Capital Equipment
Case Analysis: Deere & Company
John Deere, the maker of farm and construction equipment, from transmissions and drive-trains to excavators and backhoes, has its headquarters near the Iowa border, just outside Illinois; but the company does business from Accra to Zimbabwe, from Korea to Kazakhstan. Around the world, the needs of farmers differ according to geography and climate, soil and crop rotation, farm size and budgets. Today, when buying farm equipment, a farmer chooses from a range of features that go well beyond traditional requirements of fuel economy, horsepower, and durability. Deere has closely studied the characteristics and evolution of each market it competes in as well as the true cost to serve and satisfy its customers, and it tailors its product innovation to specific target markets. The company offers option packages that range from air-conditioned cabs with fancy upholstering to top-of-the-line models with high-end stereo equipment, lumbar supports, and other creature comforts. Deere’s commitment to on-time delivery reflects the firm’s 152-year legacy of meeting promises to the customer. And management knows that profit is the key to staying around for the next 150 years. Every day, analysts pore over reports, ensuring that final assembly and delivery of their units matches orders from their more than 450 dealers worldwide. Today, as it reviews the launch of a new line of tractors, management will compare the actual number of specialized components on hand against planned deliveries. Tomorrow, it will examine cumulative reports of its customers’ buying patterns, studying statistical trends to determine which features are most in demand for backhoes and transmissions. The company will try to determine how customer input can help it refocus manufacturing lines, factoring this innovation into the cost of serving its full range of customers. All this is part of Deere’s effort to tailor products for each of its competitive markets.
So how is it that Deere is able to serve each of its market segments, manage the complexity of customized ordering, and still dominate the market with on-time delivery? Perhaps because the company learned the same lessons in managing its production and supply chain as Natuzzi. But where Natuzzi has chosen to maintain one centralized manufacturing operation in Teramo, Deere has different factories that specialize in building different products. Where Natuzzi cuts and stretches its own fabrics, Deere needs to source parts from multiple original equipment manufacturers and distributors around the world. When a dealer submits a new order, Deere’s challenge is to determine how to get that order made. The company must start by choosing which set of factories and suppliers it should use to manufacture components or sub-assemblies, and which factories will manage final assembly. The moment a Deere customer places an order, a database automatically matches supplies of raw materials and parts to production capacity at one of its fifteen factories around the globe. If the order includes multiple pieces (such as a tractor and multiple farm implements), Deere might use different locations and suppliers for separate parts of the order, and then merge the order at an appropriately chosen distribution center for final assembly. Deere’s computer systems pass the customer’s specific order through a sophisticated telecommunications network, allowing the company’s 20 international warehouses to coordinate the movement of products in a timely manner. At the same time, the firm needs to account for the related handling costs: trucks, forklifts, and even storage space have to be allocated and scheduled. Information systems monitor whether the company has products to match the orders on the day’s schedule, and then plan for the demands of the succeeding day.
In the past, this process of producing a custom order to the desired specifications required two months. The company can now build a made-to-order product within sixteen hours of receiving the request. Such decisions are standard procedure. To build more products with its existing assets, Deere redesigned its manufacturing processes to improve the flow of activity on the factory floor.