Sunday, September 15, 2013

John Deere: A Case Study for Lean Manufacutring

John Deere or Deere & Company, is a 176 year old company and arguably an American legacy in the realm of farming equipment and tractors. However, Deere & Co. has far expanded outside of the U.S., creating a global footprint as their factories and sales offices are present in over thirty countries.

After reading "Living in Dell Time"and talking about forecasting and trade-offs the previous week in class, I was curious to find what other companies adopted these models. More importantly, I wanted to find out if other companies adopted these models successfully. It was this question that brought me to John Deere.

I first found an article entitled "Six Keys to a Winning Manufacturing Study", which highlights Deere & Co's manufacturing strategy. The article lists 1) Strong ties to the market, 2) Rigorous financial discipline, 3) Balanced investment approach, 4) Multiple home markets plus export strategy, 5) Labor flexibility, and 6) Lean production, as reasons for Deere & Co's success. It is my intent to focus on the last two points in this post.

During our last class we discussed trading off labor for capital, which John Deere does, but in a modified way. In this case, Deere & Co. employees are unionized under  United Auto Workers. Traditionally, unionization makes utilizing a flexible labor source difficult, but in this case, Deere has modified their relationship with the workers. Deere offers its UAW employees profit shares based on productivity. This allows employees to be receptive to competitive plant closings and openings.

Additionally, Deere has implemented the "Deere Production System" (DPS), which is tailored to Deere's low volume and high quality production requirements. This system was implemented over four years in all of Deere's factories. DPS works similar to Dell in that machinery is not produced until a customer orders it. This has created productivity gains of 8-9% annually for the company.

However, two years after this article was written praising the company's supply chain innovation, another article came out criticizing it. "Low Inventory Angers John Deere Customers" tells a different tale, where customers are breaking with tradition and ordering from other manufacturers due to long wait times. The article claims that John Deere's build-to-order model is not congruent with the strengthening of the farm economy, as parts cannot come in quick enough. According to the article, Deere shrank its inventory 28% in twelve months. As a percentage of sales in the same twelve months, Deere's inventory was only 12.3%, the lowest among the fifteen farm and construction equipment makers.

Deere dealers believe their sales would be higher too, as they claim a lack of inventory and slow shipping times when meeting customer demands. How slow, is slow? One soybean farmer, who harvests in September, would no receive his new equipment until December or January, completely missing the harvest.

This brings me to my question, are there some industries that are not compatible with lean manufacturing? More specifically, is lean manufacturing the correct business model for companies whose sales are regional and seasonal?  Or should these companies stick to more traditional methods of production, anticipating the need for tractors and farm equipment in the early spring? After all, feeding people and entire nations is an important issue--one that should not be left lost in a supply chain.


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