There are two categories of supply chain partners: those that buy and those that sell. Depending on which group they identify with, managers have different perspectives on the value of sharing critical knowledge resources with their supply chain partners. Both groups agree that sharing knowledge makes for more efficient supply chains (with lower costs and quicker speeds) and more effective organizations (with higher quality outputs and enhanced customer service). But the benefits of knowledge sharing don’t always accrue equally or simultaneously to all participants.

In addition, some managers think that knowledge sharing between buyers and suppliers has an underappreciated “dark side” that can outweigh the benefits.1 A common worry is that divulged information regarding technologies, pricing schedules, client bases and processes can be copied or shared with competitors. Another worry is that relying on knowledge flows from other organizations can undermine a company’s flexibility and leave it vulnerable to changes in its partners’ priorities. Despite these concerns, knowledge sharing between supply chain partners offers more positives than negatives, provided that the right kind of knowledge goes back and forth.

What type of information or knowledge should suppliers and buyers share with each other? How does knowledge sharing provide value to buyers and suppliers, and under what circumstances can it help both? How do cross-cultural differences between global buyers and suppliers influence the value of sharing information? To answer these questions, we studied more than 100 cross-national supply chain partnerships in the industrial chemicals, consumer durables, industrial packaging, toy and apparel industries in 19 country locations. (See “About the Research,” p. 68.) We examined how different types of knowledge sharing can benefit buyers or sellers individually. But more importantly, we studied how knowledge sharing can enhance the performance of partnerships and build stronger supply chains in the global marketplace. We sought to understand not only which companies benefit from cross-border knowledge sharing but also the conditions that lead to knowledge sharing in global supply chains. Many people see knowledge sharing as the result of customer or supplier needs when in fact it is more likely to be influenced by market structures or organizational similarities and dissimilarities between buyers and suppliers. (See “What Makes Knowledge Sharing Possible?” p. 69.)

The Value of Knowledge in Global Supply Chains

In a 2004 study, Hau Lee, a professor of operations, information and technology at Stanford University, found that topperforming supply chains had three distinct qualities.2 First, they are agile enough to react readily to sudden changes in demand or supply. Second, they adapt over time as market structures and environmental conditions change. And third, they align the interests of all members of the supply chain network in order to optimize performance. These characteristics — agility, adaptability and alignment — are possible only when partners promote knowledge flow between supply chain nodes. In other words, the flow of knowledge is what enables a supply chain to come together in a way that creates a true value chain for all stakeholders.

This is a critical point. As global supply chains become less push-oriented and more demand-driven, organizations can come together more closely in demand-driven supply networks. These networks focus on understanding customer needs (present and future) and building supply chains based on actual demand levels as opposed to demand forecasts or production schedules. This permits a higher level of service to customers — more on-time deliveries and more accurate order placement — which, in turn, leads to increased levels of customer loyalty. Higher service levels actually help supply chains become more efficient, thanks to fewer product returns, less need for overnight deliveries to compensate for slow turnarounds and fewer dissatisfied customers.

Knowledge flow creates value by making the supply chain more transparent and by giving everyone a better look at customer needs and value propositions. According to AMR Research Inc., a business research company located in Boston, increased demand visibility (that is, more knowledge about real-time customer needs and demands throughout the entire supply chain) increases perfect order rates dramatically.3 What’s more, broad knowledge about customers and the overall market, as opposed to just information from order points, can provide other benefits, including a better understanding of market trends, resulting in better planning and product development.

Toyota Motor Corp., for example, increasingly involves its Tier 1 suppliers in major market-oriented decisions. According to Vikram Kirloskar, vice-chairman of Toyota Kirloskar Motor, a joint venture between India’s Kirloskar Group and Toyota, this input would not have much value if Toyota and its suppliers didn’t also share knowledge about markets.4 In several industries, including chemicals and packaged goods, initiatives are underway to facilitate knowledge flows between partners and to enhance customer value. For example, the European chemical industry estimates that it can save up to 2% of total industry sales through increased collaboration, including more knowledge sharing, between its supply chain members.5 Moreover, research consistently shows that the most common contributors to supply chain failures — out-of-stocks, excess inventories, new product failure rates, increased product markdowns and wasted time in engineering and research and development — are all addressable by increasing knowledge flows between supply chain partners.6 Still, some supply chain members are reluctant to participate in knowledge-sharing activities.

Why Knowledge Sharing Is Controversial

There is a saying that, in the global marketplace, companies don’t compete — supply chains do. This is particularly true for industries in which there is a high degree of vertical integration and for specific markets, such as Japan, where long-term relationships between buyers and suppliers can trump competitive offerings from new players. Strong, cross-national supply chain relationships can create innovative environments that provide competitive advantages for member companies. Interorganizational learning and adaptation to volatile environments can facilitate symbiotic relationships between partners. It can help both suppliers and buyers adjust to diverse demand levels in multiple marketplaces (including new product launches with no historical demand levels), increasingly complex trade regulations, risk pooling and process developments. Recent research shows that best-in-class companies in supply chain management were three times more likely than laggard companies to apply “visible technologies” that offer real-time customer and demand data; these technologies allow buyers and sellers to share knowledge more easily across borders.7 These applications, which go beyond radio-frequency identification and early replenishment programs, enable supply chain partners to maximize operational efficiencies and enhance customer value creation.

But intercompany knowledge sharing can have harmful competitive consequences. Many supply chain members we interviewed had an aversion to participating in activities that could provide more benefit to partners than to their own company. Increasingly, supply chain partners see themselves as competing among themselves for revenue. The CEO of a major global freight carrier expressed this concern: “We hear a lot about cooperation in global supply chains. And while I’m sure we benefit from close relationships with our partners, we feel there are two reasons why knowledge sharing in the supply chain can work against us. First, whenever we share knowledge with partners, it seems to leak to competitors, or potential competitors. Second, as the markets become more intense, we feel profits are in turn limited, and we compete with our partners for profit shares. So we want to be careful what we share. We want our partners to win, but not at our expense.” 8

Managers want to know that they can build equity through collaborative activities. At a minimum, they want an equitable piece of the “margin pie” relative to the resources they commit.

Given increasing levels of competition and customer expectations, many companies believe there is a fundamental conflict of interest among supply chain members. Players located between raw materials suppliers and retailers or e-tailers, in particular, see themselves competing with one another for profits. As a result, they are less likely to view supply chain partners as allies in improving operational efficiency or market effectiveness than as competitors for margins. When margins are thin, knowledge sharing and true partnership can revert to a more traditional (and more adversarial) vendor-buyer relationship. As David Yeh, honorary president of the Toy Manufacturers’ Association of Hong Kong, noted, “Many toy OEMs are now competing directly with toy marketing companies such as Mattel and Hasbro in the same market. The competition has become more intense. Everybody is fighting over the same piece of pie.”

Although the concept of “pie sharing” is not new, it is important to clarify the different ways that knowledge sharing helps suppliers and buyers and how the supply chain as a whole benefits from these activities.

(Reprint #:49401)

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