversity program.