On average, mid-market supply chains ($50M to $150M) replace supply chain providers every 2 to 3 years as they are not achieving continuous ROI improvement and they are not getting the attention they deserve. They’re too big for the small supply chain operators who do not have the technology and processes in place to manage $50M to $150M in supply chain spend. And, they are not large enough to garner the strategic attention from the big industry players who are choosing to focus their improvement energy on the Apple’s and Nike’s that are providing higher supply chain revenues.
As a result, they’re not getting strategic value from their supply chains to meet go-to-market and other corporate objectives like: decreased business risk, increased sales or managing supplier compliance. This is among many of the reasons why I say that mid-market supply chains are under-served. Below, you’ll find even more reasons!
Most Mid-Market Firms Are Under-Served as They Are Getting Little Enhanced Value Beyond Transportation
According to a Gartner study, companies that pursue strategic supply chain outsourcing can experience 15-20% cost savings over a five-year horizon. In sharp contrast, most mid-market supply chains are seeing savings flatten at 6-8% after the first year because when it comes to mid-markets the focus is on transportation costs. Logistics providers are internally focused and not focused on the customer’s (or shippers) objectives.
This internal focus is apparent in the deal structure most often offered to these mid-market companies where a tariff solution provides a ceiling to logistics provider revenue. The floor is set by underlying carrier cost which can fluctuate. As market dynamics or carrier networks change, the logistics provider’s focus is drawn to the spread between customer revenue and carrier cost. With eyes squarely on their margin, the provider is not focused on strategic improvement in the customer’s supply chain. The result is a tactical relationship that most often lasts only 2-3 years.
If transportation rates are the primary consideration, value will not be created in the supply chain. It is only when corporate objectives are coupled with logistics efforts, that the supply chain can be viewed as a strategic weapon.
Most Mid-Market Supply Chains Are MisAligned with Corporate Objectives
I recently met with a mid-market customer whose inbound network is managed by one of the large industry providers. I was surprised to learn that the leading issue holding the customer’s business back was supplier compliance. The chasm between corporate objectives and the logistics provider’s solution was incredibly apparent as the provider has not developed any processes or programs to address the issue. The customer went on to say that this was their third logistics provider in the last eight years.
By aligning with corporate objectives, supply chain value can be maximized for the long term. I recently worked with a customer to implement an inbound network management solution. In contrast to the example above, we reviewed all supplier expectations, reset policies and implemented a compliance program. By managing compliance, replenishment frequencies could be extended. Transportation costs were reduced and inventory was lowered on key segmented products by 10%.
This is just one example of aligning the supply chain with corporate objectives. Additional strategic focus areas that most supply chain management and logistic providers are skipping when it comes to the mid-market include:
- Customer segmentation to manage transit or delivery widows based on customer volume
- Developing inventory and replenishment schedules to maximize product freshness
- Implementing programs to maximize cube or weight on shipments.
Most Mid-Market Supply Chains Are Stuck with Inadequate Technology
Another factor that adds to the sub-par results seen in mid-market supply chains is the use of limiting technology. Solutions provided to these emerging supply chains are often executed on a mid-level TMS which simply cannot deliver visibility into the information and data that is required to optimize and evolve the supply chain. These mid-level TMS solutions increase efficiency for the third party provider but do little to add strategic value to the end customer. Even worse, low-level resources are allocated to manage the technology but cannot identify the improvements needed to generate savings at the strategic level.
While transportation optimization is possible in these technology solutions, it is manual, requiring human intervention with room for error. Even worse, the business intelligence data is lacking to complete inventory analysis, examine profitability by customer and complete business process redesign.
It is only when the high-level TMS solutions are utilized, such as the Gartner’s Magic Quadrant Leaders, Oracle or JDA, that optimization can be automated. These tools flag the orders that can be optimized or consolidated, for example, eliminating the reliance on a customer service rep. The cost savings in consolidation alone can be phenomenal with up to 20% of LTL orders consolidated in strong TMS solutions. In addition, the big data that can be generated can be trended on a real time basis to uncover the inefficiencies in a customer’s supply chain.
As I talk to supply chain leaders in these mid-market companies, I am surprised by how often they do now know what technology is used by their third party provider. The choice matters as return on investment can double with the right technology and provider expertise.
Most Mid-Market Firms Are Getting One-Time Savings of 6% vs. Year Over Year Savings of 6% with ROI of 40%
Our clients gained an overall 40% ROI last year– 20% more than Gartner expectations because our supply chain execution begins with strategy and design and we’re using the data that our technology provides to evolve our client’s supply chains over time. This is why mid-market supply chain clients are staying with us for 8 to 10 years versus the average of 2 to 3 years. The 2 to 3 year client retention average shows us that supply chain leaders are calling for a change. They want to be served effectively. They want more value from their supply chain and they want it to be aligned with corporate objectives.