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Early Supplier Integration in the Design of the Skid-Steer Loader

A Case Study Presented to the


Decision Sciences and Innovation Department
De La Salle University - Manila
Term 2, A.Y. 2018-2019

In partial fulfillment of the course In SUPPMAN K31

Submitted by:
Armian, Frances S.
Calpe, Junette Hannah Z.
Cortez, Angela Christi M.
Potenciano, Samantha Angelu B.

Submitted to:
Prof. Willy Cuason

January 31, 2019

Table of Contents
I. Summary of Findings……………………………………………………………….... 1

II. Background Information……………………………………………………………...1

III. Statement of the Problem……………………………………………………………. 1

IV. Analysis of Alternatives……………………………………………………………... 2

V. Detailed Recommendations………………………………………………………… 3

VI. Answer to Case Questions………………………………………………………... 3-5

Memorandum of Agreement……………………………………………………………….5-7

I. Summary of Findings

The market for the skid-steer loader is increasing at 15 to 20 percent per


year which means that it could amount to $1.2 billion by year 2000-2001. Upon
learning about the market projection, the corporate headquarters of Deere &
Company decided to establish the Deere skid-steer loader as one of the top
brand in this market niche. The company then quickly established their strategies
to achieve their goal by focusing on the key criteria such as the product feature,
product range, product delivery and the price.

However, the product’s engineering and manufacturing is handled by an


independent contractor called New Holland. It produces the same product as well
having the brand as the only distinction, which makes it a direct competition of
Deere. And because New Holland is also anticipating the rise of market demand
for skid-steers, it now refuses to sell its excess capacity to Deere & Company.
The latter decided to invest $35 million to obtain the possession and gain control
of the design and manufacturing of the product as well as open a new facility in
Knoxville, TN to be used for the placement of the design, manufacturing and
marketing.

II. Background Information

Deere & Company is one of the world’s oldest business enterprises. Its
products and services are manufacturing, distributing, financing and servicing of
agricultural equipment, construction and forestry equipment, commercial and
consumer lawn equipment and other technological products and services.

Scott is assigned as the new supply management manager of the new


Deere & Company Commercial Worksite Products manufacturing facility in
Knoxville, TN. His task is to integrate suppliers into the product development
process since the goal is to make the facility operational within 24 months.
James Field, the plant manager and Scott’s direct boss ordered that the latter
delivers the proposal a week after the phone call. Scott is aware that it is very
crucial to identify which suppliers to integrate in the product development phase
and give a detailed plan on how to arrange the interactions between the suppliers
that were chosen.

III. Statement of the Problem

● What are the steps and criteria that Mr. Scott should consider before he can
integrate suppliers during the company’s early stages of production?
IV. Analysis of Alternatives

1. Choose different suppliers at different stages leading to product


development and maintain and integrate some of the supplier through the
whole process

A. Advantages
● Easier communication looking at the short term because of
less involvement and distraction from other suppliers
● Focused on the short term goal or current objective making it
faster to accomplish

B. Disadvantages
● Long term relationship with the supplier might be difficult to
establish
● Might not be able to see the bigger picture because
suppliers are only focused on the phase in which they are a
part of; limited responsibility

2. Choose early supplier integration (ESI) of all suppliers from the very first
stage leading to product development

A. Advantages
● Establish a good relationship based on trust with the
suppliers within the 2-year period of integration
● Transparency among the suppliers and the manufacturer is
encouraged and practiced
● Access to a huge pool of ideas and technology coming from
the integrated suppliers

B. Disadvantages
● Might be difficult to handle all suppliers at once; possibility of
miscommunication that could lead to misunderstandings
● Ideas of all suppliers must be entertained, which may lead to
delays and interruptions
● Risk of corporate espionage, as suppliers would be treated
as insiders knowing fully how the company plans to proceed

V. Detailed Recommendations

Choose alternative #2: Choose early supplier integration (ESI) of all


suppliers from the very first stage leading to product development

The group would like for Mr. Scott to proceed with the early supplier
integration (ESI) involving all suppliers leading to the product development.
There are just more benefits for the Deere & Company if they will choose to
integrate all suppliers at the early stage of development. Access to more
information and technology would prove to be beneficial, as this is one of the
bases of competitive advantage against competitors. The disadvantages, such
as corporate espionage, are risks that the company must be willing to to take in
order to enjoy the benefits. And there are a number of ways to prevent such from
happening. Preparing a thoroughly made contract or memorandum of agreement
would do the job by specifying the limits, liabilities and obligations of the parties
involved.

VI. Answer to Case Questions

1. Supposing there are 100 potential suppliers, how many suppliers do


you think should ideally be integrated in the early skid-steer
development process? Why that many or that few?
Mr. Scott should consider to integrate as many effective suppliers
as he can in the early stages of production. He needs to consider this
because having an effective supply chain may gain a competitive
advantage against all the competitors. However, Mr. Scott should take
note that he can also accept suppliers who can be beneficial to the
company and to their product as well.
2. Are there tradeoffs in terms of the number of suppliers to integrate?
If so, what are the tradeoffs?
The tradeoffs that Mr. Scott should consider when accepting
suppliers is how effective they are in the company. The company would
only incur unwanted expenses if they choose suppliers who do not have a
sufficient impact into their product. Moreover, integrating a big amount of
suppliers and sustaining their relationship with the company needs to be
managed properly in order to fully utilize the impact of the integration.
3. Are there tradeoffs among the identified criteria? Can you tell? What
do you need to know to better answer this question?
The tradeoffs or criteria that Mr. Scott needs to take in mind when
choosing effective suppliers are of the following: Quality, reputation,
inventory, delivery and resourcefulness. Mr. Scott needs to know if the
supplier is capable of producing high quality materials without the
possibility of having defects; the supplier should also have a decent
reputation or history of producing materials requested by their clients; the
supplier needs to know how to control their inventory as well, so that the
supply chain can be effective for them and for the company; the supplier
should have reliable delivery services in order to increase the efficiency of
the supply chain; lastly, the supplier should have a strong and unique
sense of resourcefulness or assertiveness so that Mr. Scott can rely on
them when facing a troubling situation.
4. Would you mandate weekly meetings as an interorganizational policy
to structure the interactions? If not, how can you facilitate
communication?
During the early stages of production, having frequent meetings
may be a solution to keep in track the ongoing processes of each supplier.
However, these meetings should not be based on a fixed time, but rather
based on the significance of the topic and that the importance of all the
suppliers’ presence is critical. Moreover, Mr. Scott can use the internet as
the main communication device to the suppliers for more efficiency and
convenience for both parties.
5. What role can or should IT play in structuring these interactions?
What concerns do you have with the suggested IT role?
The role of IT is to provide efficient communication between both
parties and to create a smooth flow of the order processes. IT can create
a communication platform for both parties only, which is customized based
on their standards and preference. IT can also create a software wherein
the company can order supplies in it and the request will immediately be
sent to the supplier’s own set of software. The only concern that this may
bring that the communication platform and the software may potentially
have a breakdown, which would lead to the loss of interaction. Thus, the
company may need to think of contingencies if the situation might occur.
6. Supposing the criteria you developed suggest that you integrate
supplier X into the product development process for the skid-steer
loader, what reasons might lead you to choose to not do so or to
reduce the convenience of doing so?
One main reason for not accepting supplier X into the production
process, despite the approved standards of the given criteria, would be
that their location or warehouse is too far or is not easily accessible. Even
if supplier X may have an outstanding reputation in their delivery services,
the cost to delivery supplies for skid-steer loaders might be too high for the
company to incur especially during the early stages of production.
Moreover, the possibility of potential unforeseeable events is higher when
the location is too far and thus making their delivery riskier. It would be
better if Mr. Scott can choose a decent supplier who is easily accessible
and who’s warehouse may not be too far.
7. What hurdles do you think need to be overcome at Deere in order to
integrate suppliers into the early phases of the product development
process?
One of the hurdles Mr. Scott would face is the decision the
suppliers that he will select. Sticking to the criteria despite the tempting
deals from suppliers is critical because the growth of the production is also
based on the employees and suppliers who are assisting in the company.
After selecting the suppliers, Mr. Scott needs to assure that all suppliers
know the full information of the product and that they produce the
materials needed consistently and within the company’s standard. Lastly,
Mr. Scott needs to supervise if the overall supply chain is working to their
standards, by making sure that the company is fully transparent to their
suppliers and that the suppliers are fully involved in the production
development.

Memorandum of Agreement

This Memorandum of Agreement is made and entered into on this [DAY] day of
[MONTH] [YEAR] (Effective Date) by and between:

[Party1], a [Party 1 state of Incorp] company, with an office located at [Party 1 Address];
and
[Party 2], a [Party 2 state of Incorp] company, with an office located at [Party 2
Address];

1. Purpose & Scope.


The purpose of this Memorandum of Agreement is to set forth the terms
and conditions, scope of work and responsibilities of the parties
associated with their collaboration on [Describe Cooperative Project].
Specifically, both parties will cooperate to develop [Specifics and Objectives Related to
Project].

2. Background
Both parties see the benefits of this project, have a desire to pursue the project
and have determined that each brings unique expertise and experience necessary to
accomplish the objectives outlined above.

[Party 1] has unique expertise and experience in the following areas:


[Party 2] shall undertake the following activities under this MOA:

4. [Party 2] Responsibilities.
[Party 2] shall undertake the following activities under this MOA:

5. Terms and Conditions

It is mutually understood and agreed by and between the parties that:


1. Each party takes legal and financial responsibility for the actions of its respective
employees, officers, agents and representatives and volunteers. Each party
agrees to indemnify, defend and hold harmless the other to the fullest extent
permitted by law from and against any and all demands, claims, actions,
liabilities, losses, damages, and costs, including reasonable attorney’s fees,
arising out of or resulting from the indemnifying party’s acts or omissions related
to its participation under this Memorandum of Agreement, and each party shall
bear the proportionate cost of any damages attributable to the fault of such party,
its officers, agents, employees and independent contractors. It is the intention of
the parties that, where fault is determined to have been contributory, principles of
comparative fault will be applied.
2. Each party, at its sole cost and expense, shall carry insurance or self insure to
cover its activities in connection with this MOA, and obtain, keep in force and
maintain, insurance or equivalent programs of self-insurance, for general liability,
workers compensation and business automobile liability adequate to cover its
potential liabilities hereunder.
3. This Memorandum of Agreement may be amended from time to time by mutual
agreement of the parties in a written modification signed by both parties.
4. This Memorandum of Agreement be terminated by mutual agreement of the
parties, shall automatically terminate upon completion of all responsibilities as
stated herein, unless otherwise amended.
5. Funding; Costs.
The parties shall each be solely responsible for any and all costs
associated with their responsibilities under this Memorandum of
Agreement.
7. Effective Date and Signature
This Memorandum of Agreement shall be effective upon the date of the last party
to sign this Memorandum of Agreement below. The partie indicate agreement with this
Memorandum of Agreement by their signatures below.
[Party 1]
___________________ ____________

[Name] [Title]

[Party 2]

__________________ _______