The Hackett Group 2008 Supplier Diversity Study Results: Insights into Program Performance and Practices. Highlights of Results

The Hackett Group : Insights into Program Performance and Practices Highlights of Results Kurt Albertson Director of Advisory Services May 30, 2009

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Advisory Members Gain Access to Leading Practitioners, Best Practices, Metrics, Research, and Events to Support the Journey to World-Class Best Practice Research Advisor Access Peer Interaction Measurement On-Demand Research Book of Numbers Research Series Access to new Hackett Research reports Access to the Hackett Knowledge Center Process Taxonomy Best Practices Quick wins Conference Presentations Research Repository Webcast Archive On-demand access to Experienced Advisors On-site Executive Briefing on selected topics Executive Advisory Program Deliverables Invitation to Annual Leadership Forums Invitation to Annual Executive Summit Passes to the Hackett Best Practices Conferences Monthly Member Events, including Interactive Webcasts and Roundtables Continual Learning Credit for event attendance Functional World-Class Progress Report Participation in all Hackett Performance Studies, including customized reports and readouts (e.g. Purchase-to-Pay) Supports On-Demand requests for research based on access to public and private sources of information Can serve as an extension of an company s team to support activities around supply market overviews, identification of solution providers, etc. Page 4

Continuing Economic Instability and Global Markets will Challenge Supplier Diversity Managers to Create Real Value and Rethink Program Scope A complex set of objectives drive supplier diversity programs with direct to consumer organizations stressing brand recognition and non-direct to consumer organizations emphasizing customer and government requirements...both objectives can be directly tied to revenue which is critical to success Nearly three quarters of diversity suppliers have less than $100k in annual spend with any one participant and account for less than six percent of the total supplier diversity spend reported. An organization s objectives should dictate the optimal approach for their diverse supplier adoption strategy Temporary staffing, facilities mgmt, construction services, contract manufacturing, and IT consulting were identified by participants as the categories with the highest opportunity for diversity suppliers While percent of spend with diverse suppliers is tracked by most participants there are a broad range of metrics measured depending on an organization s objectives and we are seeing more organization quantifying the value delivered from these programs Participation in supplier diversity associations, embedding practices within existing processes, and executive level support were identified as having the highest positive impact on supplier diversity success while availability of resources and acquisitions of diverse suppliers had the greatest negative impact Procurement is typically responsible and accountable for supplier diversity programs although a broad array of functions are consulted and informed with the CEO most often reviewing program performance Global sourcing is critically/very important for more than two-thirds of participants and over half believe global sourcing will have a negative impact on supplier diversity programs Page 5

Table of Content Supplier Diversity Study Overview Supplier Diversity Objectives Supplier Diversity Spend Analysis Measuring Supplier Diversity Performance Keys to a Successful Supplier Diversity Program Supplier Diversity Program Governance The Impact of Global Sourcing on Supplier Diversity Looking Ahead Page 6

Supplier Diversity Study Objectives and Scope The Supplier Diversity Study was conducted to better understand The objectives of organizations related to their supplier diversity programs The measurements that organizations use to gauge success against these objectives The factors that drive and hinder supplier diversity success The impact of globalization on supplier diversity programs The Supplier Diversity Study focused on Supplier Diversity performance within the United States In many instances supplier diversity was defined broadly and based on the scope of the study participants Page 7

Participants Ranged Across a Broad Types of Industries with an Even Split Between Service and Manufacturing Segments Industry Demographics Financial, Insurance, and Professional Services Pharmaceuticals & Biotechnology Utilities and Chemicals Consumer Products and Retail Healthcare Equipment & Services Telecommunication and Transportation Services Technology and Automotive Transportation $4,797 Average Participant Size (million) $17,747 $22,578 US Spend US Revenue Global Revenue Page 8

While the Need to Tie Supplier Diversity Objectives to Tangible Benefits is Critical Particularly in Today s Economic Environment, Intangible Benefits Still Rank High on the Priority List Support corporate culture around diversity and social responsibility 28% 38% 31% 3% Drive corporate image through supplier diversity initiatives 13% 47% 34% 6% Meet supplier diversity requirements of customers/ government contracts 38% 28% 13% 22% 13% Drive social and economic benefits within targeted communities 16% 34% 28% 22% Increase market penetration/ recognition in targeted diversity markets 16% 31% 28% 16% 9% Achieve social recognition by industry and supplier diversity associations 13% 31% 38% 19% Improve service/ quality through local supply 9% 31% 31% 19% 3% 0% 25% 50% 75% 100% Critically Important Very Important Important Somewhat Important Not Important Tangible Benefit Intangible Benefit Page 10

B2C Organizations Tend to Put Greater Importance on Objectives Tied to Brand Recognition within Target Markets While B2B Organizations Emphasized Requirements of Customers and Government Importance of Objectives for Supplier Diversity Program 3.9 2.6 3.7 3.8 3.2 3.5 3.4 3.1 3.9 3.9 3.4 3.4 3.4 4.0 Increase market penetration/ recognition in targeted diversity markets Drive social and economic benefits within targeted communities Drive corporate image through supplier diversity initiatives Improve service/ quality through local supply Support corporate culture around diversity and social responsibility Achieve social recognition by industry and supplier diversity associations Meet supplier diversity requirements of customers/ government contracts B2C B2B Importance of Supplier Diversity Objectives 5 Critically Important 3 Important 1 Not Important 4 Very Important 2 Somewhat Important Page 11

70% of the Diverse Suppliers Have Less than $100k in Annual Spend Although these Suppliers Represents only about 6% of Total Diversity Spend 69.9% Percent of Diversity Suppliers by Average Annual Spend with Supplier Percent of Diversity Spend by Average Annual Spend with Supplier 25.6% 74% of Diversity Spend is with 7% of the Diversity Suppliers 20.4% 14.5% 23.2% 9.0% 10.2% 8.4% 5.6% 4.9% 5.3% 0.8% 0.4% 0.3% 0.1% 0.0% 0.0% 1.4% < $100K $100K - $1M $1M - $5M $5M - $10M $10M - $20M $20M - $50M $50M - $100M $100M - $250M > $250M < $100K $100K - $1M $1M - $5M $5M - $10M $10M - $20M $20M - $50M $50M - $100M $100M - $250M > $250M Organizations targeting percent of diverse supplier spend may be best served with several large divers suppliers while organizations targeting corporate image market awareness may be best served developing smaller suppliers Page 13

Frequency Opportunity The Chart Below Compares the Frequency and the Magnitude of the Supplier Diversity Opportunity by Category Supplier Diversity Category Opportunity Office Supplies Telecom Services IT - Hardware Facility Mgmt and Maintenance Services Marketing - Professsonal Agency Temporary Staffing Facility Maintenance Supplies Training and Development Services IT - Software Other Professional Services IT - Consulting Services Commercial Print Legal Services Catering and Food HR Services Consulting/Audit/Tax Services Office Furniture and Equipment Construction Services IT - Maintenance Services IT - Other Services Engineering Services (non-it) Research & Development Services Logistics Services Subscription and Memberships Contract Mfg Services Executive Search Airlines, Car rentals, Lodging Packaging Materials IT - Peripherals and Consumables Real Estate Telecom Equipment Other T&E Expenses Travel Agency Bulk Commodities Other Materials Purchased Finished Goods Warehousing and Distribution Services Parts and Assemblies Spend Opportunity Capital Assets Other Services Other Direct Materials Supply Chain Services Service-based Product-based Page 14

Percent of Spend with Diverse Suppliers is Tracked by Most Participants but there are Also a Broad Range of Other Metrics Measured Depending on an Organization s Objectives 93% Percent of Participants Reporting Metrics 89% 46% 32% 11% 7% 18% 14% 4% 4% % spend with diverse suppliers Diverse suppliers as a % of total % increase in revenue % increase in market share % of RFPs participation Dollar value of RFPs participation % proposals won w/ diversity a criteria Dollar value proposals won w/ diversity a criteria Dollar value economic impact Recognition by industry Page 16

Percent of Spend and Percent of Suppliers Reported by Participants: Diverse Suppliers and Small Businesses Diverse Suppliers Small Businesses 18% 40% 15% 28% 8% 8% 17% 14% 4% 4% 5% 5% 1st Quartile Median 3rd Quartile Percent of Spend with Diverse Suppliers Percent of Suppliers that are Diverse 1st Quartile Median 3rd Quartile Percent of Spend with Small Businesses Percent of Suppliers that are Small Businesses Metrics were self-reported across all supplier diversity categories considered in-scope of the participants program Page 17

Participants were Asked the Level of Impact that a Variety of Factors Have Had on the Success of the Supplier Diversity Programs Participation in diverse supplier associations Embedding supplier diversity practices w/i existing processes Level of support from Executives of your organization Networking with other organizations within your industry Level of engagement with internal stakeholders Acceptance by Business Units/ Operations Aligning Supplier Diversity Program with CSR Initiative Supplier development and mentoring programs Tying diversity objectives with higher level company objectives Existing supplier support for driving 2nd tier participation Recent acquisition(s) involving your organization Availability of internal resources to support program Availability of qualified diverse suppliers Business Process Outsourcing Initiatives Recent acquisition(s) involving your diverse supplier(s) 0% 25% 50% 75% 100% Significant Positive Moderate Positive Minimal or No Moderate Negative Significant Negative Page 19

Participation in Associations, Embedding Practices within Existing Processes, Executive Level Support and Networking Had the Highest Positive Impact on Program Success Percent of Participants Stating the Factor Had a Positive Impact on Supplier Diversity Program 87% 83% 79% 77% Participation in diverse supplier associations Page 20 Embedding supplier diversity practices within existing Procurement processes Level of support from Executives of your organization Networking with other organizations within your industry Participating in diverse supplier associations provides access to diverse supplier, networking opportunities, information on diversity events, and best practices Embedding supplier diversity requirements into existing sourcing, purchasing, and supplier management processes align supplier diversity objectives with the overall objectives of Procurement Executive level support for supplier diversity programs is critical as program objectives are most commonly aligned with high-level business objectives like revenue growth and corporate image Many organizations noted that networking with industry peers has been helpful in exchanging best practices, identifying new sources of supply, and driving adoption of 2 nd tier usage

Availability of Resources and Acquisitions of Diverse Suppliers were Factors Most Stated as Having a Negative Impact on Supplier Diversity Programs Percent of Participants Stating the Factor Had a Negative Impact on Supplier Diversity Program 43% 26% 23% 21% Availability of internal resources to support program Recent acquisition(s) involving your diverse supplier(s) Availability of qualified diverse suppliers Business Process Outsourcing Initiatives A broad range of available resources to support supplier diversity programs existed but an unclear ROI could drive an under allocation of resources for some programs As diverse suppliers become larger they are often acquired losing their diverse supplier status The availability of qualified diverse supplier is hindering success, however, only half identified supplier development and mentoring programs as a driver of success and many organizations rated the availability of qualified diverse suppliers as an enabler of success Outsourcing initiatives can impact diverse suppliers by reallocating services to an outsource provider Page 21

Procurement is Most Typically the Responsible and Accountable Function for Supplier Diversity Programs Although A Broad Array of Functions are Consulted and Informed Responsible Accountable Consults Informed Procurement Common Rarely Sales & Marketing Human Resources Communications Finance Businesses/ Operations CEO Board of Director Sometimes Procurement is commonly responsible and accountable Tie to Sales & Marketing is critical for some organizations Crossfunctional reporting is quite common Responsible This is the person or group responsible for performing the activities associated with the supplier diversity program. Accountable To whom the responsible person is accountable; this is the person who is held accountable for the supplier diversity program. Consults - Provides input and advice to the responsible group or person; these are the people communicated with prior to actions being taken or decision made. Informed Must be notified of results, but need not be consulted; these are the parties who are notified about an action after it has been performed. Page 23

Participants Most Often Positioned Supplier Diversity as a Stand-Alone Initiative Rather than as Part of a Broader Initiative of the Organization 63% Positioning of Supplier Diversity Program 34% 22% 16% 13% Stand-alone initiative focused solely on supplier diversity Part of a broader corporate social responsibility initiative Part of a broader initiative around building/maintaining organization's culture Part of a broader initiative focused on improving corporate image Other Tying supplier diversity programs to broader initiatives can be helpful in gaining visibility as well as freeing up resources to support the program Page 24

Global Sourcing is Critically/Very Important for 68% of Participants and 55% of Participants Believe It will Have a Negative Impact on Domestic Supplier Diversity Programs Importance of Global Sourcing 3% 6% 10% 39% Impact on Spend with US-based Diverse Suppliers due to Global Sourcing 3% 14% 14% 13% 14% 34% 29% 21% Critically important Important Not important Very important Somewhat important Unclear Significant positive impact Minimal impact Moderate negative impact Moderate positive impact Significant negative impact Have not considered As organizations look globally for new sources of supply domestic diverse suppliers face greater cost and scope of service pressures resulting in increase competition and fewer opportunities Page 26

More than Half the Participants Have No Plans to Help US-based Diverse Supplier Compete Globally and 80% Have No Time Frame Established to Expand Supplier Diversity Program Outside the US Plan to Support US-based Diverse Suppliers Competing in Global Markets Plans for Including Diverse Suppliers Outside the United States No action 52% No plans to include 55% Establishing policies to include US-based diverse suppliers in globally sourcing 28% Plan to include but no timeframe 24% Supplier development to help US-based diverse suppliers compete globally 24% Plan to include within next year We plan include within 3 years 3% 7% Establishing targets for globally sourced spend w/ USbased diverse suppliers 17% Currently included 10% Page 27

There Are Numerous Hurdles Facing Organizations for Including Suppliers Outside the US within Their Supplier Diversity Programs Hurdles to Including Diverse Suppliers Outside the United States within Scope of Supplier Diversity Program Identifying and defining diversity categories outside US 61% Non-U.S. diverse supplier spend is not currently recognized 45% Certification of diverse supplier status outside the US not well established 45% No major hurdles 10% Resources and funding 3% Page 28

Looking Ahead It will be a Turbulent Time Economic instability will continue and supplier diversity managers will need to insure alignment with changing corporate objectives and that performance reflects the real value created. Wrapping supplier diversity around higher level initiatives like social responsibility will drive greater visibility and support Globalization will continue and organizations will focus on policies and practices to support their domestic diverse suppliers while rethinking how they define diversity taking into account the broader notion of responsible supply and such factors as localization Business line managers will focus on operational efficiency so embedding diversity requirements within standard procurement processes and effectively communicating objectives will be as important as ever Acquisitions and financial problems will continue within the diverse supplier community driving the need for robust supplier management and development programs identifying diverse sources of supply and nurturing diverse supplier growth and financial stability Networking with peers and industry groups will continue to provide valuable insight for supplier diversity managers and help drive support for second tier supplier diversity targets Efficiency will be the focus of most organizations in 2009 and supplier diversity mangers will be asked to do more with less Advanced sourcing optimization techniques will be leveraged to include diversity status as a parameter in complex and global sourcing events resulting in multiple suppliers and closer alignment with requirements Page 30

Contact Information The Hackett Group World Headquarters 1117 Perimeter Center West Suite N-500 Atlanta, GA 30338 Phone: +1 770 225 3600 Aldermary House 10-15 Queen Street London EC4N 1ST Phone: +44 207 003 8150 Rathausplatz 12-14 65760 Eschborn/Frankfurt A.M. Germany Phone: +49 6196 77726 0 18 rue La Boetie Paris 75008 France Phone: +33 1 53 43 0400 Strawinskylaan 3051G, 1077 ZX Amsterdam, The Netherlands Phone: +31 20 301 2210 Kurt Albertson Director, Procurement Advisory Phone: +1 770.225.7570 kalbertson@thehackettgroup.com www.thehackettgroup.com Page 31