The determinants of the vertical information exchange process

Why information exchange between buying organizations and suppliers is limited while both parties know it is beneficial to share information.

Although buyers and suppliers may have contradicting goals, they have at least one goal in common: Making profit.
When they (buyer and supplier) decide to cooperate they can increase their profitability. However, in order to increase the profitability and grasp the benefits of cooperation, information sharing between the buyer and supplier is a prerequisite. They need to exchange information about their activities, processes, costs and value in order to map the overall picture of their relationship to come to a higher inter-firm profitability by aligning processes and activities on each other.

While it is widely acknowledged by buying companies and suppliers that sharing information is profitable for both of them, they are very hesitant to exchange any information. Although some reasons are obvious why certain information is not shared, those reasons do not clarify the complete behavior of the buyer and the supplier with respect to information exchange at all. This made me curious, I wanted to know why information is not exchanged, while both parties know it is profitable for them. And even more important what can buyers and/or suppliers do about it to improve the information exchange? What buttons do they have to switch in order to exchange more information and increase the profit of the buyer and the supplier.

In order to answer these questions, I conducted a study to open up the black box of vertical information sharing. I found several determinants of the vertical information exchange process which may clarify the reluctance of buying organizations and suppliers to share information. The determinants are also the buttons to switch in order to improve the information exchange.

Determinants of the vertical information exchange process

Several determinants of the vertical information exchange process are found: profitability (division/uncertainty), dependency, reciprocity, vulnerability (opportunism, impact), control, trust and culture. Each single determinant influences the information exchange process between a buyer and supplier. Besides this, it is important to notice the potential interaction among these determinants. In figure 1 the information exchange process between a buyer and supplier including the determinants is schematically depicted.

Figure 1 Schematic presentation of the information exchange process

In the middle of figure 1, the level of information disclosure is depicted which is subject to a direct influence of the first order determinants. It is a valid assumption that the first order determinants are influenced by other first order determinants and factors which have no direct influence on the level of information disclosure. These latter factors are called the second order determinants (not specified in this study). The arrows indicate the influence of the possible interaction among all determinants (1st order, 2nd order, n-order) and the level of information disclosure. The information exchange process takes place in a specific context (e.g. industry, market situation) at a specific point in time. Based on this figure, you can make a snapshot of the information exchange process between a buyer and supplier. This snapshot can serve as  base for looking for opportunities for increasing the information exchange.  

To find out more about this study, the determinants and how it affects the information sharing process, you can e-mail me for a free copy of this study.