Tier II Goal Methodology – Percent of Customer Sales 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. Percent of Sales is the most common goal method used in a Tier II report utilizing a Tier I Prime Supplier’s corporate sales as its base.
To correctly calculate a Tier I Prime Supplier’s Percent of Customer Sales, a Prime Supplier must report the following information:
- Total North American Sales
- Corporate (Customer) Sales
- 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 Sales dictates the Tier I Prime Supplier’s percent of Diverse Spend for the Customer.
Below is an example of the work
When looking at the example above the following data points are entered by the Tier I Prime Supplier to start (with Corporate A representing the Customer).
- Total North American Sales
- Total North American Purchases
- Corporate A Sales
- Corporate A Purchases
As we move forward the Indirect Spend % displayed is calculated based on Corporate A Sales ($25 million) divided by Total North American Sales ($100 million). This gives us the 25% shown above. Next, the Tier I Prime Supplier enters the following:
Corporate A Sales
————————————– = Indirect Spend %
Total North American Sales
- 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 A Direct Diverse 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 A Allocated Indirect Spend
Corporate A Allocated Indirect Spend + Corporate A Direct Spend = Total Corporate A Allocated Diverse Spend
Once calculated, the Percent of Sales for the Tier I Prime Supplier is determined by taking the Total Corporate A Allocated Diverse Spend ($3 million) and dividing it by the Corporate A Sales ($25 million).
Total Corporate A Allocated Diverse Spend
—————————————————- = Percent of Spend
Corporate A Sales
In the end, the report tells us that 12% of the Tier I Prime Supplier’s Customer Sales is attributed to Diverse Suppliers.
