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 & Companys 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 (Manager Logistics Network Design)

Meeting

11 regional logistics manager

Pros.

Retain FedEx for Logistics Services

Cons

Meeting

FedEx Officials

Develop solutions to issues

Look for Different Logistics Service Providers

No

Yes

Recommendation 2:- Clear communication is the key to unlock a firms 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 cocoordinating 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

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 FedExs services and looking out for other options.

Existing System at Deere & Company

Pros

Cons

Authority for Reg. Managers

Best Individual performance

Lack Of Communication

No Standardization

Good on-site relationship

Easy to tackle issues

No knowledge sharing

No Central Leadership

Switching from FedEx

Varying cost for 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.

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 & Companys 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 & Companys 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 & Companys expertise lay in manufacturing and it will be very complex for Deere & Company to match up with FedExs 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. 5