For decades corporate sourcing officers have sought to measure the value proposition of supplier diversity – as distinct from its social contribution. One primary mission of the Gazelle Index (which is powered by EuQuant) is to identify metrics and analytics that allow organizations to quantify value contributions, thereby moving discussions from the theoretical to the practical level.
Recent research suggests that just 80% of corporations use supplier analytics. The situation is even worse when it comes to diverse suppliers. Usually, organizations only have information on the total spend with diverse suppliers. Yet spend may affect the bottom-line positively or negatively.
Given the absence of metrics and data, sourcing officers simply assume the value of diversity exceeds its cost. While Gazelle Index believes those assumptions are correct, it also insists the value contributions must be measured. If supplier diversity increases ROR, it should be demonstrated and reflected in the bottom-line alongside other factors that positively affect profitability.
In an era when global competition and shareholder pressures are constantly intensifying, performance metrics are indispensable.
Some key metrics pioneered by Gazelle Index include measurements of business capacity, i.e. the volume of work a firm is capable of delivering in a given industry. Knowing supplier capacity allows corporations to increase the efficiency and effectiveness of sourcing, while at the same time reducing risk. EuQuant has also created a Business Development Index, which measures the impact of sourcing opportunities on supplier growth and development. Other metrics include the effects of sourcing on local income and employment generation as well as tax creation and economic activity within targeted communities.
Through metrics such as these, it is possible to link corporate sourcing programs with their bottom-line return. In general, good supplier diversity analytics should achieve the following outcomes:
- Better data collection, data organization, and customization of diversity spend metrics.
- Knowledge of commodity categories where significant cost savings can be generated by using diverse suppliers
- Measurements of the impact of diverse supplier spending on income and employment growth in current and potential corporate markets;
- A strategic rationale for why the corporation should use diverse suppliers.
- Improved ability of managers to identify and reduce risks associated with supplier diversity;
- Better government compliance monitoring;
- Information on the best-performing and highest capacity diverse suppliers;
- Greater business intelligence on diverse markets; and
- The ability to present to shareholders a compelling case for supplier diversity.
Corporations are able to optimize shareholder value when they can monitor diversity metrics, evaluate their impacts and outcomes and identify the most effective and efficient suppliers.
Last modified: June 21, 2017