Case Overview: - Deere & Company Worldwide logistics manufactures and distributes a full range of

agriculture equipment as well as a broad range of construction, forestry equipment, commercial and
consumer equipment with sales over $ 12 billion and operations in more than 160 countries. It has 11
facilities and all the logistics services are provided by FedEx. Each facility has its own individual contract
based on its individual requirements and cost for these services varying across facilities. The annual cost
for Deere & Company for logistics services is $ 10 million. Kevin MacAuley a summer MBA intern at
Deere & Company has to evaluate Deere & Company’s logistics outsourcing arrangement with FedEx to
identify opportunities and make appropriate recommendations.

1) Suggestion for Deere and rationale

Recommendation 1:- Schedule a meeting with logistics managers from 11 facilities. Discuss the
problems faced by each of the managers and address those problems. Discuss these existing problems
with FedEx management. The FedEx management should design solutions to counter the existing
problems. If FedEx is unable to arrive onto specific solutions then Deere & Company should look for
alternative logistics service providers.

David Panjwani 11 regional Retain FedEx

(Manager Logistics Meeting logistics Pros. for Logistics
Network Design) manager Services

Cons Meeting FedEx Officials

Develop
solutions to
issues

Look for Different

Logistics Service No Yes
Providers

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Recommendation 2:- Clear communication is the key to unlock a firm’s success. Clear communication
should be encouraged and facilities should indulge in more and more cross functional knowledge
sharing. A common database should be used for all types’ of transactions across facilities. Trainings and
knowledge sharing sessions should be organized at regular intervals to make sure all the facilities are co-
coordinating and functioning at the same level.

Recommendation 3: - Deere and Company should strike a centralized deal for all its 11 facilities. The
negotiation price for all the services obtained should be consistent and should not vary with the facility.
All the three services, centralized transportation management, on-site transportation management and
warehousing should be provided to all the 11 facilities irrespective of the usage. Payments for all
logistics services should be made through the corporate office using the Activity Based Costing (ABC)
method depending upon usage by each facility.

Deere & Company

Centralized
Contracts

Davenport FedEx Logistics Harvester

Ottumwa Dubuque Des Moines Seeding Fuquay- Varina Loundon Horicon Welland Kernersville

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Recommendation 4:- Each facility should be given a limit to its overhead cost which should be
proportional to the revenue generated. This will result in more efficient planning and using the logistics
services accordingly.

2) Pros and Cons of maintaining the existing structure

Pros
a) Authority for regional managers: - Regional logistics managers have powers to take decisions and
decide upon what services best suit their respective facilities.

b) Easy to tackle issues: - A decentralized system will lead to easier ways to tackle issues and to
implement solutions quickly without disrupting services for a longer period of time.

c) Individual facility performance: - Each facility will be to measure and evaluate its own performance.

d) Good on-site relationships: - Facilities will be able to develop good onsite relationship with its logistics
service provider and will thus lead to greater stability and more valuable services from the service
provider.

Cons
a) Lack of Communication between facilities: - There exist lack of communication between facilities and
maintaining the current system will further increase this communication gap.
b) Lack of standardized logistics services
c) Lack of knowledge sharing
d) No central leadership
e) Varying cost for services
f) Probability of switching to different logistics service provider: - Some of the regional managers are
unhappy with FedEx’s services and looking out for other options.

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 Existing System at
Deere & Company

Pros Cons

Authority for Best Individual Lack Of No

Reg. Managers performance Communication Standardization

Good on-site Easy to tackle No Central

relationship issues No knowledge Leadership
sharing

Switching from Varying cost for

FedEx services

3) Pros and Cons of in sourcing selected services

Pros

a) Deere & Company will be able to customize and design its transportation according to its
requirements.

b) Increase job opportunities and will create a sense job security for the existing workers.

c) Company will be able to track its shipment according to its own convenience and can also do a
performance evaluation on their logistics services.

Cons

a) Cost of setting up the complex infrastructure.

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b) Cost in hiring new work force and providing sufficient training.

c) Newly set up infrastructure might be unable to operate the in sourced services efficiently and in turn
affect Deere & Company’s key operations.

4) Pros and Cons of in sourcing logistics services currently provided by FedEx

Pros

a) Deere & Company will be able to synchronize all its facilities and will be able to implement clear
communication, frequent knowledge sharing and collaboration between its facilities.

b) Uniform logistics services can be provided across all facilities.

c) Deere & Company will be able to save around $ 10 million annually for logistics services cost.

d) There will not be any issues between facilities for the choice of third party service providers.

e) Management will be able to control scope creep (uncontrolled changes) at some of the facilities and
will be able to operate more efficiently.

f) The operating cost can be controlled and services can be provided according to the facility
requirements.

Cons

a) Deere & Company’s operating cost will rise significantly due to new setup of logistics services. Setting
up Centralized Transportation Management services and on- site Transportation Management service
will be a complex and a daunting task. Added to this will be the labor cost and additional union
problems.

b) FedEx is a specialist in providing logistics services and provides services to most of the companies. It is
able to use its infrastructure very efficiently. Deere & Company’s expertise lay in manufacturing and it
will be very complex for Deere & Company to match up with FedEx’s infrastructure and operate as
efficiently as FedEx.

c) Deere & Company might incur losses in future if the logistics services infrastructure is unable to
handle all the logistics demand. With underdeveloped logistics services it will struggle to deliver
products and equipments on schedule.