"As we have started to strategically source indirect materials and services, it has become very apparent that engaging our suppliers—getting them more actively involved in our business—is absolutely critical," says Dave Galbraith, strategic sourcing manager for indirect materials and services, John Deere, Moline, Ill.

"Suppliers need to understand our requirements and strategies," says Galbraith. "That's one side of the coin. The other side is that we need to understand them better, understand what's driving their businesses, what works for them and what doesn't. It serves no purpose at all for us to craft strategies that are not good for our supply base."

Galbraith's group, which has been together for two years, develops strategy for sourcing indirect materials and services at Deere. Within the group, strategic sourcing teams focus on specific sets of commodities: MRO, IT, travel, contracted services and creative services (printed materials) and energy. Chris Gleason, supply base manager for MRO, leads Deere's corporate team for the commodity, which encompasses 14 products including perishable tooling, hydraulics and pneumatics, safety supplies, toolroom supplies and filtration. As such, he is responsible for implementing supplier agreements, continuous improvement, standardization, strategic utilization (Deere's term for compliance) and ongoing maintenance and administration of supplier agreements.

"While we are a corporate group, we also are responsible for leading the operating group representatives that assist us in developing these strategies," says Galbraith. "So, we are leading a team of users as we address these issues for MRO."

Applying a formalized strategic sourcing process to MRO is among the first projects for Deere supply managers. "It's a relatively new process for us," says Galbraith. "It allows us to develop our strategies with a view on the complete spectrum of value and services we need to provide our users."

For MRO, Deere takes a unique approach: Supply management provides the company's individual operating units with a menu of services that range from a "least integrated" supplier relationship (delivering an order to a receiving dock) to full integration. Each unit executes the strategy based on its needs—within confinements of the agreement.

Supply management provides "enterprise leadership through the strategic initiative driven by multi-divisional, multi-unit representation on our teams," says Gleason. "As we flow through our strategic sourcing process, we want to make sure that our initiatives come with full support from our unit stakeholders."

Gleason and his team take a "silo" or commodity management approach to the MRO buy. For each commodity, the team selects an MRO supplier based on its capability to provide all of Deere's plants in North America with full integration services. "Part of our strategy is to improve the process and drive costs out," says Gleason. "We clearly recognize that Deere had too many suppliers. To show significant improvement in service and technical support to our units, we knew we had to narrow the supply base. And, we wanted to assure the units that the suppliers we selected would be delivering the equivalent if not greater service levels than the incumbent suppliers had been providing."

Galbraith points to the team's efforts at developing standards for safety supplies as an example of the progress it has achieved in driving out costs: Gleason put together a team of unit safety directors, supply managers and union representatives to look at 1,800 different safety items. "There was a great deal of duplication or near duplication across the operating units," he says. "The team was able to work through all of the items and arrive at a standardized group of about 285 safety commodities. It was a great collaborative effort." Other teams are developing standards for janitorial supplies and filtration equipment.

A smaller supply base helps Deere streamline its processes and deliver improved levels of service and technical support to the unit, driving costs out of the system.

Over the years, "what's really changed is that we have a better understanding of our suppliers' costs," says Gleason. "In turn, suppliers have a greater understanding of what is expected from supply management."

Deere now has in place supplier training and supplier development programs. Through the development program, supplier development engineers and supply managers visit supplier sites to help them drive costs out of their processes. For example, a group may help a supplier improve the flow of materials through its shop. The result: a stronger, more competitive supplier.

"We also have a department within our supplier management organization that is focused on training of both supply managers and key suppliers," says Galbraith. "We have programs with the states of Iowa, Illinois and Wisconsin that provide training grants for suppliers residing within their borders. We open the full spectrum to our supply base to help them improve their skills which, in turn, helps us."

Also new to Deere: A formal supplier-evaluation program called "Achieving Excellence." Through this program, suppliers attend classes to gain a clear understanding of the evaluation process. Supplier evaluations take place twice a year (midyear and year-end) ."While the idea is to provide direct feedback to suppliers, they also provide us with their feedback," says Galbraith. "We talk about how we can build stronger relationships and bring our suppliers to the pinnacle, which is a partnering-type relationship." Evaluation criteria include cost management, delivery, wavelength (how well the two companies work together), quality and technical support.

A long-lasting and sustaining component of cost savings in MRO is to truly understand supplier costs, says Gleason. "Costs for distributors differ from those of manufacturers, but we're capable of assisting all our suppliers with cost management. One thing we're doing is extending favorable terms and conditions of agreements we've negotiated for, say, computer hardware, to our suppliers. This holds true for many of our agreements and applies to both MRO and direct materials suppliers. We are constantly looking at ways to take costs out of the process."

New business-to-business technology tools clearly have applications within MRO, says Gleason. "Our view is that these tools could be an enabling vehicle for allowing our suppliers to participate in our agreements." Deere is currently in process of implementing the Ariba B2B suite of software.