Different Types of Knowledge

Knowledge sharing encompasses the sharing of information, but it doesn’t stop there. Much of the information that companies share — data on inventory levels, sales, production schedules and prices — is easy to codify and transmit. But other types of knowledge are just as important to exchange and more difficult to codify: know-how, managerial and communication skills and organizational memory. Intercompany knowledge sharing is a joint activity between supply chain partners; the parties share knowledge and then jointly interpret and integrate it into a relationship-domain-specific memory that influences relationship-specific behavior.9 We found three types of knowledge sharing within the supply chain, each offering distinct benefits to buyers and suppliers: information sharing, joint sense making and knowledge integration (see “Types of Knowledge Sharing”):

• Information sharing takes place when companies exchange important data about sales, customer needs, market structures and demand levels.
• Joint sense making occurs when supply chain partners work together to solve operational problems, analyze and discuss strategic issues and facilitate communication about the relationship. Since individual partners often interpret the same information differently, intercompany teams can help create a common understanding.
• Knowledge integration occurs when supply chain partners develop relationship-specific memories, providing everyone with a common understanding of idiosyncratic routines and procedures governing the relationship. This often results in collective problem solving that benefits both the companies and the relationship as a whole.

These knowledge-sharing activities constitute mechanisms that can make or break supply chain partnerships.

Effective Knowledge Sharing in the Supply Chain

The greater the disparity between the market environments of buyers and suppliers, the greater the likelihood that partners will share knowledge. For example, in settings where customer preferences are changing or local regulations or supply sources are in a state of flux, cross-border partners rely on each other to serve as knowledge conduits. In general, market volatility makes companies more open to sharing knowledge; among other things, companies want to reduce bullwhip effects up the supply chain and the resulting stock-outs or overstocks. K.C. Lo, CEO of Smart Union (Hong Kong) Ltd., a toy manufacturer in Hong Kong with a global customer base, commented: “As manufacturers, we are also faced with the marketing challenge downstream. Our customers’ sales and marketing problems directly affect our bottom line. Our interests are intertwined with everybody along the supply chain. If the products do not sell well and the buyers have to resort to markdowns, it is not uncommon in our industry to see buyers coming back to us and ask for a rebate. To overcome problems like this, we need inputs from the buyers along the value creation process to do a better job in meeting market demand. None of us can operate in isolation.”

Companies with similar philosophies and goals have greater tendencies to share knowledge. Although this may seem intuitive, companies often partner with organizations that do not share the same business philosophies; subsequently, they are reluctant to share critical knowledge with each other. Again, while this may seem logical, it goes against the findings about the importance of knowledge sharing in achieving competitive positions. A company’s commitment to knowledge sharing is greatly influenced by whether it has made investments (for example, in special equipment, tools, machines or facilities) to support the buyer-seller relationship. Such investments tend to make a company more vested in the relationship and encourage knowledge sharing between partners.

The Role of Cultural Differences

One of the more interesting findings is that cross-cultural differences between buyers and sellers rarely matter when it comes to sharing knowledge. We had assumed that culture and all of its nuances (such as differences in perceptions of trust, time and risk taking) would play a major role in whether cross-border partners shared knowledge and other valuable resources: A Japanese buyer of industrial chemicals, for example, would have perceptions radically different from his American supplier about how a partnership should work and what knowledge can be shared safely. However, cultural differences between buyer and supplier companies had no impact on their propensity to share knowledge. Interviews with managers revealed the reasons. First, cross-cultural differences have always mattered less in business-to-business relationships than they have in business-to-consumer exchanges. Second, the nature of the businesses themselves is changing, becoming increasingly diverse both in terms of the employee base and in the number of markets businesses operate in. For example, one of the purchasing managers we interviewed was a Ukrainian working for a French company in Brazil. Identifying which cultural characteristics might influence his decision to share knowledge (Ukrainian, French or Brazilian?) would be impossible, and in reality this way of looking at culture proved irrelevant. Instead, there was an emergent global culture of business; decisions about whether to share knowledge — and how to do it — were driven less by cultural norms than by more objective decision making and market demands. As Yeh of TMHK conceded, “Businesses are looking for best practice and best thinking. We have to put our cultural differences aside. I am seeing a converging trend in the last 30 years.”

The Benefits of Knowledge Sharing

In measuring the performance of supply chain partners, it is important to recognize that businesses often have to make tradeoffs between market share/sales and profits. Therefore, we combined four indicators to create an index to measure company performance: increases in market share, sales, return on sales and return on investment. Research on how much value buyers and sellers get from knowledge sharing has been confusing; some studies show benefits, while others have shown dangerous repercussions.10 We found that, for both buyers and sellers, certain dimensions of knowledge sharing are critical for improved performance outcomes. Further, although all members of the supply chain need to participate in knowledge sharing, buyers and sellers do not always benefit equally. (See “Who Benefits From Sharing Knowledge?” p. 72.)

Both buyers and sellers indicated that information sharing and knowledge integration enhanced performance. They said that sharing information contributed to profitability and operating efficiency, benefiting both members in cross-national collaborations; they noted as well that frequent process adjustments and evaluations between partners also led to improved performance. In particular, knowledge sharing about market structures (for example, about mergers and acquisitions or regulatory changes), end-user preferences and profiles, technological innovations and financial resources helped everyone’s bottom line. This was especially important for supply chain partners operating globally, due to the complexity of overseas markets and the difficulty of obtaining reliable information on their own. For example, the toy industry constantly faces regulatory changes and new safety requirements in overseas markets, as recent events involving Chinese imports in the United States illustrate.11 Without cooperation and knowledge sharing from their overseas customers, manufacturers would have difficulty responding to these kinds of challenges in a timely manner.

However, the advantages for buyers and sellers are not always equal: Suppliers receive significantly greater benefit than buyers from two types of knowledge sharing — information sharing and knowledge integration — no matter which partner actually shares the resources. Indeed, the outcomes are the same whether it is the buyers who do the information sharing or make the efforts to integrate knowledge bases into the operational protocols, or the suppliers. Both partners win — but suppliers win more.

In contrast to information sharing and knowledge integration, joint sense making appears to have different effects. When suppliers developed teams to work with partners, increase face-to-face communication and evaluate routines and processes, both buyers and sellers benefited. More than half of the 132 suppliers surveyed indicated high levels of joint sense-making activity; for their specific partnerships, both buyers and suppliers averaged significantly higher performance ratings than other partnerships. But when buyers promoted the same activities, suppliers were the ones that reaped most of the benefits. Half of the buyers indicated high levels of joint sense-making activity, yet in these partnerships suppliers enjoyed 6% higher performance ratings than their buyers. The disparity may be due to the significant time and other resources needed to build intercompany teams: Buyers tended to see this as an investment with few benefits for them; suppliers saw the potential benefits as well worth the expense. These findings reinforce the view that when suppliers are willing to dedicate time and resources to share their knowledge, the supply chain as a whole benefits.

Knowledge sharing between supply chain partners occurs with the expectation that both buyers and sellers will see benefits. And both parties do gain — just not equally. Not surprisingly, problems can emerge when one party feels it is not benefiting as much as its partners. Henry Liu, vice president of Starlight Industrial Ltd., a Hong Kong toy manufacturer, commented, “Very often when we ask the customers [buyers] for information, we feel like we are talking to the wall. We have difficulties getting their commitment to do more knowledge sharing. The knowledge and information flow along our supply chain needs to be more effective.” This imbalance — where managers see relative gains as more important than absolute gains — can undermine long-term cooperation within supply chains. In general, however, both buyers and suppliers felt that their collective knowledge-sharing efforts enhanced the value of their relationships with partner companies. They felt that knowledge-sharing activities helped reduce costs, increase product quality, enhance delivery performance and increase the overall quality of communication between companies. In short, whatever the disparities in bottom-line benefits between buyers and suppliers, both groups felt that intercompany knowledge sharing was a valuable aspect of their global supply chain relationships. As Yeh of the TMHK noted, “Knowledge sharing between buyers and sellers is critical in a supply chain, even though it is often hard to quantify the actual size of the pie gained by each individual party. Both sides have to look at the ultimate picture and be more in sync.”

One question that emerges from the research is: Why do suppliers generally benefit more than buyers? There are two factors: the predominance of demand-driven supply chains in today’s global marketplace and the fact that suppliers have more room for improvement than buyers, who already tend to be quite lean. Increased competition has forced supply chain managers to become more agile and to tie their global models more closely to real-time consumption (as opposed to capacity or speculative sales forecasts). As a result, the knowledge that buyers share with suppliers is more valuable.

Demand-driven supply networks have been implemented by some of the best supply chains worldwide, including Toyota and Dell Inc.12 Moreover, many successful suppliers, such as those supplying the automotive and aerospace industries, are becoming system integrators, producing components and whole systems for leading manufacturers.13 In the meantime, manufacturers (buyers) have had to simplify their approaches to lean manufacturing processes and become less rigid. A number of industries have already taken big steps in this direction, including U.S. aerospace and defense companies.14 Several major players, including Boeing, Lockheed Martin and United Technologies, recently formed the Supplier Excellence Alliance, comprising original equipment manufacturers and suppliers working together to accelerate supply chain performance. One of its primary initiatives is to help companies become effective participants in demand-driven supply networks.

(Reprint #:49401)

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