Measurable ESG objectives are critical to effect true change. Coupa’s Vincent Toesca, senior vice president of product management, explains that the benchmark for Supplier Diversity sits at 23.9% of overall spend.
Achieving environmental, social and governance (ESG) goals is of growing importance. Not only are activities like improving sustainability, supporting diverse organisations, and reducing carbon footprint good for our society, they are good for business.
An effective ESG strategy, properly implemented and reported against, can attract customers and investors. It can be aligned with cost reduction, business resilience and productivity. At a time when it is more challenging than ever to attract and keep talent, a company’s social credibility can help motivate employee engagement. Compliance is a factor too, because regulators are paying attention, encouraging Australian companies to practice what they promise.
Business leaders can make sure their company’s ESG efforts effect change and business value, by setting specific, data-driven ESG objectives and aligning business processes and actions to those objectives.
This sets up employees, such as those on procurement, finance, and supply chain teams, to play key roles in creating positive impacts by following through on their organisations’ ESG objectives with each element of business spend.
At Coupa, we know that if we can help a business change how it spends, then the impact will be very different than if we just help a business report on how it spends. When ESG objectives are embedded into each transaction, the business is truly living its values.
A Data-Driven Perspective on ESG Progress
When it comes to business spend management, none of us is as smart as all of us. Benchmarking progress against top performers can be a powerful way to track growth and position an organisation. Benchmarks can help organisations seeking to improve and change to set meaningful targets. Yet it can be difficult to know what data to use.
Often organisations turn to analyst reports and research studies to add to their own business intelligence, in order to make data-driven decisions. Such studies typically ask respondents to respond to what ifs and answer questions about what they plan to spend, implement and achieve.
Instead, we built a next-generation community called Community.ai to leverage comparison data from real business spend transactions. It currently analyses almost $4 trillion in anonymised transactions conducted on the Coupa platform by 2500+ organisations and 8 million suppliers, globally. AI analysis is applied to this real-time data to derive insights that help participants become more efficient, profitable, and sustainable. Because AI gets smarter with every dollar spent, everyone in this online community contributes to the collective good.
Coupa’s annual Business Spend Management (BSM) Benchmark Report ensures that any organisation can benefit from these insights. This annual report, based on real-world data and AI driven analytics, provides 20 community-powered KPIs across seven critical categories of spend management and quantitative characteristics the best-performing companies share.
Including a key element of ESG, supply chain diversity, this annual report can help set meaningful objectives for digital transformation efforts and spend management decisions in support of ESG and other priorities.
Quantifying the Supply Chain Diversity Objective
Many companies were forced to quickly find alternate suppliers during the pandemic and have resolved to diversify their supplier network. But from an ESG and corporate social responsibility perspective, supplier diversity is about more than sourcing from different areas of the world or having back-up suppliers for agility in the face of supply chain disruption. It is about including businesses in the supply chain that are run and / or staffed by traditionally underrepresented or underserved groups. This includes Indigenous-owned businesses, women-owned businesses, Australian Disability Enterprises (ADE) and others.
As we’ve established, to make good on a commitment such as increasing business spend with diverse suppliers, a business must set a clear objective and put processes and systems in place to support it, as well as a way to measure progress. During the planning process, it is critical to have tangible standards or benchmarks against which to compare.
Committing to “more spend” with diverse suppliers is vague. How much more spend should be invested with diverse suppliers? Our 2022 analysis of high-performing organisations in this category reveals that the benchmark currently sits at 23.9% of a company’s overall spend. This may be a stretch goal for many, but it is a tangible, quantifiable objective to set and build towards.
Aligning Processes with Objectives
The process of increasing supplier diversity begins with requiring at least one diverse supplier to be included in each sourcing event. Once the appropriate risk assessment is complete and terms and contracts are set, the business must ensure that users of its procurement software can easily identify approved, diverse suppliers and that they understand their role in helping to achieve this particular ESG objective.
We are pleased to report that the Coupa online community is already loaded with suppliers that are vetted by our user base, making it easier to find minority- and women-owned businesses to meet resource needs.
Diverse suppliers must be observed for risk indicators, like any other supplier, but just having them involved in the tender process isn’t enough. To ensure mutual success, we recommend a review of payment terms and general contract requirements, so they can be revised where they may cause hardship.
From a product development perspective, Coupa has taken this a step further, to embed supplier diversity into supplier lifecycle management tools. Not only can supplier diversity information be easily accessed, additional information on risk and performance can be layered on for a holistic view. When employees have ready access to this kind of information, ESG objectives can more easily be supported with each and every transaction.
Incorporate ESG into critical Supply Chain Management efforts
Companies are increasing their commitments to diversify their supplier base as they can see the impact on top-line growth. In the midst of supply chain redesign, incorporating not just backup and alternate suppliers, but a greater percentage of diverse suppliers will help to achieve supply chain resiliency goals and support ESG objectives at the same time.
Not only is supply chain diversity a way to support Australian communities and drive sovereign capabilities but it demonstrates an organisation’s ability to innovate, future proof and follow robust business development practices. Getting this right will build loyalty from consumers and employees, alike, and can encourage interest from like-minded investors.
The hallmarks of an effective, authentic ESG strategy should be data-driven objectives – such as those based on real-world benchmarks, and a clear plan to operationalise the strategy with tools, communication and updated business practices.