Last week, Spend Matters Jason Busch shared insights from his show-of-hands survey of an audience comprised largely of Mid-West companies from the “larger end of the mid-market” (an oxymoron unto itself). Despite this rather unscientific method of polling and sample selection (about 35 attendees at a  seminar hosted by a group purchasing organization), Jason’s findings were representative of the broader mid-market:

1. Supply management “technology adoption even in larger middle market companies remains low.”
2. Many mid-market firms “are embracing a category partnering / sourcing approach to working with” GPOs before they invest in broader technology roll-outs across their spend categories.
3. There’s a great degree of skepticism towards ERP capability and direction, at least within this group of larger middle market users.

While I might take debate with the second point (this was a seminar hosted by a GPO, after all), Jason’s findings echo those of other recent studies of supply management trends among mid-sized enterprises.

An Aberdeen Group benchmark of supply management, supply chain, and finance executives at more than 130 mid-market companies found that the typical mid-size firm applies disciplined strategic sourcing to only about one-third of total spending.

What’s the problem? Aberdeen uncovered four hurdles to effective sourcing and supply management at mid-market firms:

• Lack of formal sourcing procedures and organizations — less than 40% of mid-market firms lack a formal strategic sourcing group. Eighty percent of mid-market sourcing efforts either lack formal procedures, are decentralized, or only use formal approaches for their most critical spend.
• Lack of sourcing and commodity skills — mid-market companies lack basic strategic sourcing principles as well as category expertise.
• Insufficient sourcing or supply management automation – more than 80% of mid-market firms use a hodepodge of homegrown sourcing automation and offline communications to facilitate sourcing and supplier management projects.
• Little spend leverage — mid-size enterprises often lack the spending clout to aggressively negotiate best-pricing and terms with suppliers. 

Such inadequate competencies limit the ability of mid-size enterprises to leverage already diminutive spending volumes, assess supply market opportunities and costs, and drive cotinuous improvements in supply costs and performance. Case in point: Aberdeen to estimates that “Insufficient sourcing is costing mid-sized firms in the U.S. $134 billion in missed savings opportunities annually.”

However, these challenges only tell part of the story. Tomorrow we’ll investigate how mid-market companies are ramping up to address the supply management challenge. We’ll also examine the supply management approach and results one mid-market company was able to achieve.

In the meantime, download a complimentary copy of the Aberdeen Group report,  Strategic Sourcing in the Mid-Market: The Echo Boom in Supply Management.