Measuring the Impact and Return on Investment for Supplier Diversity Initiatives
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Reginald K. Layton
Supplier Diversity & Business Development
Executive Director
2
Today’s Discussion
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Introduction
Value Proposition
Knowing what to measure
Surveillance Systems
The Impact Calculation
The ROI Calculation
The alignment of strategy, resources and
best practices enhances return on
investment in supplier diversity initiatives
Value Proposition…
Why Bother?
Our business expands with it
Supplier Diversity Expands Our Revenue
Johnson Controls has received $6 billion in new business by offering diverse business
solutions to customers
Increases sales revenue from customers that embrace supplier diversity
•Enhancing customer satisfaction
•Facilitating proactive responses to diversity subcontracting requirements
•Enhancing government relations in municipal, academic, health care markets
Develops stronger barriers against competitors with weak supplier diversity initiatives
•Augmenting brand building strategy
•Proactively differentiate ourselves from competitors
•Proactively position ourselves as industry leaders
Enhances Sustainability Image
•Meets needs of special interest consumer advocacy groups
•Leverages purchasing decision makers who are increasingly minorities and women
Enhances ability to meet government mandates/compliance without sacrificing
profits or increasing cost
•Assists customers with government contract/sourcing requirements
•Enhances relationship with government entities
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Our performance is enhanced with it
Supplier Diversity Strengthens our Supply Base
Diverse-owned firms are a resource to replace
incumbent suppliers when the incumbents:
•
•
•
•
•
Have poor performance
Refuse to follow Johnson Controls’ business processes
Lack engineering/design capability
Refuse to participate in cost reduction strategies
Are located in unfavorable locations relative to our facilities
Strengthens relationships with a new class of
suppliers
•
•
•
•
6
Larger firms but privately held
Fortune 500 trained management teams
Many have same customers as Johnson Controls
Highly visible in their communities
Knowing What
to Measure
Knowing What to Measure
8
Knowing What to Measure
Driving Forces:
• Contribution to Sales
Driving Forces:
• Contribution to Brand
Returns Zone
– Enhancing customer satisfaction
– Facilitating proactive responses
to diversity subcontracting
requirements
– Enhancing customer relations in
diversity sensitive markets
– Develops stronger barriers
against competitors with
weak supplier diversity
initiatives
Opportunistic
– Proactively differentiate
ourselves from competitors
– Proactively position
ourselves as industry leaders
• Contribution to Cost Savings
– Enhances ability to meet
customer diverse business
expectations without sacrificing
profits or increasing cost
Internal
Value
Compass
Driving Forces:
• Contribution to Sustainability
Driving Forces:
• Contribution to Supply Chain
Efficiency when:
– Incumbents have poor performance
– Refuse to follow Johnson Controls’
business processes
– Lack engineering/design capability
– Refuse to participate in cost
reduction strategies
– Are located in unfavorable locations
relative to our facilities
Problem
Resolution
Impact Zone
Layton Value Compass Model
9
External
– Meets needs of special interest
consumer advocacy groups
– Economically equips
historically under-utilized
population groups
Knowing What to Measure
Driving Forces:
• Contribution to Sales
Driving Forces:
• Contribution to Brand
Returns Zone
– Enhancing customer satisfaction
– Facilitating proactive responses
to diversity subcontracting
requirements
– Enhancing customer relations in
diversity sensitive markets
– Develops stronger barriers
against competitors with
weak supplier diversity
initiatives
Opportunistic
– Proactively differentiate
ourselves from competitors
– Proactively position
ourselves as industry leaders
• Contribution to Cost Savings
– Enhances ability to meet
customer diverse business
expectations without sacrificing
profits or increasing cost
Internal
Value
Compass
Driving Forces:
• Contribution to Sustainability
Driving Forces:
• Contribution to Supply Chain
Efficiency when:
– Incumbents have poor performance
– Refuse to follow Johnson Controls’
business processes
– Lack engineering/design capability
– Refuse to participate in cost
reduction strategies
– Are located in unfavorable locations
relative to our facilities
Problem
Resolution
Impact Zone
Layton Value Compass Model
10
External
– Meets needs of special interest
consumer advocacy groups
– Economically equips
historically under-utilized
population groups
Examples of What to Measure
Driving Forces:
• Contribution to Sales
Driving Forces:
• Contribution to Brand
Returns Zone
– Diverse Spend
– Supplier Diversity-based Sales
Volume
– Diverse spend on Customer
Projects
– Market Place Recognition
– Association Engagement
– Dual Certification
Opportunistic
• Contribution to Cost Savings
– Top Project Conversion to
Diverse Suppliers
Internal
Value
Compass
Driving Forces:
• Contribution to Sustainability
Driving Forces:
• Contribution to Supply Chain
Efficiency:
–
–
–
–
–
–
Profile System Usage
Supplier Profile Matches to Projects
Best Practice Implementation
Performance Awards
2nd Tier
International Supplier Diversity
– Wage & Salary Impact
Problem
Resolution
– Employment Impact
– Diverse Supplier Executive
Training
– Corporate Plus Sponsorship
Impact Zone
Layton Value Compass Model
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External
– Multi-corporation Capacity
Building
– Mentor/Protégé
Billion Dollar Roundtable
BDR is comprised of only 18 U.S. corporations that each spend more than $1 billion annually with minorityand women-owned businesses on a first tier basis.
AT&T
Avis Budget Group Inc.
The Boeing Company
Chrysler Group LLC.
Dell, Inc.
Ford
General Motors
Honda North America
IBM Corporation
Johnson Controls, Inc.
Johnson & Johnson
The Kroger Co.
Lockheed Martin
Microsoft
Procter and Gamble
Toyota
Verizon
Wal-Mart Stores, Inc.
Knowing What to Measure
Knowing What to Measure
Best Practice Component
1
Establish Corporate Policy and Top Corporate Management
Support
2 Develop a Corporate Diverse-Supplier Development Plan
Establish Comprehensive Internal and External
Communications
Identify Opportunities for Diverse Suppliers in Strategic
4 Sourcing, Revenue Enhancement, and Supply-Chain
Management
Establish Comprehensive Diverse-Supplier Development
5
Process
Chapters
3
6 Establish Tracking, Reporting, and Goal-Setting Mechanisms
7 Establish a Continuous Improvement Plan
8 Establish a Second-Tier Program
9 Understand Public-Sector Supplier Diversity
10 Integrate Supplier Diversity into Sustainability Initiatives
11 Engage Historically Diverse Colleges & Universities
12 Establish International Supplier Diversity
Chapters in BDR book provide excellent examples
Knowing What to Measure
Driving Forces:
• Contribution to Sales
Driving Forces:
• Contribution to Brand
Returns Zone
– Enhancing customer satisfaction
– Facilitating proactive responses
to diversity subcontracting
requirements
– Enhancing customer relations
4
6 in
diversity sensitive markets
– Develops stronger barriers
against competitors with
1
weak supplier diversity
initiatives
Opportunistic
– Proactively differentiate4
ourselves from competitors
– Proactively position
ourselves as industry leaders
• Contribution to Cost Savings
– Enhances ability to meet
customer diverse business
expectations without sacrificing
profits or increasing cost
10
Internal
5
Value
Compass
6
12
External
6
Driving Forces:
• Contribution to Sustainability
Driving Forces:
• Contribution to Supply Chain
Efficiency when:
– Incumbents have poor performance
– Refuse to follow Johnson Controls’
4
business processes
– Lack engineering/design capability
– Refuse to participate in cost
reduction strategies 5
6
– Are located in unfavorable locations
relative to our facilities
Problem
Resolution
– Meets needs of special interest
consumer advocacy groups
– Economically equips
historically under-utilized
population groups
1
3
8
Impact Zone
Layton Value Compass Model
15
3
Chapters in BDR book provide excellent examples
10
12
Surveillance Systems
Anything you need to quantify can be
measured in some way …that is
superior to not measuring it at all.
Gilb’s Law
Surveillance Systems (Advanced Dashboard)
Team Activity
Supplier Development
Engagement Center Activity
Diverse Supplier Purchases
Millions of Dollars
1800
1600
1400
1200
1000
800
600
400
200
0
1500
1071
1021
1131
1023
1686
1656
1004
938
1874
1150
505
17.4
2
250
200
150
100
50
0
235
86
Targeted Opportunity Program
Profiles Reviewed
Spend Analysis
Power Solutions
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Sep-11
10
Oct-11
3
Nov-11
0
Dec-11
2
Jan-12
5
Feb-12
3
Mar-12
1
Apr-12
2
May-12
8
Jun-12
2
Jul-12
0
Aug-12
0
Sep-12
2
21
27
28
29
34
55
40
19
24
22
17
16
14
93
119
80
90
75
39
59
47
61
13
13
10
9
11
8
20
Corporate
Building Efficiency
78
95
57
84
92
7
22
12
11
29
Automotive Experience
Supplier
Reviews
2nd Tier Diverse Spend Reporting Update
Spend by
Division
FY12 YTD (Q1-Q2)
$78,247,794,457
$100,000,000,000.00
$10,000,000,000.00
Supplier Count
415
410
405
400
395
390
385
380
375
370
365
360
355
350
345
340
335
330
325
320
315
310
305
300
295
290
285
280
275
270
265
260
255
250
245
240
235
230
225
220
215
210
205
200
195
190
185
180
175
170
165
160
155
150
145
140
135
130
125
120
115
110
105
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
391
Active Diverse Classifications
Development Elements
298
282
264
239
238
181
181
154
152
200
253
248
254
207
209
205
259
261
216
219
243
232
191
197
82
175
170
173
170
169
172
82
83
79
82
63
87
67
92
74
56
74
55
60
71
93
73
59
55
80
60
31
24
16
31
24
16
2
0
2
0
35
27
16
3
0
34
28
15
3
0
34
26
15
3
0
30
15
1
0
32
30
16
1
32
29
16
2
1
35
31
17
2
1
36
32
20
2
1
38
34
20
2
1
43
41
25
5
1
October
November
December
January
February
March
April
May
June
July
Aug
September
1
1
1
1
1
1
1
1
1
1
1
2
DBE
74
74
82
78
83
79
80
82
87
92
93
109
0
0
0
0
0
0
1
1
1
1
1
1
DVBE
HUBZONE
MBE
SBA 8(A)
Corporate
Plus Proteges
16%
Performance
Award
Winners
50%
109
78
58
2
2
3
3
3
1
1
2
2
2
2
5
24
24
27
28
26
30
30
29
35
36
38
43
239
238
264
253
248
254
259
261
282
298
354
391
31
31
35
34
34
30
32
32
31
32
34
41
SBE
154
152
175
170
173
170
169
172
182
191
197
218
SDB
56
55
60
58
59
55
60
63
67
71
73
82
VBE
16
16
16
15
15
15
16
16
17
20
20
25
WBE
181
181
200
207
209
205
216
219
232
243
252
264
Executive
Education
24%
Multi-Corp
Capacity
Building
Groups
19%
Total Supplier in Program = 87
• 10 Primes Report = $57M of $63M
• 18 Primes Report = $100,000 - $1M
• 15 Primes Report > $50,000 verified
• 17 Primes Report > $5,000 verified
• 27 Primes Report $0.00 verified
$62,971,006
$100,000,000.00
$10,000,000.00
$8,897,406
$1,000,000.00
Total Verified Spend
Total US Sales
Additional Facts
• 28 Primes Report $0.00 attributed indirect
• 37 Primes Report $0.00 direct
• 11 Primes Report Sales and $0.00 diverse
• 4 Primes Not Reporting
$10,000.00
$1,000.00
$100.00
$1.00
International Strategy
Stages
WECONNECT (Canada, China, Europe, India & Peru)
Local government establishes diverse
status
2
Corporations organize NGO to certify
diverse ownership
MSD UK
3
Johnson Controls joins certification NGO
SASDC (South Africa)
4
Local purchasing team identifies certifiable
local suppliers
5
Diverse firms apply for certification
6
Johnson Controls counts diverse spend
US MBEs (w Global Ops)
AIMSC (Austrailia)
CAMSC (Canada)
MSD China
International
17
Description
1
0
1
2
3
Stages
4
5
6
Total Attrindirect
Spend
Total Direct Spend
$100,000.00
$10.00
Supplier
Development
Outreach
$811,507,689
$1,000,000,000.00
$69,702,612
264
252
218
182
ANC
DISABLED
Total VerifiedSpend = $63M
354
Second Tier
Customer Sales
Surveillance Systems (Up Close)
Diverse Supplier Profile Segment
Track number of
minority, women and
total number of
employees
Track sources of MBE
registrations
Impact Calculation
Survey Data
Diverse Supplier
Employees
Payroll @$10/hr
$
2010
2011
2012
Impact
62,777
111,137
126,349
Increase
2,628,059,200
Increase
1,305,761,600
$
2,311,649,600
$
Economic impact of Johnson Controls’ diverse suppliers
20
The ROI Calculation
Supplier Diversity Program Cost Data
Typical Annual Budget (Six Person Team)
Supplier Diversity Program Costs
Amount
(Thousands)
Salaries & Benefits
720
Travel
130
Marketing Services
65
Memberships/Contributions
125
Diverse Supplier Training
59
Software/Surveillance Systems
99
Events
158
Total
$1.35 Million
[Gain from Investment (Contribution factor)] – Cost of Investment
ROI =
Cost of Investment
22
ROI Calculation (over 15 year period)
Return on Investment Formula:
[Gain from Investment (Contribution factor)] – Cost of Investment
ROI =
Cost of Investment
ROI Total = ROI Revenue + ROI Cost
Enhancement
23
|
Savings
+ ROI
Value
Compass Element
ROI Calculation (over 15 year period)
Return on Investment Formula:
[Gain from Investment (Contribution factor)] – Cost of Investment
ROI =
Cost of Investment
[Incremental Revenue (Supplier Diversity Contribution)] – Supplier Diversity Budget
ROI =
Supplier Diversity Budget
Say supplier diversity was
just 1% of the contribution
to incremental revenue
$6 Billion x(1% Contribution Factor) - $9.5 million
ROI =
Johnson Controls
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$9.5 million
(15 years)
ROI Calculation (over 15 year period)
Return on Investment Formula:
[Gain from Investment (Contribution factor)] – Cost of Investment
ROI =
Cost of Investment
[Incremental Cost Savings (Supplier Diversity Contribution)] – Supplier Diversity Budget
ROI =
Supplier Diversity Budget
Say supplier diversity was
just 1% of the contribution
to incremental revenue
$6 Billion x(1% Contribution Factor) - $9.5 million
ROI =
$9.5 million
Johnson Controls
ROI =
Johnson Controls
25
|
526%
15 years
= 35.06% per year
(15 years)
Summary
• Supplier Diversity transactions need to create value for a corporation and
for society in a way that brings measurable economic benefits.
• Diverse suppliers benefitting from corporate supplier diversity initiatives
need be willing to disclose outcomes in terms of capacity after project
implementations.
– These metrics may include factors such as people employed, payroll amount
increases, revenue growth, customer growth, and/or specific capability
improvements and so on.
Measuring Impact
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Summary
• Supplier Diversity can help enhance value in terms of impact and
return on investment
• No investments….No return
• Activities, gains and costs must be tracked and allocated to
activities in order to benefit from value chain strategies
Analyzing Impact and ROI for supplier diversity is possible
The Impact and ROI problem is not as unique as you might think
You have more data than you think
You need less data than you think
The analysis is simpler than you might think
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To view this presentation, visit:
https://fs18.formsite.com/rlayton/form21/secure_index.html
Reginald K. Layton
Supplier Diversity & Business Development
Executive Director
28