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The Difference Between Tier 1 and Tier 2 Supplier Diversity Spend

Companies privy to the importance of implementing a Supplier Diversity Program seek to expand their programs to include both Tier 1 and Tier 2 spends. So what is the difference? Let me break it down a bit today.

 

A Tier 1 Supplier is a provider who directly provides goods and services to a major corporation. Historically, this has been the avenue that corporations have used to grow their diverse supply chain. However, in order to continue this growth, many corporations have expanded their program goals to encourage their Tier 1 suppliers to seek out and do business with their suppliers and report this spend back to the corporations. That spend is considered a Tier 2 spend. You still with me?

 

Let’s use XONEX as an example. XONEX Relocation is proud to be certified as a Women’s Business Enterprise by The Women’s Business Enterprise National Council aka WBENC. When we provide service to XYZ Corporation – the XONEX revenue is considered Tier 1 spend and goes towards XYZ Corporation’s supplier diversity Tier 1 goals. A XONEX supplier partner that is certified as either minority or women owned provides services to XONEX. XONEX in turn records and reports that spend back to XYZ Corporation and that spend is considered Tier 2 spend and goes towards XYZ Corporation’s Tier 2 goals.

 

But why does that matter? Are their incentives that corporations receive for doing business with diverse suppliers? No. Although some government contracts do require the use of diverse suppliers for a percentage of work, this is not the case for general corporate business.

 

At the end of the day, it’s just good business to do business with diverse suppliers because they help drive our economy and provide products and services that our customers need.

 

Take a look:

 

According to the 2016 State of Women-Owned Business Reports commissioned by American Express OPEN, “As of 2016, it is estimated that there are now 11.3 million (11,313,900) women-owned businesses in the United States, employing nearly 9 million people (8,976,100) and generating over $1.6 trillion ($1,622,763,800,000) in revenues.”

 

That’s incredible! $1.6 trillion is an amazing number and it confirms why corporations want to do business with us as well as our diverse supplier networks. Women are now the majority owners of 38% of the country’s businesses!

 

Hopefully you now understand the difference between a Tier 1 and Tier 2 spend and the importance of both but we are always here to help so if you have any questions, be sure to comment below.

 

Does your company encourage their Tier 1 suppliers to do business with diverse suppliers? Please let us know as we’d love to hear about it!

 

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RICK CALANNI
VP of Business Development Northeast Region

 

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