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Can Too Much Information Sharing Kill Innovation?

Recently, at a supply chain conference I was attending, the discussion came around to collaboration and transparency in the communication between supply chain actors. The question was what information should be shared, and what are the limits to transparency, if any? As expected, service providers, OEMs, distributors, and logistic companies had different approaches.

In the customer-supplier relationship, the customer wants to understand everything about the cost structure of its supplier, whereas the supplier is trying hard to preserve its margin. As every company is the customer and supplier of someone else, there is some sort of a schizophrenic attitude; the information we expect our suppliers to give us we do not want to provide to our own customers!

I believe that there is a definite need for a better understanding of each other's cost drivers, and that the more comprehensive the understanding, the more collaborating partners know what they can expect from each other. This helps to drive enhanced responsiveness, predictability, and financial sustainability and contributes to the goals of reducing risks in the supply chain.

At the same time, the fuel for process innovation and improved efficiency is a company's appetite for improved growth, profit, and return. If, for the sake of collaboration, the customer ends up having full control over its supplier's gross profit, this is very likely to inhibit the supplier's creativity, and it will diminish the collaboration efficiency in the longer term.

Think about it: A common theme when talking with OEMs about their logistic service providers is that they regret their lack of creativity. Many are saying they would love to have more dialogue around innovative solutions. Those conversations will only be enabled if we move from an open-book policy to a shared benefit practice. A conclusion drawn in a paper by Martin Christopher and John Gattorna was that “alignment of supply chain strategies and processes between business partners enables service improvements to be achieved at less cost,” and that “by releasing value in this way prices can actually be reduced if necessary whilst still maintaining the supplier's margin.”

Targets should be focused on longer-term process improvements that reduce cost across the supply chain, rather than being short-term and standalone as well as driven by suppliers' gross profit goals. I don't see how an open-book policy between supply chain partners can encourage anything but a short-term focus where the attitude is more toward making quick wins on the back of one another, instead of embracing the overall efficiency of the supply chain.

The planned economy has shown its limit; the opportunity for enhanced profit is the fuel for innovation. If that opportunity is taken away, I fear that there will be a loss of appetite for innovation.

4 comments on “Can Too Much Information Sharing Kill Innovation?

  1. elctrnx_lyf
    July 24, 2012

    I do agree with the point open book pricing leading to minimal innovation with suppliers. Definitely when suppliers need to share everything about their pricing they never worry to bring it down by using innovative tools or processes. But now a days most of the big OEM's demand open book pricing to get better control of price. Some suppliers able to do so and be successful but most of them gets deterred in long term.

  2. bolaji ojo
    July 24, 2012

    In the consumer market, the price buyers pay for goods and services are supposedly transparent and they can therefore do comparison shopping. A buyer knows exactly how much an iPad costs versus the Google Nexus.

    In the B2B world, price masking is the norm and it is encouraged especially in the electronics manufacturing world where buyers don't want to tip their hands as to what kind pricing they received from a supplier and sellers don't want open pricing either for whatever reasons.

    Yet this information is sorely needed by buyers and sellers. In order to get this information, companies pay third party service providers to do the investigation for them. What exactly are the benefits of price opacity and do they outweigh the advantages of having open pricing?

  3. Houngbo_Hospice
    July 24, 2012

    @Bolaji

    “What exactly are the benefits of price opacity and do they outweigh the advantages of having open pricing?”

    I can't answer for sure, but apparently suppliers  seem to be satistied with that. Price opacity may give them a dominant position over their customers who are in competition with one another and therefore do not (apparently) collaborate. It is a kind of omerta between rivals for the fear of having to share other information than just pricing.

  4. CPeterson
    July 26, 2012

    Can Supply Chain actors agree to share strategy and agree to work towards agreed strategy metrics rather than showing their cards (i.e. cost structure)? For example if the actors agree that customization is the best strategy for the engagement then each actor can work (separately or collaboratively) in the direction of innovating the supply chain towards customization while each actor leaves their own internal optimization, cost-cutting, out-sourcing, etc. actions to themselves.

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