Supply chain management (SCM) is defined as the management of the flow of goods. It includes the movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption. Interconnected or interlinked networks, channels and node businesses are involved in the provision of products and services required by end customers in a supply chain.
Supply chain management is a cross-functional approach that includes managing the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods, and the movement of finished goods out of the organization and toward the end consumer. As organizations are focusing on core competencies and becoming more flexible, they reduce their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other firms that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing managerial control of daily logistics operations. Less control and more supply chain partners led to the creation of the concept of supply chain management. The purpose of supply chain management is to improve trust, collaboration and transparency among supply chain partners, thus improving inventory visibility and the velocity of inventory movement.
The main function of supply chain management is as follows: inventory management, distribution management, channel management, payment management, financial management and supplier management.
Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes. For example, a purchasing department places orders as its requirements become known. The marketing department, responding to customer demand, communicates with several distributors and retailers as it attempts to determine ways to satisfy this demand. Information shared between supply chain partners can only be fully leveraged through process integration.
Successful supply chain business process integration involves collaboration between buyers and suppliers, common systems, and shared information.
Supply chain management has come of age, so who are some companies to watch? I have chosen a large cap, mid cap and small cap worth watching. All three are extremely proficient in their respective models, benefiting both their own customers, as well as their respective shareholders.
United Parcel Service (NYSE:UPS)
UPS is the world's largest package delivery company and a global leader in supply chain services, offering an extensive range of options for synchronizing the movement of goods, information and funds. Its business unit, UPS Supply Chain Solutions, bills itself as offering transportation and freight services, logistics and distribution, consulting, and customs brokerage services.
UPS has developed the most efficient and effective way to meet most business's requirements. Customers benefit from their established network of facilities, IT systems, and logistics experts to allow them to penetrate and expand to new markets. Customers can leverage their global network to remove roadblocks to new markets, whether they are local or international. They help their customers realize market opportunity without significant capital investment while allowing them to compete faster and with greater flexibility.
Their broad portfolio provides optimized and streamlined supply chain services, so customers can focus on their core capabilities and customers. Their end-to-end distribution services include everything from inbound material flow to finished goods warehousing, inventory management, inspections, returns handling, and global delivery.
UPS shares were up 47.91% over the last three years, 20.74% in the last year, and slightly down approximately 2% YTD. 8 analysts rate the shares a strong buy. The shares trade at approximately 2X sales with a market value of approximately $94B.
SPS Commerce (NASDAQ:SPSC)
SPS Commerce bills itself as a leading provider of cloud based supply chain management solutions, providing integration, collaboration, connectivity, visibility and data analytics to over 55,000 customers worldwide.
SPS Commerce perfects the power of trading partner relationships with the industry's most broadly adopted, retail cloud services platform. As a leader in cloud-based supply chain management solutions, they provide prewired, proven integrations and comprehensive retail performance analytics to thousands of customers worldwide. With a singular focus on the retail marketplace, they revolutionized traditional EDI systems by developing a platform that enables highly cost-effective and reliable trading partner collaboration. Electronic data interchange is the computer-to-computer exchange of business documents between companies. EDI replaces the faxing and mailing of paper documents. Used in a variety of industries, over 160,000 companies utilize EDI to improve their efficiencies [including specifically box retailers, such as Wal-Mart (NYSE:WMT), Target (NYSE:TGT), CVS (NYSE:CVS), Walgreen (WAG), Home Depot (NYSE:HD), Lowe's (NYSE:LOW), etc.]. These companies require all of their partners to also use EDI.
"We had a great start to the year. Total revenue grew 22% to $28.9 million, and adjusted EBITDA was $3.9 million. Recurring revenue grew 23%. The trend in the retail industry toward omni channel continues to create a huge opportunity for SPS Commerce. Many retailers are now selling products through multiple channels, combining physical commerce in their stores with digital commerce across web and mobile platforms. The ability to provide a seamless shopping experience for all consumers across all of these channels has made the retail ecosystem more complex than ever. Consequently, suppliers and retailers need to work strategically to meet the needs of the omni channel consumer. Whether it's helping to drive traffic to websites, executing fulfillment needs or making pertinent product details accessible to consumers across all touchpoints."
To give you some perspective as to the magnitude of these trends, Forrester expects online retail sales in the U.S. will increase from $231 billion in 2013 to $370 billion by 2017. Suppliers and retailers who adapt to omni channel and crack the code first will have a significant competitive advantage.
SPS is at the forefront of this evolution and in a unique position to help suppliers navigate these new waters. We have been able to take the priorities of both suppliers and retailers and develop one solution, creating a genuine partnership between suppliers and retailers. Given our leadership in the retail ecosystem, we've spent a lot of time and resources innovating around our platform. Last year, we developed an industry standard called RSX, in which suppliers can integrate to their trading partners quickly and easily, enabling faster expansion throughout their trading partner network as their business grows."
SPSC shares were up 281% over the last 3 years, 13.87% in the last year and down 6.97% YTD. 5 analysts rate the shares a strong buy. The shares trade at approximately 9X sales with a market capitalization of approximately $1B.
SilverSun Technologies (NASDAQ:SSNT)
SilverSun Technologies is an off the radar up and comer with financials well beyond its current market capitalization, trading at just under 1X sales, the company has, over the last 4 years, grown at an impressive compound annual growth rate of 32%. 2013 revenues were $17.4M. Q1 2014 revenues were reported as $4.9M with pre-tax income of $191,652.
SilverSun Technologies, Inc. is a multi-faceted information technology and software company providing state-of-the-art solutions to the SMB (Small and Medium Sized Business) marketplace. The company's principal operating subsidiary, SWK Technologies, publishes MAPADOCr, its own proprietary EDI software, an important component of supply chain management.
In addition, SWK is a value added reseller of several of Sage Software's ERP (Enterprise Resource Planning) software, and Accellos' warehouse management system (WMS). A WMS is the hub of a supply chain solution, integrating accounting/order and shipping software systems, electronic data interchange (EDI) systems, Crystal Reports software, radio frequency and barcode hardware, and warehouse automation equipment.
SWK is also a managed service provider, offering 24/7 remote network monitoring, data back-up, and disaster recovery services for its clients. Basically, the company provides knowledge, solutions, and technology that enable its customers to become more efficient and more profitable.
SilverSun is a leader in marketing technology solutions, both proprietary and third party, across a broad spectrum of industries in the marketplace, focused on manufacturing and distribution. It specializes in software integration and deployment, programming, and training and technical support, aimed at improving the financial reporting and operational efficiencies of small and medium sized companies.
SilverSun's growth strategy is to both aggressively grow organically and to acquire firms in the extensive and expanding SMB technology marketplace, which is highly fragmented with many smaller players. In the last 30 months, it has successfully made 6 highly accretive acquisitions. The Company's compound annual growth rate over the last 4 years has been 32%.
In recent weeks, the company disclosed its goal of reaching $50M in annual revenues in the next 18 months (it is currently at a run rate of ~$20 million). I believe if successful, the company will likely be acquired by a larger player at what should be at least a 3-4X multiple of sales. In recent weeks, the company released a letter to shareholders worth reading.
SSNT shares are up 13.70% for a 1-year period, 50% over the last 3 months and 135% YTD. The company is not currently covered by any analysts and trades at approximately 1X trailing sales with a market capitalization just shy of $20M.
Supply chain management is coming of age. Even your old college alma mater likely offers it now as a major. The Wall Street Journal called supply chain management the "Hot New M.B.A."
With global operations becoming more complex, companies in manufacturing, retail and technology-and the consulting firms that service them-are scrambling to hire people with supply-chain expertise.
Rest assured the three companies mentioned above, UPS, SPS Commerce and SilverSun Technologies will be vying for not only some of these graduates, but they should also continue to benefit shareholders with nice growth as established leaders in their respective supply chain management market segments.
Disclosure: The author is long SSNT. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.