Using Supplier Networks To Learn Faster

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Many companies keep their suppliers and partners at arm’s length, zealously guarding internal knowledge. Toyota Motor Corp., however, embraces its suppliers and encourages knowledge sharing through established networks. Toyota has developed interorganizational processes that facilitate the transfer of both explicit and tacit knowledge. The three key processes revolve around supplier associations (for general sharing of information), consulting groups (for workshops, seminars and on-site assistance from Toyota) and learning teams (for on-site sharing of know-how within small groups).

With Toyota’s help, suppliers have fine-tuned their operations until, compared with their work for Toyota’s rivals, they have 14% higher output per worker, 25% lower inventories and 50% fewer defects. Quality improvements enable Toyota to charge price premiums for its products.

Toyota’s experience suggests that competitive advantages can be created and sustained through superior knowledge-sharing processes within a supplier network. The authors believe those principles have applicability in other types of alliances, too, including joint ventures. In fact, they contend that establishing effective interorganizational knowledge-sharing processes with suppliers and partners can be crucial for any company. The authors claim that knowledge sharing with suppliers is the reason for Toyota’s dynamic learning capability and might be the company’s one truly sustainable competitive advantage.

Jeffrey H. Dyer is the Horace Beesley Professor of Global Strategy and Nile W. Hatch is assistant professor of strategy at the Marriott School, Brigham Young University, in Provo, Utah. They can be reached at jdyer@byu.edu and nile@byu.edu.

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