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Why a More Diverse, Equitable Supply Chain Starts with Contracts

By Bernadette Bulacan

Supplier diversity is an old concept that is receiving renewed attention these days. Supplier diversity programs encourage companies to source goods and services from historically underutilized businesses, including those owned by minorities, women, and disabled veterans.

The economic disruption caused by COVID-19 and the civil protests in response to the systemic racism and injustice exemplified by the killings of George Floyd, Breonna Taylor, and other Black Americans has fueled a renewed interest in these programs as corporations use their financial strength to address racial injustice through supplier diversity. For instance, over the next three years, Microsoft committed to double its number of Black-owned suppliers and spend an incremental $500 million with those companies. As Microsoft CEO Satya Nadella committed, "We will use our balance sheet and engagement with suppliers and partners to extend the vision for societal change throughout our ecosystem, creating new opportunities for them and the communities they serve."

These private-sector efforts come on top of long-standing government efforts – including Disadvantaged Business Enterprise (DBE) programs such as the one administered by the U.S. Department of Transportation – that mandate that contractors engage a percentage of underutilized businesses as subcontractors.

For Microsoft and other companies committing to greater supplier diversity, contracts are the single source of truth for who they are doing business with. Therefore, as the recipients of dollars in the supply chain become diversified, contract lifecycle management (CLM) technology can play a critical role in tracking supplier diversity and, ultimately, ensuring these initiatives succeed. Here are a few ways contract management software can support supplier diversity initiatives:

Identify which of your current contracts include supplier diversity commitments.

The first step in carrying out supplier diversity programs is to understand what you've committed to.

Companies can start these efforts by conducting an audit and identifying which of their agreements currently contain DBE clauses; these types of clause audits are far easier when your contracts are digitized and in a central repository. Additionally, CLM empowered with AI/ML allows an organization to conduct a deeper audit to identify which of these contracting relationships have additional obligations, like periodic reporting or delivery of certificates.

Once supplier diversity commitments are identified, organizations can manage those contracts along with all associated documents—including supplier DBE certifications and invoices—to ensure what's happening in the supply chain complies with what's committed to in the contract. Advanced contract management software even provides portals where contractors can upload documentation directly to the system for even easier compliance tracking.

Ensure you have the right clauses in your templates to support supplier diversity initiatives.

Using CLM software to automate contract authoring improves consistency and governance and enables more efficient self-service authoring. Additionally, an extensive rules engine embedded in your CLM system enables the dynamic creation of contracts from templates and clauses. With this functionality, companies can make good on their commitments by including standard DBE clauses in the clause library and leveraging rules engines to ensure these supplier diversity provisions are included in all appropriate contracts.

With advanced contract intelligence systems, companies can incorporate supplier diversity requirements into their category and spend strategy.

Ultimately, these intelligent capabilities allow companies to onboard new suppliers faster while ensuring compliance with diversity commitments—an acceleration of business that delivers on the sense of urgency companies are feeling around this issue.

Connect contracts to the systems they touch to tell a data-driven supplier diversity success story.

CLM can help tell DBE success stories—especially when diversity initiatives are married to contracting metrics. First, flexible CLM systems allow for seamless integration with third-party systems like Oracle, SAP, and Workday, enabling the import of purchase orders, invoices or payment data; many of these other systems hold powerful data about the commercial relationships between an enterprise and these suppliers.

Additionally, organizations can more easily extract performance data about these diverse supplier relationships and track performance against key metrics using AI and robust obligation management technology. CLM will be key to surfacing data-driven insights to support supplier diversity initiatives.

Companies are utilizing their financial strength and engagement with suppliers to address systemic racial injustice and inequalities; these relationships and the underlying dollars are embodied in contracts between companies and their supply chain. Companies should look to their CLM systems to identify ways that the contracting process can support these supplier diversity initiatives and facilitate success across the supply ecosystem.