Question

Student Instruction Sheet Early Supplier Integration in the Design of the Skid-Steer Loader (John Deere Case; page 448; 6th edition of Schroeder) Instructions to Students:

1. Read the case carefully, assimilating all facts and data.

2. Read the Problem Solving Rubric attached. This is how the quality of your case will be gauged.

3. Please write a report covering the following bullet points - while minding the attached rubric on problem solving. (Do not do the Discussion Questions at the end of the case).

-Describe all of the problems faced by Scott Nolan and his company in this case. Be sure to provide justification of why all of these problems are important. Make sure you understand all of the contextual data provided in the case, especially the financial, quality, product development, schedule, and related data.

-For each problem, propose solutions, giving a complete rationale / justification. Be sure to use the data in the case and provide financial and business analysis (qualitative and quantitative) where necessar.

-For each solution, evaluate its potential impact and feasibility.

-You can organize your report so that you address problem, solutions and feasibility issues for each important problem – in separate sections.

4. Your answers should be concise, concrete, action oriented, and well-supported. Please limit your narrative to five pages, single-spaced. You can add appendices, charts, graphs, and exhibits as desired.

5. When you are finished, upload your file to the Dropbox named John Deere Case.

“Congratulations, Scott. You are the new supply 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 suppli- ers into the product development process for our own Deere manufactured skid-steer loader as quickly as needed. You will be reporting directly to me, and I need a proposal from you by the time we meet next week on June 15, 1996.” As Scott hung up the telephone with James Field, plant manager and his immediate boss, he realized that this was not a simple request. In his proposal, he knew he would need to (a) identify and justify which suppliers to integrate in the product development phase and (b) specify how to structure the interactions with these cho- sen suppliers. The recommendations in his proposal had to ensure that this new plant would be up and run- ning smoothly by the target date in July 1998. EXHIBIT 1 Example of Deere Skid-Steer loader. DEERE & COMPANY New Holland produced its own line of skid-steer loaders that competed directly with the Deere brand, it agreed to sell its excess capacity to manufacture essentially the same product for Deere & Company, allowing aesthetic changes for brand differentiation only. Market In 1995–1996, Deere’s average market share for the skid-steer loader varied between 1 to 3 percent. Market data indicated that this market niche was growing at 15–20 percent per year and was projected to reach overall sales of $1.2 billion, or approximately 60,000 units by year 2000–2001. Given these numbers, corpo- rate headquarters became increasingly interested in establishing the Deere skid-steer loader as one of the leading worldwide competitors in this market niche with a goal of more than tripling its market share. In order to reach such an aggressive goal, Deere realized its market penetration strategy needed to focus on fundamental order-winning criteria in such areas as: Product Features: Because the skid-steer loader is a fixed-investment asset, product features that improve ease of use (e.g., versatility of load place- ment), reduce operational costs (e.g., fuel-efficiency), and reduce maintenance requirements (e.g., self- lubricating parts) would make the difference between the Deere brand and competing products. Product Range: To better serve the customers, Deere knew that it needed to offer some product variety, as typically required for industrial equipment, given dif- ferent usage requirements. Therefore, a range of Deere & Company, headquartered in Moline, IL, had more than 150 years of history, making it one of the world’s oldest business enterprises. A well-respected company, Deere & Company had a core business port- folio in 1996 comprised of the manufacturing, distribut- ing, financing, and servicing of agricultural equipment (e.g., combines and tractors), construction and forestry equipment (e.g., log skidders and forklifts), and commer- cial and consumer lawn care equipment (e.g., lawn and garden tractors and mowers), as well as other techno- logical products and services. With more than 38,000 employees worldwide, Deere & Company conducted business in more than 160 countries. THE SKID-STEER LOADER The Product The skid-steer loader, a small loader with a 1,000- to 3,000-pound-load capacity, was targeted for construc- tion and ground care sites in need of light, versatile and easy-handling land-moving equipment. Deere & Company pioneered the skid-steer loader market more than 25 years ago, but, subsequently, the company had contracted the engineering and manufacturing to New Holland, an independent contractor. Although 416 Part Seven Case Studies models, perhaps differentiated on load capacity and available options (e.g., 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. The situation before 1996 was therefore pretty clear. 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 significant benefits over competing products and product features. The same argument held for cost considerations, mak- ing 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 potential lucrative product. THE “GREENFIELD” KNOXVILLE DECISION In April 1996, corporate headquarters approved a capi- tal 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 by August 1998, consistent with other identified order- winning criteria. SCOTT NOLAN, CQE, PE, AND NEW SUPPLY MANAGEMENT MANAGER?Nolan joined Deere & Company as a manufacturing engineer, after graduating from Iowa State University with a mechanical engineering degree in 1979. Along the way, he has received an MBA (in 1989) from the University of Iowa, as well as professional certification as a Certified Quality Engineer and as a Professional Engineer. In 1989, Nolan began working in supply man- agement for the Horicon, WI, lawn and garden equip- ment manufacturing facility. The opportunity to join a new Deere manufacturing facility in the role of supply management manager was a welcomed promotion and challenge. SUPPLIER INTEGRATION IN SKID-STEER LOADER DESIGN?Having worked in supply management for the seven past years, Nolan was well aware of the general princi- ple of involving suppliers in product development and manufacturing decisions and the frequently touted ben- efits of lower costs structures, faster product develop- ment cycle and reduced operational inefficiencies. He believed, however, that not all suppliers needed to be or should be involved, especially in the early stages of the new product development process. Furthermore, involv- ing suppliers should not be “lip-service”; the selected suppliers should be well integrated into the various product development activities. CONCLUSION Reflecting on this knowledge, Nolan realized that he must answer two important questions in his proposal— these being: (a) How to choose the suppliers that should be inte- grated early in developing the new Deere skid-steer loader? (b) And, equally important, what principles/practices/ techniques should be adopted to structure the inter- actions 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 July 1998? With less than a week before his meeting with James Field, Nolan sat down in front of his home computer and began drafting the proposal.

Answer 1

Deere and company being the experienced player in field of Farming and Consutruction equipemnts, the major challange they were facing was manufacturing facility outsourced to New Holland. Since the demand was expected to increase 15-20 percent per year, it will definately help them in developing the inhouse manufacturing unit as a result of which they will be able to focus on marketing penetration by working on differntiation strategy with their competitors.  

In this case scott is expected to integrate suppliers into the product development process for manufacturing plant and ensure the smooth functioning of plant by the target date in July 1998. As we are aware of the fact that identifying unique solutions early in the development process introduces opportunities for both cost and time reductions. In the phase of increasing competition the pressure to introduce innovative customer solutions also increases. This pressure creates an urgency to accelerate technical development, shorten product life cycles, reduce lead times and improve response times. Simply stated, heightened competition creates an increasingly compressed timeline for producing innovative products. Engaging suppliers early in the component development and design process can improve the odds for success and provide advantages in today’s competitive and global marketplace. Even vertically-integrated manufacturers can be at a competitive disadvantage by assuming all processes in house.

Relying on the expertise of the supplier in areas of material and component suitability can save time and cost in the development process. Competent suppliers should possess the optimal knowledge base and technologies related to the components they supply. In short, experience matters.

Generally, optimal value is realized when Supplier Engagement is employed at the very first stages of concept development. In essence, the ability of an organization to remain competitive is largely dependent upon the amount, quality, cost and timing of its materials and supplies, as well as the effectiveness of its supply chain. These factors can include materials, prototypes, optimal part geometry, manufacturing processes, packaging and logistics. Supplier Engagement should be considered a fundamental activity as 80% of product cost are identified and committed to during the design phase.

The Supplier Engagment process starts by defining the customer’s needs and goals: what do they want to accomplish over the product life span? This process helps the customer define reliable target costs for components early in the design process and eliminate unanticipated changes in the cost equation. The customer can then outline the program requirements and share the project’s technical information. A mutual exchange of reliable and consistent information, and establishing and agreeing on timelines is critical to ensure that all expectations are met. This stage can also determine manufacturability and integration of components in the final product/assembly. It is increasingly common for suppliers to assume a greater role in the assembly process as a value added function, contingent on capability.

In summary, Early Supplier Engagement, or ESE, can help to establish and maintain a mutually beneficial framework of collaboration, innovation and trust between two organizations. Implemented intelligently, the process will yield significant benefits to both the supplier and sourcing organizations. This is a far more effective way to address increased competition over the long term than by competitive pricing alone.