This is the third post in our series based on the research report The Perfect Link by the National Center for the Middle Market. It explores the issue of control in the supply chain, who has the power to make decisions, and why it matters.
Conventional wisdom tells us that having control is an advantage. After all, if you are in charge of a situation, you can arrange the circumstances to serve your best interests, right?
Yet, according to the Center’s latest research, middle market firms that serve as links in the supply chains of other businesses may have much to gain by ceding some level of control to their customers. The research reveals a solid correlation between a firm’s willingness to let others weigh in on (or even completely take over) certain aspects of the business, and the firm’s overall satisfaction with supply chain management practices. What’s more, the fastest-growing middle market firms are among the most open to customer or outside influence.
What are middle market suppliers willing to give up?
In many cases, middle market suppliers concentrate their sales efforts on one or two key accounts, and they enjoy long-term, highly collaborative relationships with those customers. So, it’s not surprising that their biggest customers have some say in how they do business.
Middle market suppliers are most likely to let their customers weigh in on new product development. Just over half (51%) of all middle market suppliers say their customers have at least equal influence in this area, while 30% say their customers have more influence or complete control over the new products in which they invest. That figure rises to 35% when looking at firms with annual revenue growth of 10% or more. And it jumps even higher—to 47%—among companies that say they are extremely satisfied with their supply chain management practices.
Customers influence a wide range of other business decisions as well, from pricing and quality control to data security, the choice of upstream suppliers, implementing operational efficiencies, and even strategic decisions such as whether or not to open a new location. In each of these areas, approximately a quarter of middle market suppliers say their biggest customer completely calls the shots. The numbers rise across the board when looking at fast-growing and extremely satisfied suppliers.
Control flows upstream.
p>Just as their customers influence their business choices, middle market suppliers often impact the practices of their own upstream suppliers. They have the most say over their suppliers’ choice of suppliers, with 45% of firms indicating that they have complete control or at least a bigger say in this area. Middle market firms also have significant influence over their suppliers’ new product development initiatives and quality control efforts.
Outsourcing is a viable option.
While most middle market firms prefer to handle the aspects of supply chain management in house, 50% of companies outsource at least some of the transportation function. Interestingly, companies that say they are most satisfied with their approach to supply chain management are more open to outsourcing in all areas. In addition, 67% of the most satisfied middle market suppliers use 3PLs compared to just 48% of their less satisfied peers. Fast-growing firms are also significantly more likely to use a 3PL.
Doing everything yourself could hold you back.
Middle market suppliers that do not let their customer weigh in on decision making are less likely to do any outsourcing or use 3PLs. They typically have a broader customer base; but their relationships with their customers are not as collaborative or integrated. These middle market firms are smaller and slower-growing than their peers.
All in all, the research suggests that being more open to outside influence, whether that’s from a customer or by using a partner to handle certain areas of the business, can contribute to your success as a supply chain link. To learn more about what makes a middle market company a great supplier, view the Center’s full report, The Perfect Link: How Middle Market Companies Operate Within Supply Chains.
Next in this series
Post 4: How to Become the Perfect Link: Tips for Improving the Way You Work with Your Customers and Suppliers
Others in this series
Post 1: Understanding the Role of Middle Market Companies in Supply Chains
Post 2: Less is More: Focusing on Fewer Customers Is Key to Middle Market Suppliers’ Success