Information sharing in Buyer Supplier Relationships

A supply chain is essentially a network of inter-connected and interdependent organizations mutually and cooperatively working together to control, manage and improve the flow of materials and information from the suppliers to the end users. The very definition shows how important information sharing plays a huge role in the management of the supply chain, since today proper SCM focuses on how firms can best utilize their suppliers’ processes, technology and capabilities to enhance their own competitive advantage.

Today there are 3 kinds of flows amongst the supply chain collaborators:

  1. Material : the raw material from the supplier to the buyer
  2. Information: interchanges among the supplier and the buyer on need, demand predictions and supplier capabilities and storage (ideally should be real time)
  3. Financial : the payments from the buyer to the supplier and the credit from the supplier to the buyer

ICT has played a crucial role in shaping the buyer supplier relationships, especially the internet. While the past has focused on supplier evaluation, as we strive towards a lean supply chain management, the focus shifts towards relationship evaluation. It has been established by research that higher information visibility among supply chain collaborators, brings in higher transactional transparency and thus higher trust, which leads to higher performance of the buyer supplier network. While the risk arises in this context from the increased bargaining power of the supplier, and thus the risk of opportunism. Better relationships although increases opportunism potential among the suppliers, it has been seen that the improved relationships actually lowers potential losses from acts of opportunism, thanks to the increased trust on the partner. Better information visibility leading to better collaboration among supplier and buyer has also lowered costs for the parent firm (especially from lower inventory costs). Also this has improved flexibility but the same has been criticized to have been reducing innovation potential, thanks to the standardization of information exchanges. ICT has also improved service and delivery in the supply chain, e-fulfillment has been an exciting emergent area for all manufacturing industries, to improve overall supply chain performance.

There are certain key themes that research on Buyer Supplier networks and relationships have focused on in recent times. A graphical representation of the same is as follows:

It is crucial to note that while using inter-organizational systems, such as ICTs used in managing the supply chain, conflicts may arise between frms that are part of more than one supply chain, with varying strategic directions. These systems must fit within the organizational requirements of the supply chain/network members, or else the overall acceptance may not be adequate for the system’s use. So to actually optimize the benefits of information visibility on a buyer supplier network’s performance, it is crucial to first understand the two firm’s objectives (business) at a strategic level before such network is formed.

Author: Kar

Dr. Kar works in the interface of digital transformation and data science for business management domains. Professionally a professor (IIT, IIM) and an alumni of XLRI, he has extensive experience in teaching, training, consultancy and research in reputed institutes. He is a Regular Contributor of Business Fundas and a blogging addict. Note: The articles authored in this blog are his personal views and does not reflect that of his affiliations.