The first post in a series based on the research report The Perfect Link by the National Center for the Middle Market, this post looks at ways in which middle market companies serve as links in the supply chains of larger businesses.
Instead of selling goods direct to consumers, middle market businesses that manufacture or assemble products or components very often sell them to other, often larger, businesses. Those businesses, in turn, carry out additional manufacturing or assembly processes and/or complete the process of selling to the end user.
In other words, middle market companies often serve as links in larger organizations’ supply chains. And the dynamics of their relationships with their customers, as well as their own upstream suppliers, appears to have a significant impact on their own growth and success. In fact, recent research by the Center suggests that the fastest-growing middle market companies—those businesses experiencing annual revenue growth of 10% or more—are most likely to say they are highly satisfied with how their firms manage their supply chain role.
So what does that role look like? The research shows that middle market suppliers are likely to:
- Prioritize supply chain management. Virtually all middle market companies say supply chain management is a top priority for their businesses, and they align supply chain strategy with corporate strategy. About three-quarters of firms hold regular supply chain meetings and reviews, and 65% of companies engage in sales and operations planning processes.
- Operate within narrow supply chains. Few middle market companies serve a truly diversified customer base. Most primarily focus on one or two critical customers, and they tend to be important and major suppliers for those customers. Collaboration and integration with downstream customers as well as upstream suppliers is important to middle market firms.
- Be susceptible to power dynamics. Middle market leaders are likely to say they feel at least a little bit squeezed by pressure from both their customers and their suppliers. But few companies say the pressure constrains their ability to perform. Indeed, about half of middle market leaders tell us that pressure from customers and suppliers a helps their companies run more smoothly or efficiently.
- Embrace technology. Most middle market suppliers feel that advances in technology enable more efficient supply chain management. On the downside, half say technology increases risk. A slight majority (54%) of firms currently incorporate technologies such as SAP or Manugistics in their supply chain management processes.
- Do most of the work in-house. In general, middle market companies prefer to keep internal control of most aspects of their supply chain operations. Upwards of 60% of firms completely or mainly handle inventory management and customer and supplier relationships internally. However, half of middle market suppliers outsource transportation management.
- Struggle with competition and risk. Contending with competitors is the most challenging aspect of supply chain management for middle market companies. When it comes to risk, firms are most concerned with operational issues, such as a disaster, strike, or infrastructure problem. The risk of losing a key customer or a data breach are lesser concerns.
To learn more about the middle market’s role in the supply chain and to discover what the best middle market suppliers are doing to improve their customer and supplier relationships, view the Center’s full report, The Perfect Link: How Middle Market Companies Operate Within Supply Chains.
Next in this series
Post 2: Less is More: Focusing on Fewer Customers Is Key to Middle Market Suppliers’ Success
Others in this series
Post 3: The Control Factor: Giving Some Up Could Be Good for Middle Market Suppliers
Post 4: How to Become the Perfect Link: Tips for Improving the Way You Work with Your Customers and Suppliers