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Online Edition — November 2002

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Case Study and Commentary: Supply Chain Redesign
Sharing Information in Customer-Supplier Relationships
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Protecting Your Trade Secrets
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Sharing Information in Customer-Supplier Relationships

During World War II, a common poster warned military personnel that loose lips might sink ships. The saying stemmed from the government’s concern that newly recruited soldiers with limited military experience might share seemingly inconsequential information that could become disastrous in the hands of enemy spies.

That same attitude has permeated the relationship between customers and suppliers. For instance, retailers frequently are involved with the same suppliers used by their competitors. In a world where both organizations are trying to get the best of every deal, there’s a reluctance to divulge information that might get into competitors’ hands—even if that transfer occurs inadvertently.

Times have changed, however, and today’s world requires optimization of the supply chain. Limiting information flow is an almost certain way to undermine the effectiveness and efficiency of customer-supplier interactions. Information exchange is a vital aspect of customer-supplier team success if the right information is shared with the right people for the right reasons. But how do we define these three rights?

The Right People

It’s first important to identify who needs to receive specific types of information. All suppliers do not need all types of information; in fact, there may be situations when a supplier finds certain information to be burdensome. This may occur when a small customer attempts to build a partnership with a large supplier. Although the concept is sound, the supplier may be distracted with the needs of higher-volume customers. In these cases, information provided by the customer may never be used and may not be controlled as tightly as desired.

The truth is that information sharing is worthwhile only when both the customer and supplier can see the benefit of its use. This means that some types of information may be appropriate for some suppliers and not for others. Similarly, some information may fit the needs of some of the suppliers’ staff members but not the whole supplier team. In both cases, consciously exploring which people in the supplier’s organization will use the information and how it will be used is essential to determining what information should be shared.

Indeed, a supplier’s ability to use a customer’s data to mutual advantage may be worth investigating during the qualification phase. That small customer mentioned previously might find a smaller supplier better able to meet its needs. In some cases, a supplier’s inability to leverage customer-provided data might lead to the customer selecting an alternative vendor.

The Right Information

Similarly, the key to determining what information should be shared centers on the issue of usability. In this case, however, specific consideration must be given to the level of detail, the format of the information to be exchanged, and the frequency of sharing.

There are always many options regarding how in depth the information should be. In some cases, annual summaries suffice; in others, daily updates are appropriate. Within the same supplier, similar information may be used in substantially different ways and, therefore, may need to be provided in differing levels of detail.

This is also true for the format of information and its frequency of distribution. Format includes not only the presentation layout of the information but also the channel used to convey it. With the growing use of the Internet and electronic data exchange, it’s possible to trade voluminous quantities of data rapidly. Once again, the question becomes, “Will these data be useful if sent in this format over this channel at this frequency?”

The Right Reasons

There are many reasons for customers and suppliers to exchange information. In some cases, the potential benefits outweigh the potential risks so significantly that it’s wise to exchange proprietary secrets and confidential information. In others, far less sensitive information is sufficient to meet both organizations’ needs.

One area where customer-supplier teams can add great value is in identifying the reasons that information should be shared and then clarifying what information will be provided to whom. Communicating the specific rationales associated with each information exchange and establishing processes for the exchanges can greatly reduce the potential for leaks.

An Example

Consider the example of a restaurant chain that received weekly deliveries from a soft drink supplier. Over time, the customer found itself experiencing periodic out-of-stock occurrences. When details of the customer’s sales were given to the supplier, its projection process was improved greatly. The supplier was able to shift to bi-weekly deliveries, and the customer reduced inventory and stock shortages. Because both organizations benefited from the information exchange, it enhanced their relationship, as well as improved their quality and costs.

Trust, Confidentiality, and Sensible Security

Clearly, it takes time to build trust between customers and suppliers, so traditional security measures, such as confidentiality agreements, are useful tools for conveying the importance of shared information and protecting the customer. Even when the customer-supplier relationship is strong and there is a long history of successful information exchanges, it is wise to conduct periodic procedural audits to ensure the agreed upon processes are used consistently. Otherwise, new personnel and other similar changes at the supplier may increase the customer’s risk.

On the other hand, true customer-supplier partnerships are enhanced by an environment that projects trust and confidence in the supplier’s desire and ability to manage sensitive information appropriately.

A Two-Way Street

Information flow is not a one-way street from the customer to supplier—even though that’s the direction that tends to generate the most concern. It’s just as likely that a customer will leak a supplier’s secrets to another supplier, which creates the same competitive disadvantage—in reverse. That’s why most suppliers expect their suppliers to sign confidentiality agreements and to implement reasonable security measures too.

BRIAN HUME is president and founder of Martec International, a leading retail consulting practice. He is known and respected in Europe, North America, and the Asia-Pacific region as an authority on retailing and retail technology, including supply chain management and partnering between retailers and vendors. For more information on Martec International, visit the company’s Web site at www.martec-international.com or telephone 770-392-9664.

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