Thursday, September 15, 2005

What should you share with your trading partners? TRUST!

Should you share important, sometime sensitive information, with your trading partners? When important information is withheld, it leads to enormous inefficiencies or even disasters in the supply chain.

Trust is needed to streamline decision making and interactions in the supply chain.

Before the virtualization of the enterprise and globalization of the supply chain, it was not so hard to be selfish. The boundaries of your "sphere of trust" aligned pretty clearly with the boundaries of the old vertically integrated enterprise. Just keep all that confidential information safe inside your company and you were OK.


This is simply no longer true. The "sphere of trust" now extends deep into the supply chain. We are deeply interconnected. Everything (and everybody) is networked. More to the point, we have outsourced so much that you MUST share confidential information with your trading partners now. If someone else is designing major components of your product, someone else is doing your manufacturing, someone else is servicing your products at your customer's sites, and someone else is running your call centers, then by default you're sharing confidential customer information, product designs, IP, and production information. All the competitive pressures to reduce cycle times, inventory levels, improve service, and innovate products faster are pushing companies to integrate more tightly and share more information, not less. No longer can you afford the sloppiness inherent to keeping your trading partners in the dark.

So, for today, lets talk about sharing...and my next blog will talk about reducing risk.

Building Strategic Partnerships (through building the relationship)

A clear distinction should be made between strategic partnerships and the more tactical commodity, vendor-buyer relationships. Building strategic partnerships takes time and diligence. It can be accomplished with a small, rationalized set of suppliers. Done right, suppliers become an extension of your enterprise. This requires methodically laying out an agreement on what will be shared, the benefits, as well as the consequences of a breach. Building an understanding of the mutual self-interest and interdependence of the relationship is tantamount to its long-term success. In the past, traditional relationships were adversarial, it takes a lot of time to change mindsets. No matter, you must look to the future...

Many companies use the quarterly business review, generally under strict non-disclosure agreements, as the primary forum for sharing confidential strategies. These planning sessions at a senior-executive-to-senior-executive level review things like the changes to the market assumptions, scenarios, product roadmaps, transitions (strategy, timing, risks), and supplier performance (goals, actuals, and improvement plans). There are instances where a trading partner abuses this position of trust, but the end result is usually bad for the abuser.

Confidential dialogs can be even more challenging when the supplier or customer is also your competitor. Even with a non-disclosure agreement, the sharing of product strategies, roadmaps and other confidential data is uncomfortable, though it is done every day. Many of the large diversified conglomerates that are likely to be both competitors and trading partners are in the Far East where IP rights are not as strongly upheld. Another twist: as more and more manufacturing is outsourced to China and elsewhere, it raises the issue of sharing product and manufacturing knowledge with companies that could potentially become competitors of yours.

We all have stories about how IP was sent to China, and was then utilized by the competing vendor, "down the street," to build a comparable product, at a lower cost. This will continue to happen, unless you establish some principles to reduce your risk...

Lets leave that for the next entry...


Anonymous Anonymous said...

Enjoyed reading your blog.


Active Daytrader
currency trading


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