The price of silence

By Jim Thomas -- Logistics Management, 1/1/1999

Is it wise to keep logistics secrets? Certainly, the formula for Coca-Cola or Kentucky Fried Chicken must be kept under lock and key, but many companies appear to expend the same amount of energy to conceal information on their transportation and warehousing operations. These companies believe they are protecting their competitive advantage. Keeping secrets, however, can prove costly.

You can calculate the total cost of logistics secrets by adding together the costs of security, penalties, and missed opportunities. Security costs include the physical systems and miscellaneous resources that are allocated to prevent corporate espionage, either real or imagined. Managers may justify the hardware costs charged to secrecy--including alarms, computers, video cameras, garlic necklaces, etc.--because they use the same system to combat theft. I doubt, however, if any managers measure the other costs involved in creating policy, holding meetings, writing memos, shredding memos, and imposing disciplinary action.

I know of one company that fired a transportation analyst because he disclosed rate discounts to a reporter during an interview. Yet the story was published and nothing happened. Evidently, the news that one business in a particular industry received a 12-percent discount over certain traffic lanes did not incite lawsuits from carriers, nor did it send the company's logistics operations crashing to the ground, as management feared. The company lost a good analyst. What is that worth?

Companies may be penalized for secrets. Consider this scenario: A company, let's call it Wal-Mart, is known for its logistics expertise. A second company, call it Amazon.com, wants the operational skills attributed to companies such as Wal-Mart. But Wal-Mart keeps a tight lid on its operational knowledge, so Amazon.com develops a simple solution--it hires managers away from Wal-Mart. Wal-Mart incurs the cost of replacing managers and then adds costs by filing a lawsuit against Amazon.com. Amazon.com now must pay the fees associated with the litigation. Add it up. Wouldn't both companies benefit by deploying these resources elsewhere?

Perhaps the biggest financial toll of secrecy arises from missed opportunities. For example, a manufacturer does not want its competitors to know that it ships 50 orders a day from its warehouse in Atlanta to a customer in Chicago. That information, it reasons, is proprietary because its competitors ship in the same traffic lane. If a competitor discovered this information, however, it might suggest that both companies combine their less-than-truckload shipments into one less-costly truckload shipment.

One logistics manager told me that the above example would amount to nothing more than theory until world-class companies began sharing services. That precedent already has been set. Earlier this year, Ford and Chrysler began using the same vehicles to deliver aftermarket parts to both automakers' dealerships in northern Michigan. World-class operations share logistics resources regularly through third-party logistics services providers.

You don't need to tell all; just understand that individual supply chains tend to operate with the same links. And you can't completely understand these links and the opportunities they offer unless you begin to share.