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Middle Market Companies as ‘Perfect Links’ in Supply Chain

By Doug Farren Managing Director, National Center for the Middle Market

There are about 200,000 middle market companies with annual sales of $10 million to $1 billion in the U.S. With this outsized presence in the marketplace, and their ability to quickly adapt to economic challenges, middle market firms are the “perfect link” in the supply chains for companies, both large and small.

Doug Farren, Managing Director, National Center for the Middle Market

But size alone doesn’t guarantee success. That’s why new research from the National Center for the Middle Market (NCMM) at The Ohio State University’s Fisher College of Business has determined the traits and behaviors that describe “perfect link” supply chain characteristics. By emulating the best practices of the most successful middle market supply chain firms, manufacturers can find ways to effectively manage their supply relationships and ultimately fuel their growth.

The NCMM, in collaboration with the Council of Supply Chain Management Professionals (CSCMP), surveyed 400 middle market executives throughout the U.S., who primarily manage the supply function and work directly with other manufacturers or those who perform additional manufacturing processes. Some results were expected; others were not:

  • The survey revealed that top-performing middle market companies have one or two key customers and often collaborate at the executive level. Effective suppliers also tend to rely on the expertise of others to provide higher levels of service; 61 percent of top performers utilize third-party logistics (3PL) vendors to help support their key customers. These firms also cede control of select supply chain processes, notably new product development, data security and pricing.

  • Middle market firms also keep their suppliers close, with 56 percent of the fastest-growing firms having suppliers that deliver to their defined specifications. Finally, they are heavily integrated with their key customers, creating jointly developed KPIs to linked payment systems, as well as shared IT and monitoring systems.

Understanding internal performance against the best-in-class companies is a start. But there are practical steps smart middle market manufacturers can take to improve their standing as a “perfect link:”

  • Define metrics and incentives to reward growing with your customers and suppliers. A supply chain works well only if the risks, costs and rewards of doing business are distributed fairly. Misaligned incentives are often the cause of excess inventory, stock-outs and incorrect forecasts. The fates of all supply chain partners are linked. A great example of fostering this level of collaboration is through supplier councils, which serve as forum to continually assess goals, improvement and opportunities.

  • Choose partners invested in winning through innovation and continuous improvement. Through integrated management, technology innovation, and increased supplier incentives partners can to prevent problems before they arise.

  • Outsource to third-party logistics (3PL) experts. Using a 3PL provider reduces the need to invest in warehouse space, technology, transportation and staff. 3PL software can handle advanced reporting, inventory management and visibility to monitor the entire process via online, all of which create value for suppliers and customers alike.

  • Collaborate with supplier advisory councils (SACs). The best SACs help define best practices to improve business processes while ensuring compliance with regulatory and legislative requirements. Success requires suppliers willing and able to extend more value, resources, and energy to customers with whom they have strong relationships and greater trust.

  • Improve data management and security. Supply chain performance is becoming critically dependent on quality and consistency of data. Many middle market manufacturers think they don’t have valuable data, but the opposite is true. In addition to quality data, security measures that protect data are critical. High quality data and secure environments are investments that can save money and boost new business opportunities.
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