Case Study Early Supplier Integration for John Deere Skid Steer Loader “Congratulations, Scott. You are the new supply EXHIBIT 1 Example of Deere Skid Steer loader. management manager of our new Deere & Com- pany Commercial Worksite Products manufacturing facility in Knoxville, TN. As you know, we really need your help to make this new facility fully operational in 24 months. I am sure you realize that a critical responsibility of your new job is to integrate sup- pliers into the product development process for our own Deere manufactured skid-steer loader as quickly as possible. You will be reporting directly to me, and I need a proposal from you by the time we meet next week.” As Scott Nolan ended the call with James Field, plant manager and his immediate boss, he realized that Artem Konovalov 123RF this was not a simple request. In his proposal , he knew to New Holland, an independent contractor. Although he would need to (a) identify and justify which suppli- New Holland produced its own line of skid-steer loaders ers to integrate in the product development phase and that competed directly with the Deere brand, it agreed (b) specify how to structure the interactions with these to sell its excess capacity to manufacture essentially the chosen suppliers. The recommendations in his proposal same product for Deere & Company, allowing aesthetic had to ensure that this new plant would be up and run- changes for brand differentiation only. ning smoothly by the target date in two years. DEERE & COMPANY Market Deere’s average market share for the skid-steer loader Deere & Company, headquartered in Moline, IL, and varied between 1 to 3 percent Market data indicated owner of the John Deere brand, has more than 180 that this market niche was growing at 15-20 percent years of history, making it one of the world’s oldest busi- per year and was projected to reach overall sales of ness enterprises. A well-respected company, Deere & $1.2 billion, or approximately 60,000 units in 4 to 5 years. Company has a core business portfolio comprised of Given these numbers, corporate headquarters became the manufacturing, distributing, financing, and servic- increasingly interested in establishing the Deere skid- ing of agricultural equipment (e.g., combines and trac- steer loader as one of the leading worldwide competi- tors), construction and forestry equipment (e.g. log tors in this market niche with a goal of more than tripling skidders and forklifts), and commercial and consumer its market share. lawn care equipment (e.g., lawn and garden tractors In order to reach such an aggressive goal, Deere and mowers), as well as other technological products and services. With more than 60,000 employees world- realized its market penetration strategy needed to focus on fundamental order-winning criteria in such areas as: wide, Deere & Company conducts business in more than 160 countries • Product Features: Because the skid steer loader is a fixed-investment asset, product features that improve THE SKID-STEER LOADER ease of use (e.g., versatility of load placement), reduce The Product operational costs (e.g., fuel-efficiency), and reduce The skid-steer loader, a small loader with a 1,000 to maintenance requirements (e.g., self-lubricating parts) 3,000-pound-load capacity, was targeted for construc- would make the difference between the John Deere tion and ground care sites in need of light, versatile brand and competing products. and easy-handling land-moving equipment. Deere & • Product Range: To better serve customers, Deere Company pioneered the skid steer loader market more knew that it needed to offer some product variety. than 25 years ago, but, subsequently, the company as typically required for industrial equipment, given had outsourced the engineering and manufacturing different usage requirements. Therefore, a range of Earty Supplier integration for John Deere Skid Steer Loader 431 decisions and the frequently touted benefits of lower cost structures, faster product development cycle and reduced operational inefficiencies. He believed, how- ever, that not all suppliers needed to be or should be involved, especially in the early stages of the new product development process. Furthermore, involving suppliers should not be “lip-service”; the selected sup- pliers should be well integrated into the various product development activities models, perhaps differentiated on load capacity and available options (eg. hand or foot controls) was needed • Product Delivery: Deere knew that demonstrating its skid-loader’s versatile functionality and being able to demonstrate and deliver the product to the actual work site was an important sales incentive. • Price: Last but not least, the demand for skid-steer loaders was highly price sensitive. As a result, minimiz- ing cost of goods sold without sacrificing timely deliv- ery of a high-quality Deere skid-loader was imperative. As long as engineering and production of Deere brand skid-steer loaders were in the hands of a third party-one that, in fact, competed in the same market niche-there would be little opportunity to gain signifi- cant benefits over competing products and product fea- tures. The same argument held for cost considerations, making better delivery and service the only competitive advantages. Furthermore, expecting market demand for skid-steers would increase, New Holland had refused to sell additional production capacity to Deere & Company. As a result, Deere & Company decided that it needed to regain direct control of the design and manufacturing of this potentially lucrative product. THE “GREENFIELD” KNOXVILLE DECISION Corporate headquarters approved a capital investment project of $35 million dedicated to regaining control of the design and manufacturing of the steer-skid loader. This capital investment decision also approved the placement of the design, manufacturing, and marketing functions in a new facility to be built near Knoxville, TN. The mandate was clear-engineer and manufacture a high-quality skid-steer loader that would be 20% lower in costs than that of the best competitor’s in two years consistent with other identified order-winning criteria. SUPPLIER INTEGRATION IN SKID-STEER LOADER DESIGN Having worked in supply management for seven years, Nolan was well aware of the general principle of involv- ing suppliers in product development and manufacturing CONCLUSION Nolan realized that he must answer two important questions (a) How to choose the suppliers that should be inte- grated early in developing the new Deere skid-steer loader? (b) What principles/practices/techniques should be adopted to structure the interactions during the early product development phase with these selected suppliers so that the full-scale production of skid- steer loader units would begin by the target date in two years? With less than a week before his meeting with James Field, Nolan sat down and began drafting the proposal. Discussion Questions 1. Why should some suppliers be integrated into product development at Deere, while others should not? 2. What critieria-limit to four-should Scott Nolan use to screen suppliers to be integrated into the early phases of the Deere skid steer loader development process? 3. How should the relationship with chosen suppliers be managed in terms of contracts, teamwork, prog. ress reports, design, and production transition? 4. How should the relationships be managed with suppliers not chosen for early integration in the design?
Case Study Early Supplier Integration for John Deere Skid Steer Loader “Congratulations, Scott. You are the new supply EXHIBIT 1 Example of Deere Skid Steer loader. management manager of our new Deere & Com- pany Commercial Worksite