The U.S. middle market is a heterogeneous mix of companies across a variety of industries. The center has previously looked at the critical role of middle market companies as links in the supply chains of larger enterprises both domestically and abroad. However, these businesses have their own supply chains to manage, and the various disruptions that have occurred since mid-2021 have presented a challenge.
When we first looked more deeply into this issue a year ago, 47% of middle market businesses said they had experienced a disruption in the last half of 2021 resulting in a negative revenue impact of 4.4% on average. These numbers increased in the mid-year MMI (55%, with an average 4.7% revenue hit). Fortunately, these issues appear to be slowly resolving as less companies are now saying they’ve experienced disruptions in the last six months. As vital links in the global supply chains of larger companies, the ripple effects of such disruptions include increased raw materials inventory and storage/warehousing needs, both of which negatively impact working capital. But ultimately the impact extends to consumers and the shortages most of us have experienced at some point in time.
So what has been contributing to the difficulty managing supply chains? Globalization, complexity and size/scale are key variables. Additionally, service disruptions such as port closures, natural disasters and labor issues have exacerbated the issues. However, middle market leaders are doing what they can to address some of these challenges. For instance, by diversifying their own supply base and introducing geographic multiplicity, they can address a risk of having too much supply flow tied to one key supplier in one region. Additionally, companies are looking at tools to become more digitally connected to both customers as well as suppliers, increasing visibility and planning capability. Of course, this also introduces new risks around data security and accuracy. Regardless, a functional area once regarded only as a necessary cost center has now become more critical to the success of many middle market companies.