Knowledge chains enable supply chain performance. They bring together the information and context that let you make decisions and take actions. Gaps in a supply chain are noticed and fixed immediately, but holes in a knowledge chain often go undetected. This is because supply chain gaps are usually catastrophic, but knowledge gaps are performance-limiting.
How do you know what you don't know and whether it could lead to better decisions? I will give you an example from one of our clients. A very large corporation improved its cost reduction by 50 percent in recent negotiations using target pricing delivered through our Freebenchmarking.com database. Without it, the client's expectations were set too low, and it would have accepted poorer results. By increasing its knowledge, it achieved results well beyond the original objectives.
Using knowledge to set expectations changes behavior and improves results. Check out the book Harvard Business Review on Inspiring & Executing Innovation for some cool examples. Knowledge chains are formed from information sources — people and reports within your company, combined with suppliers and other third parties. The context comes from the bias you apply to each piece of information and your awareness of what's going on.
As an example, what is the forecast for material cost reduction over the next three to six months? The knowledge chain tells us we are entering a period of economic slowdown. This should improve cost reduction, except the slowdown is affecting North America and Europe but not China or Brazil. These emerging countries are consuming more and more oil, keeping prices for transportation, plastics, and other oil-based goods and services high, and China remains in control of rare earth material prices.
Where does this leave your total bill of materials and gross margins? What do you say to your management team when your sales team drops prices in your home market? Do you have enough information and context? Companies with a strong knowledge chain have better answers for these questions.
Those responsible for supply chains need to invest time in understanding their knowledge chains. What information do you need to know whether your supply chain is secure, getting competitive pricing, or positioned well for probable near-term economic scenarios? Are you taking advantage of new information sources that are better than those you used when you designed your supply chain?
Companies can get out of touch easily because they are busy. They get stuck in old, comfortable ways of working. They fail to innovate. They miss opportunities to do things in new and better ways. I used to check my stock prices in the newspaper… you get the point!