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Learning Organization – Gaining Competitive Advantage through Supplier Networks

Editor's Note: Take a look at our featured best practice, Organization Design Toolkit (103-slide PowerPoint presentation). Recent McKinsey research surveyed a large set of global executives and suggests that many companies, these days, are in a nearly permanent state of organizational flux. A rise in efforts in Organizational Design is attributed to the accelerating pace of structural change generated by market [read more]

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Large manufacturers are often reluctant to share knowledge with suppliers.  However, supplier networks are considered a great source of gaining competitive edge by Learning Organizations.

A Learning Organization is founded on innovation, free flow of ideas, and a consistent focus on transforming the ways of doing business in order to achieve the desired results.  For instance, Toyota out-performed its competitors in the 2000s era by incorporating the principles of Learning Organization in its culture and sharing technology and knowledge with its suppliers.  This resulted in less defects, lower inventory levels, and improved labor productivity for its suppliers and higher profits for Toyota.

Specifically, Toyota became a Learning Organization by developing the infrastructure and inter-organizational processes that enabled quick and free flow of explicit and tacit knowledge to its supplier network.  The Learning Organization at Toyota features 3 inter-organizational processes, which became foundational to its approach to Supply Chain Management:

  • Supplier Associations
  • Consulting Groups
  • Learning Teams

Let’s dive deeper into these processes.

Supplier Associations

Supplier Associations were setup by Toyota, initially, to share information, valuable experience, and to extract feedback.  The knowledge-sharing mechanisms that Toyota’s Supplier Associations employ include high-level sharing of explicit knowledge within the supply network regarding production plans, policies, and market trends.  The Supplier Associations hold bimonthly/monthly meetings to discuss key topics that include cost, quality, safety, best practices, and social activities.

These Supplier Associations enable suppliers to build relationships in Toyota at higher levels which was not a common practice in the industry.  This resulted in tremendous improvements in supplier performance due to explicit information and experience-sharing, which ultimately benefited Toyota to achieve excellence.

Consulting Groups

By establishing Consulting Groups in the 1960s, Toyota started the practice of providing free consultation regarding valuable production knowledge to its suppliers through experts.  This was accomplished through the creation of Operations Management Consulting Department (OMCD) in Japan in the 1960s and Toyota Supplier Support Center (TSSC) in the U.S. in 1992.

By developing the Consulting Groups infrastructure, Toyota’ consultants spent significant time at their supplier sites free of charge, helping them resolve problems in the Toyota Production System (TPS) implementation.  Suppliers, in turn, were encouraged to share their project results and open their operations to one another.  This explicit sharing of results and knowledge enabled other suppliers to replicate best practices and benefited Toyota by negotiating Target Pricing with its suppliers.

Learning Teams

Learning Teams—the 3rd pillar of a Learning Organization—were pioneered by Toyota in 1977 by organizing its suppliers into Voluntary Study Groups in Japan or Plant Development Activity (PDA) groups in the U.S.  The Learning Team collaborated voluntarily on production and quality management.

 The Learning Teams were—and still are—responsible for determining a theme and spending time addressing each member’s problems related to that theme, making the members learn significantly by having outside pair of eyes look at their problems.  This helped Toyota’s suppliers’ network achieve effective tacit knowledge transfer, explore new ideas and applications of Toyota Production System (TPS), transfer valuable lessons learnt to all stakeholders, and enhance production quality.

Toyota follows a deliberate step-wise path to create Knowledge-Sharing Networks.  These Knowledge-Sharing Networks are an invaluable resource for enhancing both overt and implicit information and experiences for the organization.

Key dynamics of Toyota’s Knowledge-Sharing Networks involve creating a non-threatening one-on-one relationship with suppliers through the Suppliers Association in the form of financial as well as valuable knowledge-sharing assistance.

Interested in learning more about the dynamics of Toyota’s Knowledge-Sharing Networks, the fundamental barriers to learning, and their implications on the suppliers and the manufacturer?  You can download an editable PowerPoint on Learning Organization:  Supplier Networks here on the Flevy documents marketplace.

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About Mark Bridges

Mark Bridges is a Senior Director of Strategy at Flevy. Flevy is your go-to resource for best practices in business management, covering management topics from Strategic Planning to Operational Excellence to Digital Transformation (view full list here). Learn how the Fortune 100 and global consulting firms do it. Improve the growth and efficiency of your organization by leveraging Flevy's library of best practice methodologies and templates. Prior to Flevy, Mark worked as an Associate at McKinsey & Co. and holds an MBA from the Booth School of Business at the University of Chicago. You can connect with Mark on LinkedIn here.

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