John Deere & Company Worldwide Logistics has Kevin MacAuley as a summer intern. He has been assigned to evaluate the outsourcing arrangements, identify opportunities, and make recommendations. He is given three different approaches to be taken into consideration; insourcing all logistics services, insourcing selected services, or continue to outsource. John Deere uses FedEx Logistics as a third-party provider. There are eleven different units, and each unit has its own service agreement.
If John Deere decides to take the insourcing all logistics services approach, they must consider the trade-offs that come along. They have not been insourcing, so all of these considerations are new to the picture. The biggest advantage of insourcing is standardization within the entire organization. This reduces cost, as well as increases visibility and communication. Ultimately, they could save money by solely insourcing. However, insourcing takes away from the primary business focus because if you’re doing everything in-house; you’re not focusing on your core competency and that in turn takes away from the overall business aspect. This all leads to a low-cost factor, and higher cost for investing.
Outsourcing is the current situation John Deere is in. By outsourcing with FedEx, they are spreading their risk, and able to focus on their core competency. Outsourcing improves the business focus and offers a vast array of resources that may not be available internally. The disadvantages of outsourcing are mainly focused on a loss of control because you are now partnering with another entity. This leads to hidden cost, a threat of security, as well as quality problems.
The last option is to use what we have named a “mixed strategy.” This would be a hybrid of outsourcing and insourcing. This promotes strategic partnerships and can lead to an improvement in flexibly. Using both, you can still focus on your core competency because you’re still...