How To Use The Tier-2 Calculator When Reporting Diversity Spend

The Tier 2 Calculator within SupplierGateway is designed to help suppliers accurately report diversity spend to their customers. It provides flexible options depending on how your organization tracks and calculates diverse spend.

This article explains:

• The three calculator options available
• How each option works
• How to determine which option to use
• Important guidance when reporting direct and indirect spend
• How to avoid misallocation or double counting

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Understanding Direct vs. Indirect Spend

Before using the calculator, it is important to understand how your spend is classified.

Direct Spend

Direct spend refers to diverse supplier spend that is directly attributable to the specific customer contract or engagement for which you are reporting.

Example:

• You subcontract work specifically for Customer A to a certified diverse supplier.

Indirect Spend

Indirect spend refers to diverse supplier spend that supports your overall business operations and is not tied exclusively to one customer. This spend is typically allocated proportionally to customers based on a calculated percentage.

Example:

• Office supplies purchased from a diverse supplier that support multiple customer accounts.

The Tier 2 Calculator does not automatically distinguish between direct and indirect spend. You must determine this classification before entering data.

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Tier 2 Calculator Options

The Tier 2 Calculator offers three options for reporting diversity spend.

1. Use the calculator to figure out the correct revenue percentage.
2. Enter the revenue percentage yourself (you calculate offline).
3. Enter the exact spend amounts.

If you use option 1 or 2, the system will use the calculated or entered revenue percentage and will apply it to the total spend you enter in the reporting worksheet.

If you use option 3, the system will assume that you are calculating the diversity credit for your customer offline, and everything you enter will be credited to the selected customer.

Option 1: System-Calculated Percentage

How it works:

1. Enter your Total Company Sales.
2. Enter Sales Attributable to the Reporting Customer.
3. The system calculates the percentage of business attributable to that customer.
4. On the reporting worksheet, you enter your total diverse spend.
5. The system allocates the appropriate portion to the customer using the calculated percentage.

Best Used When:

• You are reporting indirect spend.
• You do not track customer-specific direct diverse spend.
• You allocate spend proportionally across customers.

Important:
If you include direct spend in your total diverse spend here, it will be prorated instead of fully credited. Only use this option when you intend for spend to be allocated proportionally.

Option 2: Manually Entered Percentage

How it works:

1. You calculate the customer allocation percentage offline.
2. Enter the percentage directly into the calculator.
3. Enter total diverse spend on the worksheet.
4. The system applies your percentage to allocate spend.

Best Used When:

• You already calculate allocation percentages internally.
• You are reporting indirect spend using your own allocation methodology.

Important:
As with Option 1, all spend entered will be allocated using the percentage you provide. Direct spend tied specifically to a customer should not be entered here unless you intend it to be prorated.

Effect of Option 1 and Option 2 On The Worksheet

If you use either option 1 or 2, the system will provide entry fields for identifying all of the spend with the Category or Supplier (as is applicable).  You should enter your TOTAL spend with the category or supplier(s) here.  The system will automatically calculate using the revenue percentage information.

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Option 3: Enter Exact Spend Amounts

How it works:

1. You calculate the exact diverse spend attributable to the customer offline.
2. Enter the specific dollar amounts directly on the worksheet.
3. The system credits 100% of the entered amount to the customer.

Best Used When:

• You track direct spend specific to the customer.
• You have already separated direct and indirect amounts.
• You want full credit applied without allocation.

Important:
Everything entered under this option is fully credited. If you enter indirect spend here without proper calculation, it may result in overstating customer-specific spend.

Effect of Option 3 On The Worksheet

If you use option 3, the system will provide entry fields for identifying the spend that you are crediting to this customer.  This method assumes that you have calculated the amounts offline. ALL of the spend you enter will be credited to your customer.

Change Your Mind Or Fix Your Inputs

You may edit the values you enter anytime before you submit your report.  to make changes, click on the calculator icon in the top right hand corner of the reporting tool and make your changes.

Remember to review the sheet and make any adjustments, and always remember to SUBMIT the reports when you are done making entries

Reporting Both Direct and Indirect Spend

If you are reporting both direct and indirect spend in the same reporting period, additional care is required.

Recommended Approach

1. Identify and separate direct spend first.
   • Calculate the total diverse spend directly tied to the customer.
2. Calculate indirect allocation separately.
   • Determine the appropriate allocation percentage for indirect spend.

3. Decide how to enter data:

   Option A (Recommended for clarity):

   • Use Option 3 for direct spend (exact amounts).
   • Use Option 1 or 2 for indirect spend (allocated portion only).
   • Ensure indirect totals exclude direct amounts to prevent duplication.

   Option B:

   • Combine direct and allocated indirect spend offline.
   • Enter the final total under Option 3.

Never include direct spend in your total company spend if you plan to also report it separately as direct. This may result in double counting.

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Common Reporting Risks to Avoid

1. Double Counting

This can occur if:

• Direct spend is entered under Option 3, and
• The same spend is included in total company spend used for percentage allocation.

Always separate calculations before entry.

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2. Misallocation of Direct Spend

If direct spend is entered under Options 1 or 2, it will be prorated rather than fully credited. This may underreport the true customer-specific value.

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3. Overstating Indirect Spend

If indirect spend is entered under Option 3 without proper allocation, it may result in over-crediting the customer.

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4. Lack of Documentation

Because the calculator does not define or validate direct vs. indirect spend, suppliers are responsible for:

• Applying consistent methodology
• Maintaining internal documentation
• Following customer-specific Tier 2 reporting requirements

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Choosing the Right Option

Scenario	Recommended Option
Reporting indirect spend only	Option 1 or 2
Reporting direct spend only	Option 3
Reporting both direct and indirect	Separate calculations, then combine carefully
Unsure how to allocate	Confirm customer reporting requirements before submission

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Final Reminder

The Tier 2 Calculator is a reporting tool. It does not:

• Automatically classify direct vs. indirect spend
• Prevent duplicate reporting
• Validate allocation methodology

Suppliers are responsible for ensuring accurate classification and calculation before entering data.

When in doubt, review your customer’s Tier 2 reporting guidelines or consult your SupplierGateway support contact.