Most Mid-Market Supply Chains Are Under-Served
On average, mid-market supply chains ($50M to $150M) replace their supply chain providers every two to three years. The two overwhelming reasons why are because they don't realize continuous return on investment (ROI) improvement and they lack strategic account support.
Mid-market supply chain owners are caught in a conundrum: 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. They're also not large enough to garner the strategic attention from big industry players who instead focus on their largest, most profitable, customers.
Q: With all the focus on transportation, how can I truly understand what is missing?
A: According to a Gartner study, companies that pursue strategic supply chain outsourcing can experience up to 20 percent cost savings over a five-year horizon. Companies with a transportation spend between $50-$150 million find their cost savings peak at 8 percent during engagement with large 3PLs as they offer tactical, internally focused solutions. The 3PLs revenue ceiling is set by a tariff- or fee-based solution, while the floor is set by underlying and fluctuating carrier costs.
As market conditions and carrier networks change, logistics providers' 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, where 80 percent of the cost savings lie. In effect, no value is provided beyond transportation.
After recently meeting with a mid-market customer whose inbound network is managed by one of the large industry providers, it was surprising to learn that the leading issue holding the customer's business back was supplier compliance. The gap between corporate objectives and the logistics provider's solutions was incredibly apparent as the provider has not developed any processes to address the issue or even realized they needed to. The customer went on to say that this was their third logistics provider in eight years. This is a story heard frequently when meeting with companies who have a mid-market supply chain.
Q: Why am I stuck with inadequate technology?
A: The technology usually provided to mid-market supply chains simply cannot deliver complete visibility into the information and data required to focus on optimizing the supply chain. The systems being used aren't those in Gartner's Magic Quadrant for "Leaders," like Oracle and JDA, whose tools can flag orders for optimization or consolidation.
Many times the data being captured in the sub-optimal systems isn't real-time. Worse, the business intelligence data lacks the ability to complete inventory analysis, examine profitability by customer and complete business process redesign; all critical components when it comes to optimizing the supply chain and realizing true continuous improvement.
Q: What can I do to make sure my mid-market supply chain is supported, at the level it deserves?
A: Find a provider with a proven track record of success with mid-market companies. Ensure the case studies and stories support continuous improvement year-over-year for shippers of all sizes, and look for tenured relationships lasting through business cycles and measured in decades, not years.