Using Supplier Networks To Learn Faster

Last year, Toyota Motor Corp. posted profits that exceeded the combined earnings of its three largest competitors. In today’s world of hypercompetition, how did Toyota accomplish this? In searching for the answer, many business gurus and researchers have overlooked — or have not fully understood — the importance of knowledge-sharing networks. Certainly, knowledge management has become a hot topic. But how exactly do firms learn, and why do some companies learn faster than others? Furthermore, does learning go beyond the boundaries of the organization?

Many companies keep their suppliers and partners at arm’s length, zealously guarding their internal knowledge. In sharp contrast, Toyota embraces its suppliers and encourages knowledge sharing with them by establishing networks that facilitate the exchange of information. By doing so, Toyota has helped those companies retool and fine-tune their operations, and the results have been stunning: 14% higher output per worker, 25% lower inventories and 50% fewer defects compared with their operations that supply Toyota’s rivals. Such improvements have provided Toyota with a significant competitive advantage, enabling the company to charge substantial price premiums for the enhanced quality of its products. As Koichiro Noguchi, a Toyota director and former purchasing head, puts it, “Our suppliers are critical to our success. We must help them to be the best.”

Toyota is not alone. More and more, companies are recognizing the competitive advantage that springs from the manner in which they work with their partners. Even powerful Microsoft Corp. has to rely on companies around the world to localize and translate its products in markets as diverse as those of China, Chile and the Czech Republic. Ultimately Microsoft’s speed to market and even the quality of its offerings in those countries depend directly on how well it works and shares knowledge with those firms. For computer-systems company Dell Inc., suppliers are the very lifeblood of its business, and effective knowledge sharing with those partners is crucial for the company’s success (see “Knowledge Sharing at Dell.”). conductor manufacturer headquartered in San Jose, California, have also realized the importance of knowledge sharing with partners, and they are looking at strengthening those processes. As Xilinx vice president Evert Wolsheimer states, “I think our partnership relationships will evolve in a similar direction over time to look like what Toyota has done.&

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References

1. L. Chappel, “Toyota: Slash — But We’ll Help,” Automotive News 77 (Sept. 16, 2002): 4.

2.M. Porter, “Competitive Strategy” (New York: Free Press, 1980).

3. J.H. Dyer and N. Hatch, “Network-Specific Capabilities, Network Barriers to Knowledge Transfers, and Competitive Advantage” (paper presented at the Strategic Management Society Conference, Orlando, Florida, Nov. 7–10, 1998).

4. J.H. Dyer, “Collaborative Advantage” (New York: Oxford University Press, 2000).