Project: Pioneer Hi-Bred International, Inc.

Pioneer Hi-Bred International, Inc., founded in 1926, is the largest seed company in the

world. The company produces and sells hybrid seeds of corn, sorghum, sunflower, and soybean,

among others. Competition had steadily increased throughout the years in response to advances

in biotechnology and the resulting shorter product lifecycles as well as because of expanded

global competition. The seed industry certainly had changed, enough so that senior executive

Dave Browning observed, “The seed industry has changed more in the last 4 years than it had in

the previous 20,” this statement clearly reflects the dynamics involved and the need for a

proportional amount of change. The following is a table of a SWOT analysis of Pioneer in 1997.

SWOT Analysis

Strengths Weaknesses Opportunities Threats

Quality Foreign Capacity Foreign Growth Competitors

R&D Forecast Methods R&D Innovations

Established Distribution Computerization Variables

The following recommendations proposed in planning, production, and distribution are aimed

towards making Pioneer more competitive in the industry based on those issues uncovered by

the SWOT analysis.

Planning

The decisions specific to the planning function of Pioneer consist of both strategic and operational

issues. The geographic placement of sites for research, growing, production and distribution

pertain to strategic decisions that affect the company long-term and take several years and much

capital to implement and affect other operational decisions in terms of revenue, costs and product

quality as well. Operational decisions typically involved in planning consisted of the scale of
production, product mix, growing and climatic conditions, taxes, duties and tariffs, distribution

costs and capacity.

Problems easily identified were as follows:

Patterson’s forecasts (Exhibits 3 and 4) are flawed in making too many assumptions and not

including enough information. Although demand can be accurately forecasted, climate and

reorganizations in production and distribution are not properly accounted for and historical yields

above the forecast are not taken into consideration for more accurate yield forecasting.

Foreign production needs to be reviewed and the 33% carryover rate needs to be analyzed.

Strategic competencies need to be reviewed and capitalized on as well.

Recommendations:

Climate: Weather can be very unpredictable and this is very important considering the lengthy

time of production. Efforts need to be made to combat the risks associated with this uncertainty.

Currently, southern hemisphere production is used only as a supplement to normal field

production on an as-needed basis. Efforts should be made to increase production in different

regions outside the Northern Hemisphere to take advantage of the weather, not only to produce

hybrids accustomed to different regions, but also as a counter measure against climate.

Reorganization:

 Production and Distribution

Reorganization in production and distribution is not taken into account. Although this may

be fine for the upcoming forecast, in the long run, this will have to change with the

addition of changes to production to better improve competitiveness.

Reorganization in production and distribution is necessary for Pioneer to stay competitive

in this growing market. The seed market in North America has been growing at 3% while
elsewhere this number has been 5%. Moreover, Pioneer’s market share in foreign

countries has been increasing above 22.5%, while foreign plantings accounted for only

11%. Further, 59% of production of world commercial corn occurred outside the United

States. To capitalize on this growing trend and to establish Pioneer as a world leader,

reorganization is inevitable and increased foreign capacity highly recommended now

before other companies claim their stakes. In depth analysis should be done on the

demographics of potential sites before any locations are selected.

New facilities need to be strategically located in different areas around the world. An

approach to location decisions would be based on market share. Placing facilities closer

to demand provides a hand over the competition and will lead to cost reductions in

distribution. Another factor to be considered is the locations’ infrastructure, culture, and

social and political environment. Several methods of evaluating location alternatives exist

such as the factor-rating method and locational break-even analysis.

Also, although it may cost 25% more to operate foreign facilities, I think an analysis is

necessary to fully understand these costs. An accurate breakdown could reveal costs

that can easily be reduced or eliminated simply by understanding them better. Further,

more evaluation methods exist to try and minimize costs associated with transportation

such as the center-of-gravity method and the transportation model. These methods

should be used in addition to seek cost savings.

To address the issues of protection of patents and other proprietary assets, Pioneer

needs to act local and think global. The first consideration is of course the social and

political environment of a region. However some locations may be strategically necessary

despite being notorious for not respecting such things (i.e. China). To counter these

problems of guanxi (connections and cronyism) to steal customers and ideas, Pioneer

needs to show a local face. Hiring and training locals for production as well as hiring

natives that possess the skills lacking to make real contributions to the company will not
 only address issues related to protectionism but may prove quite fruitful in terms of

production and distribution by adding fresh, relevant talent with the local knowledge

needed for longevity and success. Further, this can improve marketability in the host

country with consumers as well as governments.

Yield Rates and Carryover:

According to historical data, yield rates can highly vary from year to year, as much as 20% from

the mean and thus a 33% carryover rate has been used for years as a buffer stock against such

highly unpredictable fluctuations. The 33% carryover rate is highly questionable and currently,

yield in excess of forecast is not taken into account.

 Yield Rates

The current forecast method for yield rates is to use the 4 year moving average and

adding 0.5 to account for biotech advances and provide worst-case scenarios at 80 and

90%. However, yields in excess of these forecasts are not taken into account because

they would not produce a shortage. Because of this, I believe that the forecasting

methods are flawed. The actual yield, excess or not, needs to be accounted for to

produce more accurate information for planning as well as for the issue of carryover.

 Carryover

The current carryover rate of 33% is rather high and has been used for the past 70 years.

However, as pointed out in the case, the industry has changed remarkably in the last 4

years than over the last 20. This is quite a statement indicating the market environment,

and thus historical practices such as this needs to be reviewed and adjusted. No doubt,

carryover is needed given so many variables, but efforts can be made to try and reduce

the number and or dependence on it and would reflect most if not all of the following:

1. Increase facilities – Counter against variables such as climate, regulations etc.

 2. Account for actual yield – To more accurately forecast and provide better

carryover percentages based on that information.

3. Rollover – Carryover in excess of the previous year’s set rate should be rolled

over to current year productions and the current rate lowered based on the roll

over amount. (Example: Set rate at 10%, last year’s actual carryover: 15%, set

this year’s rate to 5%)

4. Improve R&D – Currently, R&D is concentrated on biotechnology. Some of this

investment could be used towards better technological methods of production

and harvesting that could increase yield efficiency resulting in less dependence

on high carryover.

SWOT Analysis:

The current market is very competitive, especially in the area of biotechnological break-through.

Pioneer has done a great job at keeping up, constantly investing 10% of revenue for research.

Only so much can be invested and so, Pioneer should analyze itself and realize what its

competencies are as well as those above competitors and capitalize on them as a supplement to

R&D. A first step is to look into the current philosophy:

1. To produce the best products on the market.

2. To deal honestly and fairly with its employees, sales representatives, business

associates, customers, and stockholders.

3. To advertise and sell its products vigorously, but without misrepresentation.

4. To help its customers make the greatest possible profit from their products.

Such integrity and dedication to quality and “added value” services to customers are what will put

Pioneer above the rest. Expanding these services and increasing marketing on these core ideals

emphasizing Pioneer’s dedication to quality is crucially important given the high competitiveness

of the market.
The case also mentions that many production plants had become certified under the ISO

program, we believe this should be a new company-wide requirement with a plan to do so within

the next few years established to become more competitive, especially in European markets with

the ever expanding EU countries. Doing so only illustrates and further emphasizes the dedication

to quality and commitment to global operations.

Production

The production decisions revolve around the following: where to grow and process hybrids,

minimize production costs, and increase capacity outside the US.

Recommendations:

(1) Evaluate all current production facilities outside the US. The evaluation should focus on

identifying the production facilities with the highest productivity (in terms of seed volume output)

as well as the lowest production costs. The evaluation will help identify and allow the

categorization of production facilities into the following:

 Facilities with high levels of production and low production costs. (Best)

 Facilities with high levels of production and high production costs.

 Facilities with low levels of production and low production costs.

 Facilities with low levels of production and high production costs. (Worst)

(2) Increase production capacity of facilities located outside the US. The case mentions that

59% of world commercial corn production occurs outside of the United States. When the numbers

presented on Page 5 are broken down even further, production capacity is composed of the

following:
Northern Hemisphere - 85%

USA and Canada - 80.75%

Elsewhere in Northern Hemisphere - 14.25%

Southern Hemisphere - 15%

There is no question that Pioneer must increase the production capacity in areas outside the US.

The evaluation conducted above reveals that Pioneer should focus on the first two types of

facilities because they have the highest productivity and less costly to work with on

improvements, expansions, etc. and seek for ways to improve production at the third type.

Production capacity can be increased by the following two methods or in combination:

 Open new production facilities

 Expand current production facilities

An analysis should be conducted to compare which of the two alternatives is best. For example,

a cost - benefit analysis.

The higher levels of productivity show that these facilities are being utilized to their maximum

potential and are operating at full capacity. Remember, that fixed costs are incurred regardless of

whether the facility is producing anything or not. Therefore, through high levels of production,

they are minimizing the impact that fixed costs have on every unit of output produced. This will

result in a lower cost per unit. However, it is important not to overproduce and end up with a

product that cannot be sold taking up space and money, further analysis needs to be involved to

take demand into great consideration. Perhaps some facilities could serve as back ups for corn

seed production but their primary functions would be production of Pioneer's other products so

that capacity is still not wasted.

(3) Lower production costs. An attempt should be made to lower variable costs. The case

mentions that one of the major variable costs is detasseling.

 Detasseling. The company should look into the possible outsourcing of this function. An

analysis should be conducted to determine whether this is a source of competitive

advantage. If it turns out not to be, Pioneer can outsource to a company that specializes

in this type of process as well as based on careful quality control considerations. In no

way however should Pioneer let the evaluation and control be performed by others, this is

still a very important and competitive function of the business and must be done by

Pioneer, however, a highly accurate statistical model should be performed when doing

so. Costs can be decreased in detasseling by not surveying an entire field, but rather by

a sample method. This would take less time and presumably less people. A statistical

analysis would need to be done and thoroughly tested to accurately calculate how many

samples per field would yield the acceptable 99.5%.

Furthermore, the company should look into the possibility of closing the facilities with low levels of

production and high costs. Clearly, they are not utilizing the facilities to their maximum potential

and or are not placed in strategic locations. It could be argued that it is possible to turn them

around, but it would certainly require a detailed analysis of those facilities and the factors

associated with the poor results and only then could management make an informed decision.

Distribution

Distribution related to inventory management, transportation and customer service and was

mostly affected by the decision of Johnson in the production department.

Problems easily identified were as follows:

There was no real coordination in the supply chain with over 400 trucking companies utilized

during any typical peak season. Inventory was high and in addition, highly variable.
Recommendations:

 Increase facilities

Strategically placed facilities will help lower transportations costs as well as decrease the

need for safety stocks, thus reducing overall inventory costs. Further, more facilities

increases the responsiveness of the company to consumers, resulting in increased

customer service.

 Lower carryover rate

The carryover rate of 33% is outdated and is the cause of high transportation costs and

many unnecessary departmental headaches. Efforts should be made to decrease this

rate to a minimal factor.

 Distribution system management

Coordinating 400 different trucking companies is a tremendous feat that eventually

results in higher costs and perhaps even decreased customer service. Efforts need to be

made to dramatically reduce this number and allow more coordination through advanced

technology.

1. “Select” suppliers – Current suppliers should be evaluated and chosen as

preferred suppliers based on reliability, quality and cost. Inefficient suppliers

need to be immediately eliminated. Closer ties equal more willingness to work

together toward a common goal and more acceptances of company policies.

2. In-house – An analysis should be done of whether any cost savings could be

realized by purchasing a fleet of distribution vehicles for domestic markets. We

believe in foreign markets, it is best to leave this function as an outsourced

 capacity due to the fact that it is a specialized component of the system,

especially in unfamiliar territory.

3. Technology based distribution – The need for a computerized system is

apparent, and will become even more so as the company expands globally.

Options in ERP or other forms of technology in distribution should be thoroughly

explored and applied to increase reliability and customer service and decrease

time and costs. Perhaps with closer carrier relations produced through the

proposed decrease of trucking companies, Pioneer could even capitalize on the

carrier’s existing technology.

4. Integration – Eventually, the company as a whole including providers should be

involved in the distribution process through a system in which planning and

production are integrated with other systems to support execution processes in

transportation. Such support systems include warehouse management, to

provide for better distribution and planning techniques.