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Diversity Spend Escalates

March 2006, Inside Supply Management^® Vol. 17, No. 3, page 40

CAPS: Supply Management's Leading-Edge Research

New research survey shows that the majority of organizations (more than 74 percent) have a goal for total spend with diversity suppliers. In particular, big business is increasing its activity, with growth in the spend allocated for women-owned businesses.

In an effort to benchmark organizations' activity in diversity programs, CAPS: Center for Strategic Supply Research recently conducted a survey on supplier diversity programs. Other firms with supplier diversity programs can use this data to assess progress relative to comparable firms their size. The survey was released in September 2005, and a total of 113 usable responses were received, for an overall response rate of 23.8 percent. The highlights below summarize some of the data relative to diversity spend with suppliers that are classified as being small disadvantaged businesses and women-owned small businesses and summarizes the full metric report that can be found on the CAPS Web site (www.capsresearch.org, see box below).

Some general observations:

1. On average, 8.7 percent of the survey participants' total spend for goods and services purchased in the United States is directed to suppliers that are owned by minorities, women, service disabled veterans or by individuals whose businesses are located in designated HUBZones (Historically Underutilized Business Zones, according to the U.S. Small Business Administration definition).
   
   
2. Overall, 65 percent of the participants have supplier diversity goals.
   
   
3. About 72 percent reported an increase in their overall diversity program activities and spend. More than half of the increase in diversity spend was with women-owned businesses.
   
   
4. Almost one-third (32.3 percent) of the diversity suppliers are women-owned businesses, and 16.3 percent are considered minority-owned businesses. About half of the businesses were identified as being other than women-owned or minority-owned.
   
   
5. Although 50 percent of the sample reported a reduction in their total numbers of suppliers in 2005, only 25 percent said the reduction will include some of their diversity suppliers.
   
   
6. CAPS also asked for information on HUBZone and disabled veteran-owned businesses, but there weren't sufficient responses to report specific outcomes.

Pretty impressive numbers overall — but let's a closer look at the data. The participants reported total annual revenues ranging from $5 million to $142 billion. Their total annual spend for goods and services in the United States ranged from $1 million to $15 billion. To get a more granular look at diversity spend patterns, CAPS segmented the results into groups according to firms' U.S. spend. The results were divided as follows: spend greater than $10 billion; spend of $5 billion to $10 billion; spend of $1 billion to $5 billion; spend of $500 million to $1 billion; spend of $100 million to $500 million; and spend less than $100 million.

The chart above illustrates the breakdown of these groups by total diversity spend, by small disadvantaged business spend and by women-owned business spend. Based on the results of this sample, larger businesses with more than $10 billion spend in the United States spent (on average) 7.5 percent with diversity suppliers. Broken down even further, the sample indicates 4.9 percent of measured spend is with minority-owned businesses and 2.3 percent of measured spend is directed to women-owned businesses. At the opposite end of the graph, businesses that reported less than $100 million in measured spend reported that 9 percent is on diversity programs; 4 percent is with minority-owned businesses and 5 percent is with women-owned businesses.

The study also asked what percent of organizations had a goal for total spend with diversity suppliers. The majority (more than 74 percent) said that they did. In most cases, 65.22 percent, the goal was identified as a percentage of total spend. For those firms where the goal was not identified as a percent of total spend, a variety of other methods were used, including: a percentage over prior-year diversity spend; best efforts; by awarded dollars; determination by the Veterans Administration; continuous improvement; on a per-contract basis; increase in the total number of contracts; continuous growth in the program; percent of discretionary spend; previous year plus next year's estimate; and specific dollar amount per year.

Contact us at benchmark@capsresearch.org if you would like information on how to participate in the follow-on survey that will be released in early Spring 2006. CAPS will take a more detailed look at diversity spend by specific programs. This will help us track diversity spend by industry sectors.

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