Hackett Research Alert: Most Supplier Diversity Programs Simply Fail To Deliver
May 14 2010 - 9:30AM
Business Wire
While world-class procurement organizations continue to
outperform their peers in driving supplier diversity spending, a
new study by The Hackett Group, Inc. (NASDAQ: HCKT) identifies
several critical ways that most companies fail in their supplier
diversity programs.
Hackett’s latest research found that companies with world-class
procurement organizations commit 33% more of their spend to diverse
suppliers (13.3% of total spend for world-class versus 10.0% for
typical companies).
But according to Hackett’s research, most companies still make
major errors in how they operate and measure the performance of
their supplier diversity efforts. Most rely on overly simplistic
measures to evaluate the progress of supplier diversity programs,
and never truly assess whether programs are meeting corporate
objectives. Most companies also fail to consider whether a few
large suppliers or many smaller suppliers best supports their
corporate goals. Hackett’s research also quantified the positive
and negative impact that globalization is having on supplier
diversity efforts.
“What we see here is serious misalignment,” said Hackett’s North
American Procurement Advisory Program Lead Kurt Albertson. “Many
companies are taking the easy way out, and as a result aren’t
driving real supplier diversity benefits. They are focused on
making the numbers they need to meet government requirements, or
getting recognition from their customers or industry. But they
aren’t showing the attention to detail required to create programs
that have real impact.”
The Hackett study, which included results from nearly 40 Global
1000 companies, found that there are two primary drivers of
supplier diversity efforts. While business-to-business companies
are frequently focused on meeting supplier diversity requirements
of customers and/or government contracts, business-to-consumer
companies generally focus on the market value supplier diversity
offers, in the form of increasing market penetration in diversity
markets, driving social and economic benefits in targeted
communities, and improving corporate image.
But while supplier diversity programs are generally aligned with
high-level corporate objectives, most companies use relatively
simplistic performance metrics to measure progress, and do little
to ensure alignment at an operational level. About 90 percent of
all companies in the study rely on metrics such as “Percent Spend
with Diverse Suppliers” or “Recognition by Industry”. But less than
half of the companies in the study track the percentage of their
suppliers that diverse suppliers represent, and only about 10
percent of all companies assess the impact of supplier diversity
efforts on revenue or market share.
Another key mistake companies make, according to the Hackett
study, is failing to align program objectives with decisions
regarding the number of diverse suppliers with whom they work.
Hackett’s research found that nearly 70 percent of diverse
suppliers have less than $100,000 in annual diversity spending with
a particular company, and this collectively represents less than 6
percent of the total supplier diversity spend. According to
Hackett, while the objectives of business-to-business companies
might be best served by focusing on a few larger contracts to
satisfy government regulations, business-to-consumer companies
seeking to drive market awareness and penetration should consider
focusing their supplier diversity efforts on developing a larger
group of suppliers and smaller individual contracts.
Finally, Hackett’s research found that globalization of business
services presents both obstacles and opportunities for supplier
diversity programs. While nearly 80 percent of all companies
studied were global businesses, over 90 percent tracked metrics
only for U.S. suppliers. But more than two thirds of the companies
said globalization of supplier diversity programs is either very
important or critical. About half of the companies in the Hackett
study said they expect globalization to have a negative impact on
their smaller suppliers, while nearly 20 percent said they expect
the impact to be positive.
Overall, Hackett sees an opportunity for companies to align
supplier diversity programs with global sourcing initiatives.
Hackett believes that most diversity programs will eventually have
to address the challenges involved in tracking non-US diverse
supplier spend and certification; many will be forced to rethink
their definition of diversity to take into account responsible
supply, localization and other factors.
About The Hackett Group
The Hackett Group (NASDAQ: HCKT), a global strategic advisory
firm, is a leader in best practice advisory, benchmarking, and
transformation consulting services including strategy and
operations, working capital management, and globalization advice.
Utilizing best practices and implementation insights from more than
4,000 benchmarking engagements, executives use The Hackett Group's
empirically-based approach to quickly define and implement
initiatives to enable world-class performance.
Through its REL group, The Hackett Group offers working capital
solutions focused on delivering significant cash flow improvements.
Through its Archstone Consulting group, The Hackett Group offers
Strategy & Operations in the Consumer and Industrial Products,
Pharmaceutical, Manufacturing and Financial Services industry
sectors. Through its Hackett Technology Solutions group, The
Hackett Group offers business application consulting services that
help maximize returns on IT investments. The Hackett Group has
worked with 2,700 major corporations and government agencies,
including 97% of the Dow Jones Industrials, 73% of the Fortune 100,
73% of the DAX 30 and 50% of the FTSE 100.
Founded in 1991, The Hackett Group was acquired by Answerthink,
Inc. in 1997. Answerthink was renamed The Hackett Group, Inc. in
2008. The Hackett Group has global offices in the United States,
Europe and Asia/Pacific.
More information on The Hackett Group is available: by phone at
(770) 225-7300; by e-mail at info@thehackettgroup.com; or on the
Web at www.thehackettgroup.com.
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