Tier II Goal Methodology – Percent of Addressable Spend is a type of goal calculation that determines the percent of Diverse Spend attributed to a Tier I Prime Supplier within a Supplier Diversity Tier II Report.

To correctly calculate a Tier I Prime Supplier’s Percent of Addressable Spend, a Prime Supplier must report the following information:

  • Total North American Sales
  • Corporate Sales
  • Corporate Purchases
  • Total Allocated Diverse Spend (can include Indirect and / or Direct Spend)

For most Tier II Reports, Customers require Tier I Prime Suppliers to report their Total North American Sales and Customer Sales.  These two data points determine the Indirect Spend percentage which can then be used to determine the Total Customer Allocated Diverse Spend.  Once revealed, Total Customer Allocated Diverse Spend  divided by a Tier I Prime Supplier’s Customer Purchases dictates the Tier I Prime Supplier’s percent of Diverse Spend for the Customer.

Below is an example of the work

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When looking at the example above the following data points are entered by the Tier I Prime Supplier to start (with Corporate C representing the Customer).

  • Total North American Sales
  • Total North American Purchases
  • Corporate C Sales
  • Corporate C Purchases

As we move forward the Indirect Spend % displayed is calculated based on Corporate C Sales ($25 million) divided by Total North American Sales ($100 million).  This gives us the 25% shown above.

Corporate C Sales
                                           ————————————–     =  Indirect Spend %
Total North American Sales

Next, the Tier I Prime Supplier enters the following:

  • Total Diverse Indirect Spend (Tier I’s may also enter an allocated number if requested by Customer, eliminating the need for an Indirect Spend % calculation)
  • Corporate C Diverse Direct Spend

Once entered, the Total Allocated Diverse Spend is displayed based on the Total Diverse Indirect Spend ($10 million) multiplied by the Indirect Spend % (25%).  This gives the Tier I Prime Supplier $2.5 million in Customer Allocated Indirect Spend.   The $2.5 million is then added with the Direct Spend to give the Tier I Prime Supplier $3 million in Total Allocated Diverse Spend.

 

Total Diverse Indirect Spend  X  Indirect Spend %   =  Corporate C Allocated Indirect Spend

Corporate C Allocated Indirect Spend + Corporate C Direct Spend =  Total Corporate C Allocated Diverse Spend

 

Once calculated, the Percent of Addressable Spend for the Tier I Prime Supplier is determined by taking the Total Corporate C Allocated Diverse Spend ($3 million) and dividing it by the Corporate C Purchases ($25 million)

                            Total Corporate C Allocated Diverse Spend
                                   ——————————————-          = Percent of Addressable Spend
                                         Corporate C Purchases

In the end, the report tells us that 20% of the Tier I Prime Supplier’s Customer Purchases is attributed to Diverse Suppliers.