The second in a series based on the research report The Perfect Link by the National Center for the Middle Market, this post explores the nature of the relationships between middle market suppliers and their customers.
According to the Center’s latest research, most middle market firms that serve as links in the supply chains of other, often larger, companies tend to focus on serving only one or two critical customers. In fact, just 16% of all the firms we surveyed said that their sales are spread out between many different customers.
But fewer customers doesn’t appear to hinder success. In fact, firms that say they are extremely satisfied with their approach to supply chain management are the most likely to be heavily dependent on one or two critical customers. The fastest-growing middle market businesses—those with annual revenue growth of 10% or more—are also significantly more likely than their slower-growing peers to concentrate sales efforts on just a couple of key accounts.
A narrow supply chain is not necessarily risky business.
With most of their eggs in just one or two baskets, we might expect to find that middle market leaders are particularly concerned with the risk associated with losing a customer. Indeed, 74% of firms do say this is an important consideration. Most take some action to mitigate the risk of a customer loss, and 62% say they are well prepared for such an event. As an extra safeguard, over a third of firms keep tabs on the financial health of their customers through internal systems or a subscription to monitoring services.
But losing a customer is not the number one concern for middle market leaders. They say they are more worried about operational risks, such as disasters, strikes, or infrastructure problems. In general, they appear to be secure and satisfied with their customer relationships.
Dependency is a two-way street.
One reason why middle market suppliers may feel confident, despite the fact that they depend so heavily on so few customers, is that their customers are highly dependent on them as well. Most companies say they are the primary provider of the products and services they offer, and they have been serving their customers for five years or more. Middle market suppliers enjoy highly collaborative relationships with those companies, often sharing integrated systems across a spectrum of business functions.
As a result of this co-dependency, most suppliers believe their biggest customers would help them out if they ran into financial difficulties. The fastest-growing middle market firms and those that are most satisfied with their approach to supply chain management are most likely to believe their customers would provide them with long-term help, such as restructuring payment terms or providing other resources.
Building close relationship can support growth goals.
Middle market suppliers looking to grow their businesses may want to take a cue from their fast-growing peers and consider placing more emphasis on their most important customers. At a minimum, such an approach appears to improve overall satisfaction with the supply chain management process. And it may help suppliers become more indispensable to their most important customers, furthering long-term growth.
To learn more about how the most successful middle market suppliers manage their customer relationships, view the Center’s full report, The Perfect Link: How Middle Market Companies Operate Within Supply Chains.
Next in this series
Post 3: The Control Factor: Giving Some Up Could Be Good for Middle Market Suppliers
Others in this series
Post 1: Understanding the Role of Middle Market Companies in Supply Chains
Post 4: How to Become the Perfect Link: Tips for Improving the Way You Work with Your Customers and Suppliers