What is Diversity Spend?

By: Moamen Gaballa,

Diversity and inclusion (D&I) is an important aspect of corporate social responsibility (CSR) and as stewards of cultural and financial growth businesses are making it their responsibility to improve how they support D&I initiatives, both internally and externally. One way companies are exploring to help achieve their D&I goals is to contract with minority owned businesses with a Tier 1 diversity owned business status to capture “diversity spend". What does that mean, generally, and what does that mean to you and your company? Well look no further, in this article we will discuss what diversity spend is and why it is important. We will also discuss how to increase your diversity spend to improve your companies overall CSR. 

Diversity Suppliers

 

What is diversity spend? 

Diversity Spend is simply the amount of money that a company spends with a certified minority owned businesses. 

A minority-owned business is a business that is 51% or more owned and controlled by a person or a group that is a member of an historically under-served or under-represented group such as minority-owned businesses (Asian-Indian, Asian-Pacific, Black, Hispanic, and Native American) or woman-owned businesses.

Why is it important? 

There are a lot of reasons ranging from social to economical 

  • It is the right thing to do morally and ethically speaking, A business that has supplier diversity programs maintains high ethical and moral standards.
  • Using supplier diversity programs promotes the generation of economic opportunities for disadvantaged communities by increasing the spend with these diverse suppliers; your business helps create jobs in these communities, which in turn causes economic growth.
  • It can help generate more ROI for your business, a study by the Hackett Group showed that businesses that use supplier diversity programs for the long-term generate 133% more ROI than businesses that use the same suppliers. This study showed an increase of $3.6 million to an organization’s bottom line for every $1 million spent on operational and procurement expenditures. Not only this but also according to the same report, procurement companies that collaborate with a diversified supplier base see lower operational expenses and a 20% reduction in buying processes.
  • Collaborating with small organizations promotes the creation of a more robust relationship.
  • Having a strong diverse program ensures that you have access to a large number of suppliers for the same product, thus not only does your business end up creating competition against the suppliers which ensures that your business gets the best price and quality but it also ensures that your business gets to choose the best supplier based on its needs whether that is price, location, delivery times, service, etc.
  • Companies and Organizations that have a robust diverse supplier program have the advantage of entering new markets and attracting new consumers. 

What are the different tiers of diversity spend? 

Generally speaking, there are two main supplier groups that cause the different tiers of spend in diversity spend, Tier-1 Suppliers and Tier-2 Suppliers. 

Tier-1 Suppliers 

They are considered an organization’s main suppliers. These are certified minority owned firms that directly sell services or products to consumers. In practice, this means that you are buying products from their store front or website, they are invoicing you, providing customer service and account management, and you are paying them directly. This gives you Tier-1 purchasing credit for every dollar spend with that supplier. These can be reported on government or related contracts that have Tier-1 purchasing requirements.

Tier-2 Suppliers 

They are the certified minority owned companies that provide distributors or subcontractors with the services or products that are then sold to their customers. In other words, they are one step removed from the transaction with the customer. There is no direct business relationship with the minority owned company.  However, you can track those dollars spent and report them on your CSR releases and more importantly re-enforce purchasing products through your distributors with those suppliers.

Both of these Tiers of spend are essential to supporting CSR initiatives. Just remember, money spent directly with certified minority-owned companies is considered Tier-1 spend, while money spent with a distributor or subcontractor who sells products or services of a certified minority-owned company is considered Tier-2 spend. 

 

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Diversity Programs are an essential part of growing your business not only due to the economical benefits you gain but also because of the social and economic impact of such programs on communities. 

Here at CenterPoint Group LLC we are aware of the huge benefits of diversity suppliers and diversity spend. As We are a certified minority owned business with programs that can help your company deliver Tier-1 spend on everyday products and services. We would love for you to get in touch with us so we can work together to achieve your business goals and to take advantage of the huge benefits of diversity procurement. 

 

Find out what your CenterPoint team can do for you today!

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The information contained in this article is intended for general information purposes only and is based on information available as of the initial date of publication. No representation is made that the information or references are complete or remain current. This article is not a substitute for review of current applicable government regulations, industry standards, or other standards specific to your business and/or activities and should not be construed as legal advice or opinion. Readers with specific questions should refer to the applicable standards or consult with an attorney.

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