Talk, walk and commit: The significance of contracts in supplier diversity

Last year, diversity and inclusion rose to the forefront of conversations globally, prompting the corporate world to propose action on numerous fronts, from hiring to procurement to sourcing goods and services. Several high-profile organizations have objectives to increase spending with diverse suppliers, generally defined as businesses owned and operated by at least 51% of an individual or group from a traditionally underrepresented or underserved community. For example, [in a blog shared widely], Microsoft committed to double its number of Black-owned suppliers – one of several notable supplier diversity goals set last spring.

Publicly announcing diversity-specific goals is important and necessary; however, companies must also succeed in achieving them across the organization. Further, implementing and managing supplier diversity initiatives can be an undertaking for larger companies working with thousands of vendors who also oversee an ecosystem of suppliers fulfilling their own diversity programs across complex and massive business landscapes. The management of suppliers can be multifaceted and requires organization-wide visibility into whom a company is doing business with and with what terms and mechanisms to ensure those terms will be met.

Contracts, and digital technology to scale contract processes across matrixed organizations, are critical tools in managing supplier diversity initiatives. This contract-centric approach to supplier diversity requires three steps: talk, walk, and commit.

Step 1 – Broadcast your call to action (talk): An organization’s first move to increase supplier diversity is the promise to do better. This pledge empowers the public to hold the company accountable to see the intent through to tangible results. A recent McKinsey study found that 75% of Gen Z consumers will boycott organizations that discriminate against race and sexuality across advertisement campaigns. Accordingly, companies must articulate their stance on social justice to attract an ever-growing base of socially responsive consumers.

Public commitments also influence action among rival companies to remain competitive in the marketplace, where brand reputation around ESG (environmental, social, and governance) practices carries serious implications for both the top and bottom-line management.

Step2 – Establish policies (walk): Once these promises are made, companies must set policies to guide execution and provide goals to define success. These can involve not only increasing spend to diverse suppliers, but, more ambitiously, establishing requirements for a company’s suppliers to enhance diversity in their supply chains. For instance, in 2019, Target spent $1.4 billion on goods and services provided by first-tier diverse suppliers, and influenced its first-tier suppliers to increase their spend on second-tier diverse suppliers.

Step 3 – Operationalize with contracts (commit): Once policies and goals are set, companies must operationalize them in a consistent, repeatable, and auditable way across the organization to ensure they deliver on their promises. Contract lifecycle management (CLM) technology can play a critical role in tracking supplier diversity, and ultimately, ensuring that policies are met.

The first step will be to audit your existing contract repository for these commitments. With digitization, it will become easier to identify which existing contracts currently contain supplier diversity requirements. Once identified, these contracts should be regularly monitored for performance.

Second will be to make sure updated supplier diversity clauses have been included in all appropriate contracts. This can be done by amending your standard templates or incorporating pertinent clauses into your clause library.

For example, a clause may outline the certification obligations of a prime supplier: “Supplier Diversity. At the request of Buyer, Seller shall provide certifications qualifying the Seller as a Diverse Supplier, for purposes of Tier I Supplier Diversity reporting, and information regarding their involvement with Diverse Suppliers, for purposes of Tier II Supplier Diversity reporting.”

However, the work does not end with ensuring the right clauses are in inserted into the right form agreement. With an executed contract in place, committed companies must manage these relationships and monitor for the performance of these diversity obligations throughout the life of the contract. A cloud-based CLM system can ease this management. For instance, a supplier who has agreed to these terms can periodically upload its documentation or certifications to a collaboration portal for quick and easy verification of compliance. Alternatively, if the required documentation has not been filed per the terms of the contract, the contract system can detect the noncompliance and alert managers for action.

Companies that have broadcasted their intent, regardless of the size of their supplier eco-system or the complexity of their business, must take a strategic and tactical approach to tracking supplier diversity obligations and should turn to automation and technology help. Numerous diverse suppliers face several challenges to be included in a company’s supplier network, which is why it’s imperative that more companies take a “talk, walk, commit” approach to supplier diversity.

Consumers have applauded those in the business world who have stepped up to address historical injustices; but, with equal passion, the public’s patience will wane with those organizations that give empty promises and excuses as to why improvements cannot be made. When properly managed, contracts can be a powerful tool in this important work. Conversely, without a system to track supplier diversity initiatives and contractual requirements, all the talk about diversity and equity will remain unchanged.

The article Bernadette Bulacan, Vice President, Lead Global Evangelist, Icertis

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