Abstract number: 020-0790

Abstract title: Knowledge Transfer in Supply Chains: A comparative case study

Ana Villanueva-Llapa ()

Davi Nakano ()

Production Engineering Department

Polytechnic School, University of São Paulo

tel. +55 -11- 3091 5363 ramal / extension 423

Address: Av. Prof. Almeida Prado, Trav 2, 128. CEP 05508-900 - S.P. - Brazil

POMS 22nd Annual Conference

Reno, Nevada, U.S.A.

April 29 to May 2, 2011


Abstract

The purpose of this paper is to examine knowledge transfer within supply chains. Applying a framework originally developed to study the transfer of best practices within a single organization, two supply chains structures in the textile industry were examined: an dynamic, open supply chain, where relationships are established on an adhoc basis, and a stable, closed supply chain, where participants are connected by long term relationships. It was found that in the open structured supply chain, there is a limited flow of knowledge within organizations, which rely on external sources and institutions. In the case of the closed supply chain, there is a leading company, which holds the governance of the chain. This company coordinates the flow of knowledge and fosters cooperation whenever that meets its goals.

Keywords: Knowledge transfer, Supply chain.


Introduction

The interest on organizational knowledge has increased in recent years and particularly, on how to effectively transfer knowledge, both within an organization and between organizations, to achieve improvement of operations and explore markets more efficiently (Easterby-Smith et al., 2008; Bresman et. al., 1999). The literature points that knowledge transfer can be hampered due to organizations’ internal characteristics, such as differences in culture, structure, operations routines and procedures, etc (Easterby-Smith et al., 2008). Besides each organization´s characteristics, the nature of knowledge and the context of the transfer also play an important role (Szulanski, 1996). However, even when it is difficult, knowledge transfer can bring competitive advantage to the participants (Argote and Ingram, 2000).

Sharing knowledge in supply chain is required because knowledge may be an important source of coordination and, thus, be critical to create value in the supply chain (Hult et al., 2004). A supply chain may be dominated by a powerful company, which sets standards and controls transactions (Gereffi, 2001), or it can be structured as a network without clear governance. So that, it seems reasonable to suppose that the flow of knowledge would be different in each type of supply chain structure. Thus, in order to describe and analyze those differences, this paper analyses how knowledge transfer is managed in two supply chain within the textile industry, from Brazil and Peru.

Supply Chain, Information and Knowledge Flows

Organizations may set connections with others, creating chains, networks and alliances, in search for cost reduction and efficiency, access to resources, market share, and innovation. A supply chain is a form of inter-organizational arrangement defined by Ballou (2006) as a set of functional activities (transport, inventory control, etc.), which are repeated numerous times along the channel through which raw materials are converted into finished products, adding value to the consumer. In many situations, raw materials sources, manufacturing facilities and market outlets are not located in a single place, and may not share the same ownership. As different companies engage in material, informational and financial transactions in order to deliver products and services, they participate within a supply chain. Material flows between companies are accompanied by information flows, related to customer relationship and services; demand and production coordination, performance indicators and reverse logistic. Also knowledge-flows related to product development, marketing, customer behavior are established (Lambert, 1998)

The literature in Operations Management highlights the strategic importance of integrating operations with suppliers and customers in supply chains (Frohlich, 2001), since integration underpins operational performance improvement, dampens the demand amplification (bullwhip effect), reduce inventory, improves customer delivery time, and improves cost control (Salvador et al, 2001). An important resource to achieve supply chain integration is the knowledge transfer (Rungtusanatham et al., 2003; Hult et al., 2004).

Some factors turns the knowledge transfer more difficult, such as different organizational cultures, structures and operational procedures and routines (Easterby-Smith et al., 2008). Knowledge transfer may become more complex as those factors are present and combine.

Research in operations management has neglected social aspects of supply chain management, since it usually relies on a technical approach (Burgess et al., 2006). But since supply chain management involves engagement of people from different backgrounds, professions, geographical locations and cultures, social aspects should also be considered.

Social interactions within one supply chain may establish issues of power and governance (Gereffi, 2001); powerful organizations may use their resources in order to coordinate and steer the whole supply chain to their benefit, influencing information and knowledge flows (Wijk et al, 2008). But, on the other hand, supply chains may also be structured without the presence of a commanding organization, i.e., without clear governance, where there is balance of power between players.

In this context, it seems reasonable to argue that the governance of a supply chain affects information and knowledge flows and consequently the integration of the chain. For instance, it can be argued that the presence of a powerful organization can foster an appropriate environment for information and knowledge flows to its benefit, improving supply chain performance. In this case, information and knowledge flows would occur only while not interfering with the core operations of the governing company (Hernández-Espallardo et al., 2010). Nevertheless, in the absence of a leading organization, supply chain participants may refrain to share knowledge, since knowledge appropriation is limited and there may be less protection against imitation (Norman, 2002).

Knowledge Transfer

Rogers (1983) defines "knowledge transfer" as the effort of an entity (persons, groups, organizations, etc.) to copy specific knowledge from another entity. Lucas (2006) adds that a successful transfer should deliver the intended results (effectiveness), and must ensure that new knowledge remains embedded within the organization (institutionalization).

Conceptually, knowledge transfer has been studied using Shannon and Weaver (1949) information theory model, composed by: the sender, the message (the contents of the data sent), the channel (the means by which messages are sent), encoder, decoder and receiver of the message. Those factors affect the process of knowledge transfer. For instance, Szulanski (1996) simplified the model and studied the influence of knowledge characteristics, source and receiver characteristics and the context in best practice transfers within an organization. The influence of specific factors have been also discussed in the literature: the nature of knowledge (Simonin, 1999 and Bresman et al., 1999), source motivation (Norman, 2002), source reliability and reputation (Mizerski apud Ko et al., 2005), receiver motivation (Modi and Mabert, 2007), receiver trust and reputation (Lucas, 2006) and absorptive capacity (Cohen and Levinthal, 1990). Contextual factors such as organizational culture (Lucas and Ogilvien, 2006), foreign culture (Pablos, 2004), inter-organizational structures (Easterby-Smith et al., 2008), information technology (Riege, 2005) have also been discussed so far.

Extant findings on factors affecting knowledge transfer can be summarized in four groups: knowledge, source, sender and context characteristics.

Table 1 – Factors affecting knowledge transfer

Knowledge / Nature
Source / Motivation
Reliability and reputation
Receiver / Motivation
Trust and reputation
Absorptive capacity
Context / Organizational Culture
Foreign Culture
Inter-organizational structure
Information technology

Those factors have been applied mainly to study knowledge transfer within one organization, but they can also be applied to study knowledge transfer in supply chains.

Methodology

Two case studies were conducted, within the textile industry in South America. In Brazil, three companies located in Americana, a cluster of textile and apparel companies located 100 km north of Sao Paulo were studied. Those companies produce cotton and synthetic fiber garments, in a very competitive market that requires faster flows of goods, services and knowledge. Each company performs different activities in the chain: weaving, clothing production and sales. In Peru, five companies from the alpaca fiber chain were studied. Alpaca fiber is among the finest in the world (Association International of the alpaca, 2009). Although located in the highlands of the Peruvian Andes, the main customers are in the US and Europe. Five companies: a research Center, spinning, apparel and retail trade and an outsourcing company were studied.

Semi-structured interviews were conducted in each company. Interviewees were engineers and managers, working on procurement, sales and product development. The criterion for selection was the relationship among their functions and the interest of this research. Interviews took place after short presentation of the research. The average length of interviews was 70 minutes. Also archival material was collected and some field observation, especially in the Peruvian case was used.

Table 2 – The interviewees in the cases

Country / Company / Interviewees / Lenght (min)
Brazil / Weaving / Owner / 75
Clothing production sales / Product Development Manager / 70
Owner / 113
Peru / Research Center / Manager / 47
Spinning / Plant personnel / 75
Sales Assistant / 42
Apparel / Product Development Manager / 65
Production Assistant / 58
Retail trade / Store manager / 57
Outsourcing / Owner / 131

Results

Brazilian Case

In Brazil, companies that were studied work both with cotton and synthetic fibers. They are organized in a dynamic network, were supply relationships are usually short term, reconfigured for each new season. Also relationships are not exclusive; each company interacts with several suppliers and clients at the same time. Products are commodity-like, i.e., competition is cost-based, but there is strong influence of fashion trends. Americana, the city where companies are located, has housed textile companies for decades, and can be regarded as a marshallian cluster, where firms have knowledge and capabilities to carry out all manufacturing operations in the textile chain. Although some large companies are present in the city, typically, manufacturing is scattered among several SME´s. Accordingly, the interviewed companies were all small firms, performing only some activities of the production process. For example, to deliver its product, the weaving company needs to work together with two or three companies: printing, dyeing and laundry. Figure 1 depicts the chain and the position of the interviewed companies

Figure 1 – Supply Chain in the Brazil

There is no governing company, since the chain is formed by small businesses, possessing homogeneous market knowledge and limited resources and branding. Knowledge search and transfer is commanded by each individual firm. Product development follows fashion trends set by international brands and designers, mainly located in Italy, France, England and the US. Small companies do not have commercial transactions or design sharing agreements: they copy and make some adjustments to local market and taste.

The major limiting factor for knowledge transfer is the lack of stable, long term relationship among organizations. Competitive advantage is reached by design innovation and short time to market. Flexibility is an order winning factor, companies have to produce small lots and high variety, quickly following market demand, since Brazilian consumers appreciate novelty. Thus companies compete to obtain knowledge, usually using reverse engineering, or by contracting freelance fashion designers, who are updated to the latest trends. This prevents voluntary knowledge exchange and the development of inter-organizational trust.

As for the institutional context, there are state-owned educational institutions in the city, which offer manufacturing and design knowledge, and industrial associations. But institutional actors do not try to foster or manage the knowledge transfer within the supply chain, only provide knowledge to enhance operations in order to improve the performance of the local industry.

Thus, competitive environment helps to create an atmosphere of distrust and companies tend to not share knowledge, as they fear other may behave opportunistically. Thus, behavioral factors such as motivation to learn and trust and reputation have a negative impact on the transfer process, and both source and receiver search and exploit knowledge individualistically. Only local institutions engage in and support knowledge transfer.

Peruvian Case

The alpaca fiber supply chain is a structured chain, with well-established supply relationships. Most companies in the chain are owned by the same holding company.

Figure 2 – Supply Chain in the Peru

Despite the chain produces clothes for large buyers with strong international brands such as Johnnie Walker, Loft, Hugo Boss, Lacoste, Ralph Lauren, Bobby Jones, etc. (Valenzuela, 2003), the governance is not, as it would be expected, possessed by the international buyers. Despite their influence on setting fashion trends and design, the alpaca fiber clothing differential and market appeal is the fiber itself, not design. Since fiber supply is limited, power stays in the hands of whom controls it. A local firm, a weaving company, controls the supply of fiber and exerts governance over the chain, by controlling raw material supply, which is achieved using its comparative economic power and proximity to the producers, establishing trust-based relationships with them. The governing firm invests in modern production machines and buys almost all raw material supply, and coordinates knowledge flow within the chain.

The main knowledge flow that occurs in the chain is the transfer of best practices; due to the low capability of local companies and demanding customers abroad, local businesses have been forced to improve all manufacturing processes. The governing company coordinates the flow of knowledge and generates what is necessary for the improvement of the industry as a whole. For example, best practice knowledge flows are established to improve the quantity and quality of raw material, or information flows to the market are increased to promote the alpaca fiber and enlarge the customer base. The governing company generates and facilitates the existence of certain flows, but also limit others. For example, if small firms are motivated to export, it lets the access to market and negotiation more difficult, to ensure that the SME´s intent is unsuccessful, preventing competition in procurement of raw material.

The supply of raw material was previously outsourced to contractors, leading sometimes to supply shortages. The company decides to control procurement, allocating its own staff to the activity. Supply was ensured by overcoming difficulties such as understanding the culture and language of the alpaca fiber producers (Peruvian Andes Indian farmers), and building trust and reputation. The staff was recruited among those who have lived in the area, and have access, making friendship, by participating in their traditions. That ensured alpaca fiber suppliers to sell for the company. With regard to downstream relations in the chain, the company is also concerned with cultural issues: it recruits indigenous personnel from the area of sales, and establishes collaborative product development with small companies; always finding a way to meet customer specifications. Thus the factors that eventually undermine the transfer of knowledge are managed by the company that maintains the governance.