ase Study Assignment: 1. Describe your reaction to Deere’s focus on education, t

ase Study Assignment:
1. Describe your reaction to Deere’s focus on education, training and the development of e-Procurement systems.
Case Text:
Deere Plows Ahead With Purchasing Improvements
John Deere, the farm and construction equipment producer headquartered in Moline, Illinois, has not always been as nimble and fast as the deer it features on its logo. Until recently, when a customer ordered a piece of equipment, the time to satisfy that order could be as long as six months. Given the pressure that Deere faces from competitors, reducing lead times across the business has taken on a sense of urgency. And given the fact that purchased goods and services represent about 70% of the cost of manufactured goods at Deere, the potential contribution of a progressive approach to purchasing is not hard to appreciate.
What have supply managers at Deere done to increase their contribution to the bottom line? First, a new management team quickly determined that the company had to reduce the number of suppliers working with Deere. At one point, Deere was buying from more that 14,000 active suppliers and had more that 80,000 supplier’s in the company’s database. This was partially the result of a massive move to outsource in the 1980s. Each business unit at Deere controlled its own purchasing decisions with little or no coordination between engineering and buying centers or support from a corporate purchasing group. The result was a fragmented and uncoordinated supply base.
The New executive team also realized that working more closely with remaining suppliers was essential for supply base improvement. Because of this recognition, supplier development became one of the key strategies of the new team. Supplier development and improvement efforts, on which Deere spent $7 million in 2000, remain important today. “The hard-dollar return,” explains a Deere purchasing executive “was $22 million. There’s also a big soft-dollar return on things like lower inventory and reduced floor space. But the most important benefit is the building of deep, loyal trust with suppliers”
The company has also put in place a strategic sourcing process that introduces control and discipline to Deere’s purchasing efforts. Purchasing specialist now analyze companywide purchasing requirements and group them into one of four categories – unique items, critical items, generic and commodities. The grouping begins to define the appropriate purchasing approach or strategy to take when sourcing an item. Working with divisional leaders, the purchasing team also developed a plan that allows local sites to buy components used only at a single location. Enterprise Divisional Teams are responsible for sourcing local items, Enterprise Supply Management Teams oversee company wide items, and the Indirect Strategic Teams developed sourcing strategies for non-production items.
Another major emphasis is managing costs. Management now considers suppliers-cost management one of the best practices in place at Deere. At the heart of the process is a three-page form that breaks down costs for materials into specific areas. If a supplier shows higher-than expected costs in a category, Deere may dispatch supplier-development engineers to improve performance. “One problem,” says Deere’s vice president for worldwide supply management,” is that suppliers often don’t know exactly what their costs are, or they don’t want to share the information.” This makes cost management a continuous challenge.
The purchasing leadership team has also focused on education, training, and the development of e-procurement systems. Have the effort outlined here been worthwhile? As the chairman of Deere commented, “The substantially increased emphasis we have placed on supply management has resulted in numerous best practices. “In a world of change, one thing is certain. As Deere moves forward, purchasing and suppliers – just like the tractors the company builds- will be there to help clear the path.
Source: Purchasing and Supply Chain Management, Monczka, Trent and Handfield, Southwestern, 2001. ISBN 0-324-20254-7

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