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Measuring the impact and return on investment for supplier diversity initiatives
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Measuring the impact and return on investment for supplier diversity initiatives

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Measuring the Impact and Return on Investment for Supplier Diversity Initiatives


Measuring the impact and return on investment for supplier diversity initiatives

To view this presentation, visit:

https://fs18.formsite.com/rlayton/form21/secure_index.html

Reginald K. Layton

Supplier Diversity & BusinessDevelopment

Executive Director


Today s discussion

Today’s Discussion

  • 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


Measuring the impact and return on investment for supplier diversity initiatives

Value Proposition…

Why Bother?


Our business expands with it

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


Our performance is enhanced with it

Our performance is enhanced with it

Supplier Diversity Strengthens ourSupply Base


Measuring the impact and return on investment for supplier diversity initiatives

Knowing What to Measure


Measuring the impact and return on investment for supplier diversity initiatives

Knowing What to Measure


Measuring the impact and return on investment for supplier diversity initiatives

Internal

External

Knowing What to Measure

  • Driving Forces:

  • Contribution to Sales

  • Enhancing customer satisfaction

  • Facilitating proactive responses to diversity subcontracting requirements

  • Enhancing customer relations in diversity sensitive markets

  • Contribution to Cost Savings

  • Enhances ability to meet customer diverse business expectations without sacrificing profits or increasing cost

  • Driving Forces:

  • Contribution to Brand

  • Develops stronger barriers against competitors with weak supplier diversity initiatives

  • Proactively differentiate ourselves from competitors

  • Proactively position ourselves as industry leaders

Returns Zone

Opportunistic

Value

Compass

  • Driving Forces:

  • Contribution to Sustainability

  • Meets needs of special interest consumer advocacy groups

  • Economically equips historically under-utilized population groups

  • 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


Measuring the impact and return on investment for supplier diversity initiatives

Internal

External

Knowing What to Measure

  • Driving Forces:

  • Contribution to Sales

  • Enhancing customer satisfaction

  • Facilitating proactive responses to diversity subcontracting requirements

  • Enhancing customer relations in diversity sensitive markets

  • Contribution to Cost Savings

  • Enhances ability to meet customer diverse business expectations withoutsacrificing profits or increasing cost

  • Driving Forces:

  • Contribution to Brand

  • Develops stronger barriers against competitors with weak supplier diversity initiatives

  • Proactively differentiate ourselves from competitors

  • Proactively position ourselves as industry leaders

Returns Zone

Opportunistic

Value

Compass

  • Driving Forces:

  • Contribution to Sustainability

  • Meets needs of special interest consumer advocacy groups

  • Economically equips historically under-utilized population groups

  • 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


Measuring the impact and return on investment for supplier diversity initiatives

Internal

External

Examples of What to Measure

  • Driving Forces:

  • Contribution to Sales

  • Diverse Spend

  • Supplier Diversity-based Sales Volume

  • Diverse spend on Customer Projects

  • Contribution to Cost Savings

  • Top Project Conversion to Diverse Suppliers

  • Driving Forces:

  • Contribution to Brand

  • Market Place Recognition

  • Association Engagement

  • Dual Certification

Returns Zone

Opportunistic

Value

Compass

  • Driving Forces:

  • Contribution to Sustainability

  • Wage & Salary Impact

  • Employment Impact

  • Diverse Supplier Executive Training

  • Corporate Plus Sponsorship

  • Multi-corporation Capacity Building

  • Mentor/Protégé

  • 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

Problem

Resolution

Impact Zone

Layton Value Compass Model


Measuring the impact and return on investment for supplier diversity initiatives

Billion Dollar Roundtable

BDR is comprised of only 18 U.S. corporations that each spend more than $1 billion annually with minority- and women-owned businesses on a first tier basis.


Measuring the impact and return on investment for supplier diversity initiatives

Knowing What to Measure


Measuring the impact and return on investment for supplier diversity initiatives

Knowing What to Measure

Chapters in BDR book provide excellent examples


Measuring the impact and return on investment for supplier diversity initiatives

Internal

External

Knowing What to Measure

  • Driving Forces:

  • Contribution to Sales

  • Enhancing customer satisfaction

  • Facilitating proactive responses to diversity subcontracting requirements

  • Enhancing customer relations in diversity sensitive markets

  • Contribution to Cost Savings

  • Enhances ability to meet customer diverse business expectations without sacrificing profits or increasing cost

  • Driving Forces:

  • Contribution to Brand

  • Develops stronger barriers against competitors with weak supplier diversity initiatives

  • Proactively differentiate ourselves from competitors

  • Proactively position ourselves as industry leaders

Returns Zone

1

3

Opportunistic

4

6

4

6

10

12

Value

Compass

5

6

  • Driving Forces:

  • Contribution to Sustainability

  • Meets needs of special interest consumer advocacy groups

  • Economically equips historically under-utilized population groups

  • 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

4

1

3

5

6

8

10

12

Impact Zone

Layton Value Compass Model

Chapters in BDR book provide excellent examples


Measuring the impact and return on investment for supplier diversity initiatives

  • 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

    Surveillance Systems (Advanced Dashboard)

    Spend Analysis

    Team Activity

    Supplier Development

    Targeted Opportunity Program

    Engagement Center Activity

    Profiles Reviewed

    Supplier Reviews

    Spend by Division

    Active Diverse Classifications

    Supplier Count

    Outreach

    Supplier Development

    International Strategy

    International

    Second Tier

    Stages


    Surveillance systems up close

    Diverse Supplier Profile Segment

    Surveillance Systems (Up Close)

    Track number of minority, women and total number of employees

    Track sources of MBE registrations


    Measuring the impact and return on investment for supplier diversity initiatives

    Impact Calculation


    Survey data

    Survey Data

    Economic impact of Johnson Controls’ diverse suppliers


    Measuring the impact and return on investment for supplier diversity initiatives

    The ROI Calculation


    Supplier diversity program cost data

    Supplier Diversity Program Cost Data

    Typical Annual Budget (Six Person Team)

    $1.35 Million

    Total

    [Gain from Investment (Contribution factor)] – Cost of Investment

    ROI =

    Cost of Investment


    Roi calculation over 15 year period

    ROI Calculation (over 15 year period)

    Return on Investment Formula:

    [Gain from Investment (Contribution factor)] – Cost of Investment

    ROI =

    Cost of Investment

    ROI =

    ROI + ROI + ROI

    Total

    Revenue

    Enhancement

    Cost

    Savings

    Value

    Compass Element

    |


    Roi calculation over 15 year period1

    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 (15 years)

    ROI =

    $9.5 million

    Johnson Controls


    Roi calculation over 15 year period2

    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 (15 years)

    ROI =

    $9.5 million

    Johnson Controls

    526%

    = 35.06% per year

    ROI =

    15 years

    Johnson Controls

    |


    Summary

    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


    Summary1

    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


    Measuring the impact and return on investment for supplier diversity initiatives

    To view this presentation, visit:

    https://fs18.formsite.com/rlayton/form21/secure_index.html

    Reginald K. Layton

    Supplier Diversity & BusinessDevelopment

    Executive Director


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