Middle Market Companies as "Perfect Links" in the Supply Chain
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By Doug Farren, Managing Director, National Center for the Middle Market
Mid-sized companies play a critical yet underappreciated role in America’s supply chains. These companies are part of powerful segment of the U.S. economy known as the middle market. Using a revenue-based definition of $10 million to $1 billion in annual sales, there are approximately 200,000 companies in all industries, geographies and ownership types contributing one-third of private sector jobs and gross domestic product. With this level of influence in the marketplace and a greater level of agility than bigger companies, middle market companies have the ability to be the “perfect link” within the supply chains of larger and smaller companies.
Until now, however, there was little research, data or thought leadership to support this, due to the privately-held structure of many of these firms and the more prevalent focus on big companies, small businesses and startups. Fortunately, new findings from the National Center for the Middle Market (NCMM) at The Ohio State University Fisher College of Business, a research organization dedicated to studying and supporting the growth of the U.S. middle market, have helped to uncover the traits and behaviors that support “perfect link” characteristics.
A New Approach to Supply Chain Research
Much of the prior research and literature on supply chain management has focused on the perspective of the big company driving its requirements down to Tier One, Two and Three suppliers. However, the approach taken by NCMM – with the help of Fisher College of Business Logistics faculty, corporate sponsors and the Council for Supply Chain Management Professionals (CSCMP) – was to understand the strategies and unique challenges these suppliers face and offer best practices to improve service and relationships both upstream and downstream.
Specifically, surveying 400 middle market executives throughout the U.S. who primarily manage the supply chain function for their company would help the industry understand how middle market firms can serve as “perfect links.”
Key Findings
Some key insights were expected, while others were somewhat surprising.
The top performing middle market companies tend to have one or two key customers and often collaborate frequently at the executive level. Effective suppliers also 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 some aspect of 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 companies having suppliers that deliver to their defined specifications. Finally, they are heavily integrated with these key customers, ranging from jointly developed KPIs to linked payment systems, as well as shared IT and systems.
Best Practices for Middle Market Companies
Understanding internal performance against the best-in-class companies is a start. However, there are practical steps middle market companies can take to improve their standing as a “perfect link.”
- Improve data management
- Outsource to 3PLs as needed
- Manage relationships by driving higher frequency of collaboration, such as through supplier councils
- Ensure compliance to regulatory and legislative requirements, perhaps in collaboration with others facing similar constraints
- Build a comprehensive data security architecture to minimize risk
- Define metrics and incentives to reward growing with your customers and suppliers
- Choose partners who are invested in winning, via innovation and continuous improvement, for example
When you consider the impact middle market firms have on the economy – from employment to GDP to geographic and regional impacts – it’s critical to understand the strategies and unique challenges suppliers face, and how best-practices can improve both upstream and downstream performance in a smart supply chain network.
Access a free copy of The Perfect Link. How Middle Market Companies Operate Within Supply Chains, a report by the National Center for the Middle Market.
About The National Center for the Middle Market
The National Center for the Middle Market is the leading source of knowledge, leadership, and innovative research focused on the U.S. Middle Market economy. The Center provides critical data, analysis, insights, and perspectives to help accelerate growth, increase competitiveness, and create jobs for companies, policymakers, and other key stakeholders in this sector. Stay connected to the Center by contacting middlemarketcenter@fisher.osu.edu.
About The Author
Doug Farren is the Managing Director of the National Center for the Middle Market at The Ohio State University Fisher College of Business. In his role, he leads the day-to-day operations of the Center which include research, corporate outreach, and student activities in addition to long-range strategic planning. Prior to launching the NCMM in 2011, he spent 10 years with LBrands, where he worked in various roles including Supply Chain Planning, Distribution Center Operations, and Financial Planning and Analysis supporting brands such as Victoria’s Secret and Bath and Body Works . Farren started with LBrands as a summer intern while completing his MBA in Operations and Logistics Management at Fisher. Farren’s previous experience includes business management for Six Sigma Qualtec, a process improvement consulting firm based on Scottsdale, Arizona. His primary functions included marketing strategy and on-site training and implementation. As part of his responsibilities, he was certified in 1998 as a Six Sigma Black Belt in Transactional Quality. Farren attended Penn State University, where he earned a Bachelor of Science with a focus on business management and was a member of the football program as a player and student assistant coach.
