The search for the perfect link

If Ohio is “the heart of it all” and Columbus is at the heart of Ohio, it’s no wonder that the city has become an epicenter of logistics, supply and distribution.

Managing these supply chains is a big deal. Critical issues of cost, speed, reliability, security and quality come together in the choices of what to buy (vs. build themselves) and from whom, how to organize the links in the chain, how to manage supplier relationships, how to weigh trade-offs between reliability and speed, price and time, and more. E-commerce and digitization have only made the topic more important and complex.

Links in the chain

Thousands of supply chain management studies and university research centers help executives learn what’s tried and true, what’s hot and new. But almost all of this vast body of knowledge is about big companies. Almost nothing looks at how suppliers — the links in those chains — behave or what they can do to become more successful.

Suppliers of raw materials and parts, distribution and logistics services, or IT, advertising, customer care or other services have a stake in the game. How do they become indispensable to a customer, without becoming dangerously dependent? How much information should they share, and how much should they hold as proprietary? How can they assure themselves of a good profit when their customers have more muscle?

The National Center for the Middle Market released a new study, The Perfect Link, because the links in supply chains are, in many cases, middle-market companies. Working with Professor Tom Goldsby of The Ohio State University’s Fisher College of Business and the Council of Supply Chain Management Professionals, we surveyed 400 middle-market suppliers to find out what successful suppliers did differently from the rest.

Keys for success

A significant subset of middle-market suppliers grows faster, makes more money and feels more secure in its relationships with its big customers. These superior links come in all sizes (though most are at the upper end of the revenue scale) and in all industries. But they display common practices and behaviors, which suggests superior performance isn’t a matter of chance; it is, instead, a destiny over which executives can exercise quite a lot of control. Some key findings:

  • They go deep with a few customers. Top performing suppliers have a less diversified customer base than their peers. That seems risky, but they develop deeply collaborative relationships.
  • They focus on core capabilities. The majority of fast-growing suppliers (61 percent) use third-party logistics providers, and increasingly outsource data management and security, supply chain planning and so on.
  • The more they learn, the better they do. Approximately half of the suppliers surveyed participate in some type of supplier council.
  • They let customers call some of the shots. Middle-market companies often fear being squeezed by vendors or customers, but in many cases ceding some control leads to greater overall success.

Get more details from The Perfect Link report.

 

Thomas A. Stewart is the Executive director of the National Center for the Middle Market, the leading source for knowledge, leadership and research on midsized companies, based at the Fisher College of Business, in collaboration with The Ohio State University. Thomas is an influential thought leader on global management issues and ideas — an internationally recognized editor and publisher, authority on intellectual capital and knowledge management and a best-selling author.