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Case Study Early Supplier Integration in the Design of the Skid-Steer Loader EXHIBIT 1 Huample of Deere Skal Steet leader Congmtulations, Scott. You are the new supply management manager of our new Deere & Com. pany Commercial Worksite Products manufacturing facility in Knoxville, TN. As you know, we really need your help to make this new facility fully operational in 24 months. I am sure you realize that a critical responsibility of your new job is to integrate suppl ers into the product development process for our own Deere manufactured skid steer loader as quickly as needed. You will be reporting directly to me, and I need a proposal from you by the time we meet next week on June 15, 1996 As Scott hung up the telephone with James Field plant manager and his immediate boss, he realized that this was not a simple request. In this proposal, he knew he would need to identity and justify which suppliers to integrate in the product development phase and (b) specify how to structure the interactions with these cho sen suppliers. The recommendations in his proposal had to ensure that this new plant would be up and run ning smoothly by the target date in July 1998 DEERE & COMPANY Deere & Company, headquartered in Moline, L. had more than 150 years of history, making it one of the world's oldest business enterprises A well-respected company, Deere & Company had a core business port tolio in 1996 comprised of the manufacturing, distribut ing, financing, and servicing of agricultural equipment teg. combines and actors), construction and forestry equipment leg tog sidders and fouf) and commer: cal and consumer lawn care equipment (eg, and garden tractors and mowers) as well as other techno logical products and services with more than 38.000 employees worldwide, Deere & Company conducted business in more than 160 countries THE SKID-STEERLOADER The Product The sidsteer loader a small loader with a 1000 10 3,000 pound-load capacity, was targeted for construc tion and ground care sites in need of light versatile and easy.handling and moving equipment Deere ! Company pioneered the skid steer loader marke more than 25 years ago, but subsequently, the companyia contracted the engineering and manufacturing to New Holland. an independent contractor Although Mike ZAMA New Holland produced its own line of skiss teer loaders that competed directly with the Deere brand. I agreed to sell its excess capacity to manufacture essentially the same product for Deere & Company, allowing westhetic changes for brand differentiation only Market In 1995-1996, Deere's average market share for the skid-sleer loader varied between 1 to 3 percent. Market data indicated that this market niche was growing at 15-20 percent per year and was projected to reach overal sales of $1 2 bin, or approximately 60.000 units by year 2000-2001. Given these numbers.com- tate headquarters became increasingly interested in establishing the Deere skid steer order as one of the Heading worldwide competitors in this moet niche wat 1 goal of more than tripling its market share. In order to reach such an aggressive goal Deere realized its market penetration strategy needed to focus on fundamental ordering enteria in such are as Product Features. Because the skid steerders a forced investment asset produd features that mprove ease of use (es versatility of load place ent).reduce operational costs legfuel effidency and reduce maintenance requirements esse lubricating parts would make the difference between the Deere brand and compeing products Product Ronge To better serve the customers Deere knew that needed to offer some product Variety typically required for industrie ferent usage requ ents. Therefore a range of models, perhaps differentiated on load capacity and available options leg. hand or foot controls) was needed Product Dellery Deere knew that demonstrating its skid-toeder's Versalle functionality and being able to demonstrate and deliver the product to the actual work site was an important sales incentive . Price: Last but not least, the demand for skid steer baders was highly price sensitive. As a result,minimi ng cost of goods sold without sacrificing timely deliv sy of high-quality Deere skod-loader was imperative. The situation before 1996 was therefore pretty deal As long as engineering and production of Deere brand Skid-steer loaders were in the hands of a third party one that, in fact competed in the same market niche- there would be little opportunity to gain significant benefits over competing products and product features The same argument held for cost considerations, make- ing better delivery and service the only competitive advantages. Furthermore, expecting market demand for skid steers would increase, New Holland had refused to sel additional production capacity to Deere & Company As a result, Deere & Company decided that it needed to regain direct control of the design and manufacturing of this potential lucrative product THE "GREENFIELD" KNOXVILLE DECISION In April 1996, corporate headquarters approved a capi tal investment project of $35 million dedicated to regaining control of the design and manufacturing of the steers kid loader. This capital investment deosion also approved the placement of the design, manufacturing and marketing functions in a new facility to be built near Knoxville, TN The mandate was clear-engineer and manufacture a high quality skidsteer loader that would de 20% lower in costs than that of the best compettor's by August 1998.consistent with other identified order- winning criteria SCOTT NOLAN, CQE, PE, AND NEW SUPPLY MANAGEMENT MANAGER Nolan joined Deere & Company as a manufacturing engineer, after graduating from lowa State University with a mechanical engineering degree in 1979. Along the way he has received an MBA in 1989) from the University of low, as well as professional certification as a Certfied Quality Engineer and as a Professional Engineer in 1989. Nolan began working in supply man #gement for the Horicon, WI, Wewn and garden equip- ment manufacturing facility. The opportunity to join a new Deere manufacturing facility in the role of supply management manager was a welcomed promotion and challenge. SUPPLIER INTEGRATION IN SKID-STEER LOADER DESIGN Having worked in supply management for the seven past years, Nolan was well aware of the general princ- ple of involving suppliers in product development and manufacturing decisions and the frequently touted ben- efits of lower costs structures, faster product develop ment code and reduced operational inefficiences He believed, however, that not all suppliers needed to be or should be involved, especially in the early stages of the new product development process. Furthermore, involv ing suppliers should not be lip services the selected suppliers should be well integrated into the various product development activities CONCLUSION Reflecting on this knowledge. Nolan realized that he must mswer wo important quessons in his proposal these being (a) How to choose ne suppliers that should be inte guted early in developing the new Deere skidates loader And equally important, what principles practices techniques should be adopted to structure the inter actions during the early product development phase with these selected supplies so that the fiscale production of said-steet loader units would begin by the target date in July 1998? With less than a week before his meeting with James Field, Nola sat down in front of his home computer and began drating the proposal Discussion Questions 1 What critersmitto four-should sell No use to screen suppliers to be integrated into the early phases of the Dested steer onder development process? Why? 2 What specific principles practices once might be useful to effectvegate spolu Discussion Questions 1. What critieria-limit to four-should Scott Nolan use to screen suppliers to be integrated into the early phases of the Deere skid-steer loader development process? Why? 2. What specific principles, Practices, or techniques might be useful to effectively integrate suppliers