Deere targets 10%+ savings on plastic resins

By Doug Smock -- Purchasing, 4/5/2001

Deere & Co., the big equipment manufacturer based in Moline, Ill., is launching a program that will focus its $360-million-a-year plastics buy on a more standardized set of grades and a handful of selected suppliers. The new approach is expected to reduce direct resins' cost at least 10% and substantially reduce costs in other areas, such as testing and development.

The concept on plastic resins fits into a strategic supply initiative launched two years ago at Deere by R. David Nelson, vice president of supply, and Jon Stegner, director of supply management strategic sourcing. Purchasing at Deere had been highly decentralized, with resin types often specified by design engineers on a case-by-case and factory-by-factory basis. In the new system, requirements are studied by a team of engineers and supply professionals to determine how requirements can be grouped and standardized. Then the business goes to the producers or compounders who can best meet overall needs in quality, delivery, cost, research and development. One goal in particular is to ensure the consistency of resin grades used to manufacture parts on John Deere equipment worldwide.

Ninety percent of Deere's resin requirement will be converted to the new program within four years, estimates Nathan D. Skjerseth, project manager for Resins' Enterprise Supply Management at Deere.

The first plastic up for review is polypropylene. "We are developing four John Deere performance specifications, and we are expecting to have two different grades per specification," says Skjerseth. That would yield a reduction from the current 46 grades to around eight.

The performance specifications are being developed by an eight-person committee, headed by Skjerseth. Other members include three supply managers, four materials engineers and two plastics engineers. As a group they represent several departments: design engineering, R & D, testing and supply. Deere anticipates that close to 99% of its plastic requirements can be categorized in the new specification groups. Skjerseth's team hopes to reduce Deere's supply base for polypropylene from 20 companies to less than six. After the polypropylene analysis is completed, Deere teams will tackle ABS, polyethylene and nylon.

The trimmed-down supply base will have improved global capabilities compared to current suppliers. Deere is now building new production plants in India, China and Brazil. "Our Supply Management strategies are necessarily aimed at configuring our supply chain to support these efforts, using our strategic sourcing and cost management models to create a dependable, fast-response, global infrastructure," Deere CEO Bob Lane said at a conference for supply management and suppliers in Davenport, Iowa, in February. "Our goals are hardly modest," he added. "We aim to dramatically increase our revenues and market capitalization, not incrementally, but by multiples."

One of Deere's major goals in its new resins strategy is reduction of testing and qualification costs. For example, Deere now buys molded parts of almost exactly the same color from two different suppliers in Germany and the United States. If the color had been specified to a standard, Deere could have avoided one set of color matching and weatherability charges. Company-wide savings could stretch beyond double-digit levels, says Skjerseth.

Initial emphasis in implementing the new program will be on new product development. That's significant because Deere plans to substantially increase its product introduction rate, Lane said. "In a few months, the agricultural equipment division will begin introducing more than 50 new machinery models, and will follow that up with the largest-ever new product introduction in Europe," he said. Existing applications that can be seamlessly converted to the new grade basket will also be targeted. Any changes that require expensive tooling modifications will drop to the bottom of the list.

A strategic review is being conducted by three division-based teams of process technology and tooling. Those teams are studying opportunities to focus on strategic molders and moldmakers and leverage new technology, such as co-injection molding in which two resin systems are married for improved performance of a plastics system.

The $360 million plastics buy at Deere breaks down like this: $260 million is for fabricated parts and assembles designed internally. Of that, $100 million is resins'cost. Deere spends another $100 million for plastic parts designed by its suppliers. Deere uses plastics for a myriad of applications, from small quantities of FRP lay-up for golf course equipment and vacuum-formed thermoplastic cab roofs to mass production of nylon motor housings for string trimmers.