How your travel providers perform in the area of diversity, equity and inclusion can be a major component of achieving your own organization’s goals. The recent push for worldwide social and environmental reform, including racial equality and climate change, has reprioritized many companies’ Environmental, Social and Governance (ESG) goals. Environmental includes all things around sustainability, the Social component covers the topic of diversity, and Governance is about transparency in organizations.

Companies are increasingly walking the talk and allocating more spend to meet these ESG goals. In fact, according to a study from strategic consultancy The Hackett Group, “By 2025, companies expect a 50-plus percent increase in their diversity spend goals. Achieving these goals is ultimately dependent on the ability of organizations to include diverse suppliers in their sourcing opportunities.” For the travel sector, the supply chain is a critical piece. The challenge of finding quality, multi-tier, diverse suppliers – which include vetting processes, certifications and the sort – will be in sharp focus in 2023.

Time to Uplevel
It’s a challenge the industry is poised to take on, for many reasons. First, diversity is actually good for business, increasing innovation, competition, awareness, profitability and resilience throughout the value chain. In a 2019 study for Coca-Cola, “individuals who were aware of Coca-Cola’s supplier diversity initiatives were 45 percent more likely to perceive the brand as valuing diversity, 25 percent were more likely to think favorably about the brand, and 49 percent were more likely to use Coca-Cola products. These favorable perceptions would lead to an additional 670,000 consumers using the company’s products more frequently.”

Secondly, increasing diversity can generate a compound economic impact. According to another study from The Hackett Group, “for every $1 million that supplier diversity programs spend in procurement operation costs, they add $3.6 million to the bottom line.” Diverse suppliers on the ground also have significant collective economic power, as minority-owned enterprises create $400 billion in economic output, affect 2.2 million jobs and $49 billion in annual tax revenues.

And there’s more: The impact of diverse businesses also influences consumer purchasing trends. A recent report by Accenture described this as an opportunity not to be missed: “To foster a new generation of consumers, companies must have a diverse supplier base that reflects current and prospective customers. Minority markets have $3.9 trillion in buying power in the US alone.”

Thirdly, while it may sound like a cliché, diversity makes a difference – it impacts the planet and the wellbeing of its inhabitants. After a nerve-wracking few years dealing with COVID-19, it’s no wonder why it’s top of mind for so many organizations. “Of course, the danger of having only a business-case motivation for supplier diversity is that in times of crisis, it’s the equity-deserving businesses that are often experiencing compounded challenges,” cautions Emese Graham, DE&I Manager, Flight Centre Travel Group. “So, if boards and shareholders don’t also have a long-term commitment to corporate social responsibility and partnering with MWESB businesses when the heat is on, you’re going to see a costly drop in supplier diversity.”

Are You Diversity Washing?
Even though the value of diversity in supply chains is well understood, a lot of companies are still grappling with how to make it work. To help clarify things, travel leaders should ask which partners align with your diversity goals? If your diversity goal is to work with veterans, or make sure women-owned businesses are represented, but neither your procurement department nor your Tier 1 suppliers give a hoot about that, there’s a chance you could be diversity washing.

“Organizations that are more ‘mature’ in dealing with and measuring ESG supplier elements (typically government organizations and select associations) are more likely to add specific questions in the RFP which makes it difficult to diversity wash,” explains Alexandra Saenz, VP of procurement consulting for HRS. “Some examples we’ve seen – percent of disabled employment, percent of indigenous or racial minority employees, etc. Diversity washing, should such a scenario be easily inferred, could have negative ramifications that procurement organizations and companies in general cannot sustain.”

Just collecting data on diverse suppliers isn’t enough to meet diversity goals: Spend patterns have to change, too. Many companies only track spend with Tier 1 suppliers that are diversely-owned. However, by tracking and reporting spend at the Tier 2 and 3 levels, new data-driven processes emerge that can impact an organization’s goals. While many government contracts now mandate Tier 2 reporting at the least, major brands can have massive influence in this space.

“Marriott now has thousands of Tier-1 diverse suppliers, some that have been our suppliers for over 20 years,” states Denise Naguib, global VP of sustainability and supplier diversity for Marriott International. “We also provide over 100 of our corporate customers with their Tier 2 indirect spend with us each quarter and their spend with diverse-owned hotels in our portfolio.”

An Uneasy Ecosystem
While new spend technology tools, third party reporting tools, and even internal vendor assessments can help streamline an organization’s efforts to deep dive into the multi-tiers of their supply chain, it can still create havoc for travel providers. “Currently, there are no universal standards for metrics for qualifying businesses as DE&I ‘compliant’ and in some regions, it’s not legally allowed to ask businesses certain questions in regard to employees, etc. which makes it that much more difficult to account globally,” explains Christine Erickson, SVP, global supplier relations and partner network at BCD Travel.

“However, in North America, we have developed our own metrics: Percent of DEI organizations within our supplier base and percent of spend across all categories (hotel, DMC, AV, charter, cruise, merchandise, virtual events, restaurant, ground transportation). Our first set of criteria is whether the supplier can meet the financial, insurance and code of conduct criteria (which includes compliance to DE&I expectations), we then seek suppliers who are accredited in certain categories – small business, minority owned, etc.,” Erickson says.

“Of course, a supplier must fulfill our business need, but making conscious decisions within meetings and events categories for a diverse supplier base provides real tangible results,” she continues. “We suggest beginning with the following steps:
1. Setting definitions
2. Assessing current supplier base and identifying gap areas
3. Setting measurable targets and goals, and holding accountability to real progress through measurement of work in this area.”

Flight Centre Travel Group’s Graham adds, “Creating an effective supplier diversity strategy has three main steps.” First, she explains, you select your diversity lenses; this can include businesses owned by women, people with disabilities, racial or ethnic minorities, LGBTQ2+ people, small emergent businesses, and so on. Second, you establish a baseline for each category of diversity. For instance, you would calculate the percentage of women-owned suppliers in your supply chain as well as the utilization rates of those women-owned suppliers. Thirdly, you set S.M.A.R.T. (Specific, Measurable, Attainable, Relevant and Time-Based) goals for growth and have annual goals for both supplier procurement and utilization.

Furthermore, when launching diversity initiatives in 2 and 3-Tier suppliers, Graham says, “it’s all about measurement, measurement, measurement. You need as much visibility as possible on the make-up of your supply chain in order to make well-informed decisions about your supplier diversity strategy. Some data gaps are to be expected, especially as you get into Tier-3 reporting.”

Partner with Procurement
The increased focus on DE&I is changing the dynamics of how we do business. In a 2020 Gartner survey, 74 percent of procurement organizations said they intend to expand their use of diverse suppliers over the next 12 to 18 months. However, do they have the capacity to actually do so? What’s often missing in ambitious supplier diversity programs is resources – in the same Gartner survey, almost half (45 percent) of companies said they did not have a dedicated, full-time equivalent who could track spend metrics, identify diverse suppliers, build program awareness, and attend educational conferences and seminars about supplier diversity.

Making sure your procurement team understands your diversity goals is crucial, especially at Tiers 2 and 3. “Corporations are increasingly inserting diversity/ESG-types of queries into all their hotel procurement requests, regardless of whether it is for primary or secondary hotel suppliers,” notes HRS’ Saenz. “Procurement leaders should advise all potential hotel suppliers of your company’s guidelines when it comes to contracting with suppliers that have attained a particular threshold of measurement on key ESG elements.”

Finally, while many procurement departments rely on 2nd and 3rd Tier suppliers who have acquired certifications, sometimes the best suppliers don’t have the budget or insurance coverages to meet RFP requirements. While they shouldn’t be barred from the selection process because of those limitations; vetting specific diverse suppliers can be a laborious process.

So, travel/procurement departments may not be able to force Tier 1 suppliers to do business with specific diverse suppliers, but they can construct guidelines and policies that set expectations for spend, and on the percent of diverse groups that should be included in Tier 2 and 3 levels. They can also create their own company culture of diversity and respect, alongside specific goals and targets, and track them across the value chain.

Cascading these metrics downward in the form of contracts and even incentives is a best practice that can help exert influence and strengthen the supply chain. In other words, when you communicate your goals to your Tier 1 suppliers, you also help them to pass those expectations down to Tier 2, which then does the same for Tier 3, creating consistency and resilience.

Heading into 2023
Beyond considering economic and business reasons to elevate the role of diversity in supply chains, there’s also supply and demand issues. Today, there are several audiences that are clamoring for sustainable, ethically sourced products that are created with diversity in mind. According to McKinsey, “88 percent of Gen Z’ers said they don’t trust brands’ ESG claims.” Furthermore, if vague labels such as “green” or “eco-friendly” don’t satisfy them, both Gen Z’ers and Millennials have no problem “canceling” those products or services.

Also, stakeholders and investors are driving the importance of diversity. The Hackett Group found fully one-third of assets under management from 2016 to 2018 – totaling $30-plus trillion – were invested with ESG considerations in mind. And let’s not forget employees and both leisure/business travelers as well; those who don’t want to continue to work and play in a world that contributes to inequality.

Diversity will remain both a challenge and an opportunity in 2023. “We believe the biggest opportunity for impact within the industry is in the area of smaller meetings and events providers downstream as opposed to large travel organizations such as airlines or hotel brands,” states BCD’s Erickson. “We’re at the beginning of our journey and don’t have everything figured out, but we believe it’s up to travel and meetings and events organizations to collaborate to determine how to move forward with this mission.”

The point to remember is that diversity isn’t a frame that can be frozen within a timeline of goals. It’s an ongoing process, and when travel providers can map a supply chain from the top to all the way down with transparency, they create a feeling of trust. This best practice will hopefully, soon enough, become the norm.

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