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How to Be the Perfect Link in a Supply Chain

June 7, 2017
Companies should narrow their focus to one or two key customers, use 3PLs and join a supplier council, among other things.

The largest and fastest-growing middle-market firms with successful supply chains develop deep, collaborative relationships with their most important customers, according to new research from the National Center for the Middle-market (NCMM).

“To become the perfect link in the supply chain, firms need to narrow their focus to one or two key customers, use third-party logistics providers (3PLs), and consider sharing ideas with peers by joining a supplier council,” says Thomas Stewart, executive director of NCMM, which is a collaboration between The Ohio State University’s Fisher College of Business, SunTrust Banks and Grant Thornton.

Middle-market companies occupy a unique position in American business where they are often critical links in the supply chains of other larger companies. Future research needs to be conducted in this area of supply chain management so companies can learn how to properly succeed as a perfect link.

It seems counterintuitive, but the most successful middle-market customers minimize diversity in their customer base and instead focus their efforts on a few noteworthy customers. These supply chain links create critically important partnerships, allowing them to make proper adjustments based on customer needs. In fact, the research shows that 34% of middle-market firms rely heavily on just one or two critical customers compared to only 16% who are spread out over many different customers.

“As with customer relationships, supplier relationships are critical,” says Doug Farren, NCMM’s managing director. “The best performing middle-market companies’ work collaboratively with their top suppliers, often integrate business information systems, and recognize the value of 3PL partners.”

Typically, middle-market firms handle supply chain management in-house, but sometimes a third party is needed to enhance a middle-market company’s ability to meet customer requirements for speed, accuracy and safety. The research finds that about 53% of middle-market businesses use 3PLs to manage aspects of the supply chain, primarily transportation and warehousing. By enlisting a 3PL partner, a middle-market firm can improve service and gain greater visibility in the supply chain.

A growing trend among larger firms in the middle-market, along with those that are experiencing growth, has been to join supplier councils. About 40% of middle-market firms participate in these groups, which help them learn best practices and collaborate on how to solve problems, as well as review metrics and key performance indicators.

Overall, the biggest middle-market companies make the most effective supply chain links. However, size isn’t critical. Middle-market companies of all shapes and sizes that adopt the practices of top performers stand to benefit by improving service levels and enhancing their value to their most important customers, which can lead to revenue growth.

The most challenging aspect of supply chain management is competition, followed by the need to fulfill customer desires and addressing the intricacies of a complex supply chain. While the larger middle-market companies are most likely to be successful suppliers, they also face more intense challenges. In fact, approximately half of businesses with $100 million or more in revenue cite these negotiations as a major challenge.

NCMM surveyed 400 C-suite middle-market leaders from companies that serve as supply links to other organizations that either sell direct to consumers or that perform additional manufacturing/assembly/distribution processes. All leaders surveyed have direct involvement in managing customer and supplier relationships for their firms.

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