John Deere Logistics Cost Analysis
John Deere & Company manufactures and distributes agriculture equipment as well as a broad range of construction and forestry equipment. The company is partnered with FedEx in order to maintain the logistics flow involved with the company’s transactions. FedEx is responsible for providing outsourced transportation services to 11 Deere facilities across the US and Canada. The 11 Deere facilities have different service agreements with FedEx in terms of cost and service depending on the type of business unit.
With different prices and services across the facilities, management is trying to identify opportunities to standardize costs and services across the business units. The goal of this case study is to update Deere and Company’s logistics by recommending solutions to cut logistics cost by 69 million over 3 years
Analysis and Recommendations
At the moment, all 11 Deere & Company facilities operate under a different level of on-site transportation service. The onsite transportation services and associated costs shown in Exhibit 2 (OSTMS, OSRF) vary for each facility indicating lack standardization. Inflated costs may arise from local managers having individual operating principles that are not reflecting the best interests of the corporation as a whole. Confusion among employees may result because similar objectives are being dealt with differently at each business unit. Time and money is lost, as workers will need time to organize and communicate information from facility to facility. Unproductive costs are incurring which need to be resolved though consolidation of on-site transportation service.
On-site transportation service is currently favorable with managers at Deere’s plants and could be improved by standardizing the service contract. This will allow Deere to leverage an economies of scale contact with Fedex and be able to manage and set performance measures of the service provided by Fedex which are level amongst all Deere’s plants. Managers may be more organized knowing exactly what services will be provided to their own plants as well as other plants. Decision making will be more streamlined and there will no longer be any confusion trying to discover the other plant’s supply chain when trying to communicate with them. Fedex will also not be able to gradually take over Deere’s operations (scope creep) unless the change is proposed to be corporate-wide in scope. Deere will be able to retain its leverage and not have its business slowly encroached on.
Standardizing on-site transportation on a corporate-wide scope will not result in the $69 million in savings over three years regardless of the lower price per unit of service. Synergies will eventually lead to these cost reductions, as will steps towards continuous improvement and movement further along the experience curve. As briefly mentioned above, enhanced ease of communication due to the similarity of supply chains of Deere’s plants will lead to fewer complications between...
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