#SMESuppliers: Tier 2 program for the lazy?

Supplier Diversity is still in its infancy in many markets and companies struggle to find the right approach to diversify their supplier base or even understand what that means in practise. Often the companies that qualify, are lesser known, smaller companies. Supplier Diversity’s rationale of having a separate diversity agenda for your supply chain is after all, that companies that fit the diversity criteria, e.g. companies owned by women or minorities have traditionally less access to business opportunities, financing, network and others and therefore need special attention to grow and thrive.

With corporates often looking to consolidate to larger suppliers, dealing with smaller businesses seems a pain and no dedicated resource allocated to the effort makes it difficult to manage them effectively. Trying to get to a “work in progress” at least, many include supplier diversity statements into the contracts with their suppliers and ask them to integrate smaller companies through the 2nd tier, meaning as subcontractors to their main suppliers. These can be loose statements suggesting the supplier makes efforts to integrate more diverse suppliers or more concrete stipulations, like a number of subcontractors or % of spend that needs to go through the diverse supplier base. The latter is often the case where the market requires demonstrated supplier diversity and quotas.

Supplier Diversity Procurement SME

Managing Supplier Diversity through the 2nd Tier programs has (rightly) been accused of being a cheap and lazy strategy to window dress without investing real effort in democratizing access to tender opportunities. Pushing the requirement out to the suppliers for them to figure it out. So yes, if that is all that’s done, it’s a lazy, hands-off strategy that just serves to tick the box. But an effective 2nd Tier Supplier diversity strategy, that supplements a solid in-house strategy, not only gives access to opportunities to even more small businesses, but also helps educate and develop the market about supplier diversity.

A credible, effective 2nd tier strategy should include:

  • Education

Share not only your supplier diversity framework, but also educate the suppliers about the reasons for investing in supplier diversity, the economic impact, organizations where they can meet suitable suppliers, accreditation programs and more options. Education is a two-way stream as well, ensure you also benefit from their insights on how to make the program work for your own.

  • Clear definitions

Provide the supplier with clear definitions and classifications for diverse suppliers. This is also essential to ensure proper reporting, especially in mandated markets.

  • Support and joint activities

Ensure that the supplier has support and contacts to improve on their supplier diversity activity. This is also useful feedback and food for thought internally. Joint activities, like attending supplier diversity trade shows are also suggested to ensure you are aligned on your activities and have not just your suppliers’, but also your own brand out in the market.  

  • Reporting

Provide the suppliers with standardized reporting formats for their supplier diversity activities to track progress and have a more granular view of what categories of diverse subcontractors are engaged. In addition to just reporting numbers and categories of 2nd tier suppliers, qualitative insights, including critical comments where the market is not mature enough help identify areas where support, feedback to the supplier diversity chapters and possibly mentoring is needed. Or where stellar suppliers deserve further recommendation or could move up to become direct suppliers.

  • Innovation and Visibility

You also want to ensure innovative ideas from these smaller companies come to your attention (also read our blog post on SME Innovation), so having attending trade shows, having pitch or innovation days/competions or opportunities for regular idea submissions with your 1st and 2nd tier suppliers is a great opportunity to get access to that innovation power.

Lastly, having a great 2nd Tier supplier diversity strategy is only credible where you have your own diverse supplier base contracted directly. It’s hard to preach something which you don’t practise, so 2nd tier supplier diversity should not be an “instead of”, but an “in addition of” to your own diverse supplier base.

We’re interested to hear feedback from the market, both mandated and non-mandated markets to hear how supplier diversity and 2nd tier programs work and how to get them off the ground successfully if this is new and dedicated resource is maybe not available.

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