Deere & Company Worldwide Logistics case study

Case Study

1. Deere & Company Worldwide
Logistics
By
Asif Ali Rahman

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Synopsis
•Kevin MacAuley, summer intern student at Deere
& Company Worldwide Logistics, was preparing
for his meeting the following week with David
Panjwani, manager of logistics network design.
David had asked Kevin to evaluate Deere's
corporate logistics outsourcing arrangement
with FedEx Logistics, to identify opportunities and
to make appropriate recommendations. It was
now the second week of August, and Kevin had to
finalize his report and recommendations before
returning to school

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Purpose
•The case allows for a rich discussion of
managing logistics supplier relationships
and managing organizational issues in
logistics. The main issues confronting
Kevin included centralization and
standardization and supplier management

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Immediate Issue
•Recommend an appropriate strategy for
Deere's relationship with FedEx

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Basic Issues
•Organization of the logistics function
•Outsourcing and supplier management
•Centralization and standardization
•Transportation
•Warehousing
•Logistics network design
•Integration of inbound and outbound
transportation

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Case Analysis
•Role & Schedule
•FedEx Logistics Services Contract
•Deere & Company Worldwide Logistics
•Centralized control by WWL
•Alternatives
•Supplier Management
•The Meeting

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Role & Schedule
•Kevin is an intern student, whose summer job involved
investigating Deere's relationship with FedEx
•As a summer student, he is not an influential executive.
Rather, his job was to investigate and report
•If Kevin wants his work to be taken seriously, he must be
well organized and present his arguments clearly
•Kevin has a week to prepare his report. Consequently, if
Kevin feels that he needs some additional information, he
has time to do some additional data collection

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FedEx Logistics Services Contract
•No one at Deere really had a good understanding of the
relationship with FedEx. Once the transportation
management services contract had been negotiated
seven years prior, it had been left up to the units to
manage their relationship with FedEx, including
negotiating activities and costs for unitspecific contracts
•Based on Kevin's investigation, FedEx provided three
basic services: centralized transportation management,
on-site transportation management and warehousing.
Centralized transportation management services
included freight bill payment and audit costs, while on-
site transportation management included on-site
recurring fees and expedite fees

9. Why was WWL created?
Advantages of Centralization and
Decentralization

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Deere & Company Worldwide
Logistics
•The creation of a worldwide logistics organization (WWL) implies
greater centralization and standardization. The possible advantages
of centralization are:
•greater specialization
•consolidation of requirements to lower costs
•standardization and coordination and control of policies and procedures
•critical mass and leverage with suppliers
•reporting line to executive level position at head office
•Meanwhile, the advantages of decentralization include:
•easier communication with operating groups
•speed of response
•effective use of local sources
•business unit autonomy
•reporting line simplicity
•undivided authority and responsibility

11. What Changes (If any) you would
like to make regarding the role of
FedEx?
Customer Defined Service Standards

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Centralized Control by WWL
•Centralized transportation management services. Including the costs
for freight bill payment and audit, this activity costs $648,000
annually. Indications are that the units are not happy with this aspect
of FedEx's service. However, is this merely a reflection of the distain
that the units have for centralized authority? Buy-in from the units is a
critical issue. What can WWL offer that FedEx cannot? Can they do it
cheaper? Can they do a better job? For example, FedEx charges $0.73
per transaction for bill payments, including freight bill audits. Will
Deere's costs be lower?
•A related issue is that if WWL is responsible for centralized services,
does Deere need FedEx at all, or should Deere look for new logistics
service providers for on-site services? The issue of centralized
control, therefore, includes the extent to which WWL is allowed to
dictate how services are provided at the unit level. Centralized
control allows WLL to standardize services and policies across the
units. However, standardization might meet with some resistance
from the units, who will claim that it ignores their unique differences

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Alternatives
•The case identified three options: insourcing all of the
logistics services currently provided by FedEx, insource
selected services or maintain the existing structure
•However, the recommendations need to address both the
level of centralization and the level of standardization
•Which services should be outsourced and which services
should be controlled by Deere, what activities should be
centralized and which activities should be decentralized
•Finally, consideration should be given to where WWL
should enforce standardization

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Supplier Management
•What do you think about the management
of the relationship between Deere and
FedEx? Has Deere done a good or bad job in
this respect?
•Do you think that the creation of a WWL
organization may actually help or erode the
relationship between the two companies?

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The Meeting
•As Kevin MacAuley, what recommendations
would you make to David Panjwani and
why?
•How would you recommend David to
implement your recommendations?
•What additional information might you
need and how would you get it?