J o h n D e e r e an d C o m p l e x
On Friday, November 22, 2006, Blake Roberts, Hayley Marie, Stan Eakins and John Pearson, members of one of John Deere’s supplier evaluation teams, were discussing the performance of Complex Parts. Complex Parts had provided questionable service to John Deere’s Moline unit over the past year, and they were wondering if this merited giving their business to a different supplier. They needed to recommend a course of action to their project manager the next week.
Deere & Company, headquartered in Moline, Illinois, was founded in 1837, and in 2007, they conducted business in over 110 countries and employed approximately 47,000 people worldwide. They are the world’s leading manufacturer of farm and forestry equipment, and also produce construction, commercial and consumer equipment. Other products and services produced by Deere included equipment financing, power systems, special technologies and healthcare. Net sales in 2006 were over U.S. $19 billion with total assets of more than U.S. $34 billion. Cost of goods sold in 2006 was approximately U.S. $15 billion. Complex Parts, Inc. had been a supplier of John Deere for the past 10 years with annual sales to their Moline unit of approximately U.S. $3.5 million. They supplied Deere with a key manufactured part requiring significant engineering input and testing. Two other Deere suppliers were capable of supplying this part; however, Complex Parts was providing all of Deere’s needs at the time. They had always taken a proactive approach to their dealings with John Deere, with sales engineers visiting weekly, participating in Deere’s cost reduction strategies, staying up with Deere’s design changes, and internalizing the Deere Product Quality Plan. Complex Parts was interested in increasing their sales to Deere.
John Deere’s Achieving Excellence Program
The Achieving Excellence Program (AEP) was a dynamic supply management strategy aimed at giving Deere and its suppliers the competitive advantage necessary to deliver world class equipment to customers. The AEP strived to develop long-lasting supplier relationships through use of a supplier evaluation process that promoted communication, trust, cooperation and continuous improvement. Suppliers were evaluated in five key areas by teams of Deere personnel from supply management, operations, quality engineering and product development. These evaluation areas were quality, delivery, cost management, wavelength, and technical support. 1. Reprinted with permission from the publisher, the Institute for Supply ManagementTM. “John Deere and Complex Parts, Inc.” by Joel Wisner, PhD, C.P.M., University of Nevada, Las Vegas (firstname.lastname@example.org). This case was prepared solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author has disguised names and other identifying information to protect confidentiality. 23
The quality rating was a quantitative measure calculated as: (# rejects/unit of supplied product) ×1,000,000.
Thus, a quality rating of 1,000 would be equivalent to one reject per 1,000 units delivered. The delivery rating provided a measure of how well a supplier met Deere’s specified delivery dates and purchase quantities. The delivery rating was calculated as: [(# early + late + over deliveries)/(delivery instance)] × 1,000,000. Thus, a delivery rating of 75,000 would be equivalent to 75 delivery “defects” per 1,000 deliveries. The cost management rating was a composite rating derived by the evaluation team, based on performance in five areas: cost management initiative, cost reduction activity, cost index performance, performance during new programs, and global market competitiveness. A consensus cost management rating of 1 to 5 was eventually reached by the evaluation team. The wavelength rating was a...
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