Where S3 Doesn't Apply  Yet

Deere hedges its bets on e-procurement

[From iSource Business, April 2001] The 1,800 employees at John Deere's Horicon (Wisc.) Works design and manufacture ride-on lawn and garden equipment. As the flagship of Deere's Commercial and Consumer Equipment Division, Horicon faces a unique troika of challenges. First, the division's customers include a mass merchandiser, which makes for a vastly different market environment than the traditional dedicated dealer network for Deere's agricultural products-base. Second, Horicon's business is extremely cyclical. Two-thirds of factory sales occur, naturally enough, during a four-month period in the spring when people start thinking about having to mow their grass. Finally, Horicon's offerings are highly dynamic consumer products, which makes accurate forecasting of demand exceptionally challenging. This means that unless Horicon's order fulfillment is flexible enough to respond to changes in market demand within its four-month selling season, Deere loses market share.

What if consumers could order the lawnmower they wanted through a dealer and then have Deere build the product to order by sourcing components on an as-needed basis from suppliers? Doesn't this sound like a good candidate for sell-source-ship?

Not necessarily, according to Paul Ericksen, C.P.M., Horicon's materials resources manager. Rather than sell-source-ship, since 1994 Ericksen has been focusing on a long-term initiative to implement a build-to-demand-capable supply base by collaborating closely with Horicon's strategic suppliers. My experience shows that, while facilitating supply management transactions through e-commerce helps, Ericksen says, supplier manufacturing flexibility and capacity is the more critical element in being able to actually execute build-to-demand.'

Ericksen further explains: If your suppliers don't have adequate manufacturing capacity to support the cyclic demand of your market, they have to build ahead to stockpile. Similarly, if they don't have adequate manufacturing flexibility to react to changes in your market demand, they have to build ahead to anticipate contingencies. It doesn't make a lot of sense for an original equipment manufacturer to pursue one set of lean' order fulfillment strategies if it forces its supply base into another set that isn't cost effective.

Rather than sell-source-ship, Ericksen advises pursuing a strategy of integrating suppliers into a company's operations. Horicon pursued strategic sourcing as a supply management strategy long before it became the buzzword it is today, he says. In 1985 Horicon had 850 suppliers who could be assigned new business. By 1991 this number was down to 160. Since that time, we've worked to integrate the remaining suppliers into the very fabric of our operations, often dealing with them more like factory departments than outside companies. Our latest initiative, ensuring the leanness' of our entire supply base, is a natural extension of this strategy.

Horicon was the birthplace of Deere & Co.'s supplier development program, and Ericksen's lean supplier initiative continues this tradition. Horicon is helping its top 60 suppliers to analyze and manage capacity and flexibility to reduce their manufacturing cycle times. Currently, Horicon must primarily react to changes in demand within its four-month selling season through either supplier- or Horicon-managed inventory. Deere's goal is to minimize this inventory dependence through reduction in manufacturing cycle times.

Not that Ericksen isn't keeping his eye on e-procurement: What I'm looking for is the ah-ha' tool that doesn't just take a current standard transaction and make it more efficient, he says. Focusing primarily on transactions without having capable suppliers misses the point. I'm looking for tools that will help bring OEMs and their suppliers together operationally, allowing them to support markets as a single entity.

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