You get what you pay for
Deere and Company realized that.  Today, it 
works with a few distributors and sets them 
up to be paid for the services they offer.

by Clair D. Urbain

Sure, it’s an old cliché that your mom, dad and even your grandparents preach: You get what you pay for.  It implies that if you buy cheap, you get cheap.  If you pay too much, you probably get too much, even more than you could ever use.

At Deere and Company, the multinational manufacturer of agricultural, industrial and other assorted equipment and services, the “you get what you pay for” adage takes an even more complex twist.  It drives the whole procurement process for MRO products.

“We have fiercely independent manufacturing facilities,” says Mike Bailey, supply manager at Deere’s Moline, Ill., headquarters.

That independence is driven by the company’s diverse products.  A corn harvester manufacturing line has different needs from a planter line and a foundry has different needs from a plant that produces excavation equipment used on construction sites.  In an attempt to standardize products and services, this diversity can lead to huge compromises in one plant and obscene excesses in others.

“We are working to minimize our supply chain to one supplier for a commodity group,” says Bailey.  “We are beyond beating up our suppliers on price.  The distributors that we work closest with must tell us if any of our activities drive up their costs.  We hope to bring our buying patterns together to work directly with product suppliers on the products we use.”

It’s the spirit of how Deere and Co. is revamping its acquisition process of indirect materials.

Hand and power tools . . . and a whole lot more
Perhaps the best example of Deere’s push to consolidate purchases to receive volume discounts without sacrificing service is in the power tool, hand tool and hoist product grouping.  It’s one of 32 indirect product groupings identified by Deere across its Midwestern plants.  Early record searches showed that plants paid wildly different prices for product types and required distributors to jump through costly hoops to get the business.  That cost, one way or another, gets passed back to the customer.

“We first saw this opportunity in steel, where we were getting many different prices, and demanded a wide variety of deliveries,” recalls Bailey.  “We have since negotiated to get a common pricing structure for steel.”

The hand tool, power tool and hoist category is now handled by one distributor.  The Midwestern-based Don E. Williams Co. (DeWco) provides a wide variety of items to seven plants.

“Every Deere plant does things a bit differently.  Our agreement with Deere covers more than hand tools.  We supply items diverse as crayons, ash trays and hoisting products,” says Steve Doellinger, president of DeWco.  “Mike [Bailey] is trying to bring them all together now.  We have a cost-plus arrangement on hand tools and we offer a menu of services that we charge for on an á la carte basis.  If a plant doesn’t use that service, it doesn’t pay for it.  This ranges from bare-bones service where ordered products are delivered whenever we can get it to them to a full consignment service.  We offer pneumatic tool repair in some plants.”

Service levels required by plants vary widely.  For example, in the Davenport, Iowa, facility, where about 900 employees produce log skidders, graders, excavators and end loaders, the extra services are few, says Linda Pollack, supply management specialist.

“We have a very simple process here.  There is no special tool crib area, and the tool crib is run by a Deere employee,” she says.  “We dispense items from a central tool crib where almost all hand and power tool items are stocked by DeWco.  Since we are a smaller factory, we don’t need some of the services the other plants use.  Also, DeWco’s facility is very close to our plant, so availability and timeliness of delivery aren’t a big issue for us.”

Pollack says her factory relies on DeWCo for tool selection advice.  “Several times, they have worked with our assembly people and found less expensive alternatives for air tools that fit our needs better than what we were using.”

In the past, Pollack and other buyers at Deere worked with a host of suppliers to get hand tool products.  In fact, in the Waterloo, Iowa, tractor assembly plant, some buyers had as many as four suppliers for something as simple as a screwdriver, says Craig Stainbrook, former supply manager for the facility.  Stainbrook was instrumental in getting the integrated supply concept rolling at the Waterloo facility, which served as a catalyst for other Deere plants.  Ironically, in his new role as quality engineer for a new tractor line, he is an end-user of the MRO acquisition process he helped put in place.

“We now have an open stock replenishment program in our plant for repair and process equipment and supplies.  Before, we used to penny everything out of the tool crib,” he says.

On top of having several distributors on the supplier list, having a two-step delivery process in the plant further added costs and slowed delivery.

“We had buyers place the order, then distributors would deliver to our storeroom in downtown Waterloo, which in turn would count and log the items and send them to one of eight stockrooms in the tractor assembly plant,” he says.  “Now, we work almost exclusively with one supplier, eliminating layer upon layer of complexity.  Ordered products are now delivered to a staging area in the one remaining tool crib in the plant and are delivered directly to the plant site where it is needed.  The remaining tool crib is one-third the size it was in the late ’80s, and we are getting products in here faster than ever.”

Stainbrook doesn’t miss the old structure.

“Before, we had sockets we bought at the low cost of $1.80 each,” he says.  “Trouble was they wore out quickly.  And to keep the production line going, we had expediters running to Sears to buy sockets because we couldn’t get them into the plant fast enough.  It’s hard to get a distributor to bend over backward to help us when we first beat them up on price, then try to get them to deliver a small quantity on a very irregular basis.  Also, our internal systems slowed delivery to the plant.  It’s a chaos thing.  We looked at it and figured how much this activity was costing us.  It was costing too much.”

Today, plants rely on DeWco to provide an extensive laundry list of hand and power tools and hoist products on a turnkey basis.  All plants rely on electronic data interchange to transmit orders, confirmations and payments.

“Every plant has a different computer system and numbering system for parts and supplies,” he says.  “To be most efficient, the distributor must know that one plant calls a certain part by one number, and that another plant calls the exact same part by a different number.  DeWco understands this.  Our plants won’t change to make it easier for others, and DeWco accommodates this need.”

All facilities rely on the distributor’s expertise in setting up new production lines and solving ongoing production problems.

“We used to have engineers on staff who spent all of their time trying to figure out problems.  We had a ‘not invented here’ attitude,” recalls Bailey.

DeWco also gets into other plants that struggle with similar problems and sees many more solutions that it passes on to Deere.

“We had a segment of the tractor assembly line that was having trouble with repetitive motion injuries because workers used a rubber mallet to carefully install a rubber lip around glass sections for the tractor cab,” says Stainbrook.  “The salesperson at DeWco knew of a pneumatic hammer that fits like a glove over the hand that could gently tap this lip into place.  It cured the repetitive motion injury problem.  Our engineers didn’t figure this out; our distributor did.”

Service for a fee . . . or for free?
Doellinger says DeWCo worked closely with Deere at the outset to establish a competitive pricing structure for indirect materials.  Then, based on both companies’ cost maps, it established a fee-for-service menu.

With DeWco’s help, the plants pooled their buying power and worked directly with selected hand tool manufacturers to develop a rebate system that awarded thousands of dollars back to Deere plants.

“Our plant uses many of the services offered by DeWco,” says Lois Wagner, supply management specialist at the Dubuque, Iowa, plant.

Here, the company builds backhoe loaders, track-type tractors and other smaller industrial equipment.  It’s a more intensive production environment, and plant management wants a tight focus on its core competencies.  Therefore, it relies on DeWco to supply parts on consignment at two plant areas.  In three other areas, it uses a kanban system to supply parts on a just-in-time basis.

Because the Dubuque plant uses many pneumatic tools, a full-time DeWco technician is on-site to make repairs.  The Waterloo facility also uses this service; both have other DeWco experts in the plant at least on a part-time basis to help solve ongoing production problems.

“These people have desks in the facilities,” says Doellinger.  “As a partner with them, we are committed to helping them solve their problems.  It’s our duty to bring them new technology as we learn about it.”

Curiously, the plants are finding much of the cost of these services is covered by the savings from the tool rebates.

“Because nearly all of our hand tool purchases come from one supplier and we are realizing rebates from that supplier, the rebate covers the cost of many of the added services we need.  That helps offset our costs,” Wagner says.

This article appeared in the August/September 1998 issue of MRO Today magazine.  Copyright, 1998.

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