The
MBA program in Supply Chain Management
at NC State University is unique among business schools.
With the support of the Supply Chain Resource Consortium,
an industry/university partnership, the program brings
the industry into the classroom, involving students,
faculty and supply chain professionals in finding
solutions to the real industry problems. This project-based
approach to education reflects the new model for business
schools described by Peter Drucker.
For
more information...
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Peter
Drucker...
"Management is a practice, like medicine;
and the model should have been the medical school,
where the bulk of the teaching, especially the most
important teaching of the M.D. in his or her residency,
is performed by practitioners. Unlike medicine, where
you can bring sick patients into the classroom, business
education does not allow you to bring an organization
into the classroom. You can, however, bring experience
in through your faculty and students. Business educators
should be out as practitioners where the problems
and results are." |
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12/16/03
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Supplier
Evaluation
at John Deere
Compiled
by:
Erik Kruse, SCRC
|
Supply
chain managers commonly use tools to help improve
the operating and financial performance of their
business units. For maximum benefit, these tools
should be in line with the greater enterprise’s
overall strategy for competition. Enterprise level
managers at Deere & Company, for example,
use Shareholder Value Added (SVA) to guide “fundamental
operating changes inside (its) business (1).”
SVA, in general, is the difference between the
enterprise cost of capital and the company’s
pretax profit. According to Robert W. Lane, Deere’s
chairman and CEO, management began using the tool
two years ago (1). In fact, during a recent gathering
of top suppliers at Deere’s Achieving Excellence
Suppliers meeting in Davenport, Iowa, Lane said
the tool is helping the company “drive the
necessary operating changes in (its) business.”
He pointed out that, “SVA for the John Deere
enterprise (in 2002) was a negative $462 million.
As large as that number may seem, it is a significant
improvement over 2001, when SVA was more than
$1 billion-negative.”
That improvement is due in part to the company’s
strides in its use of strategic sourcing. During
his speech to Deere’s top-ranked suppliers,
Lane challenged them to be a part of the company’s
plans for “truly profitable growth,”
which is the “engine of sustainable SVA.”
In view of a relatively weak operating cycle,
he said that the real challenge will be to make
SVA sustainable rather than circumstantial. What
does that mean for suppliers?
In short, it means moving toward or maintaining
“A-list” status. The company actively
measures supplier performance through an evaluation
system it calls “Achieving Excellence,”
which is designed to improve the efficiency and
responsiveness of its supply chain. In this system,
Deere’s top performing suppliers are labeled
“Partners.” Click
here to see the requirements for this top
echelon and criteria for the subordinate categories
of supplier performance.
| • |
Quality
Rating provides a supplier with statistical
evidence of their product quality. The rating
is expressed in parts per million (PPM) as
follows: |
| |
|
(Total
Nonconformances / Supplied Pieces) X 1,000,000
= PPM rating |
| • |
Delivery
Rating provides a supplier with statistical
evidence of their ability to comply with order
quantities and delivery dates. A delivery
rating, expressed in parts per million (PPM),
is derived from early, late, over or short
deliveries. The delivery rating is calculated
as follows: |
| |
|
(Total
Nonconformances / Receipt Pieces) X 1,000,000
= PPM rating |
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• |
If a supplier achieves a 50% improvement (as
compared to the previous fiscal year) in their
delivery and/or quality ppm rating, they shall
receive a 1 level increase in their rating.
This will not allow a supplier to move to
the Partner classification within the category. |
| |
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• |
Discrepancies
in quality and delivery data can be corrected
within 30 days of notification and agreement. |
| • |
Wavelength
(Relationships) Rating is a composite
analysis of the supplier’s initiative,
attitude, responsiveness, attention to detail
and communication performance. |
| • |
Technical
Support Rating evaluates the supplier’s
knowledge and appropriate use of both design
and manufacturing industry technology, integration
in the PDP process, adherence to the Quality
manual and results shown in reducing manufacturing
cycle times during the year. |
| • |
Cost
Management Rating is a reflection of how
well the cost of material is managed and how
the supplier works with the factory in communicating
key cost drivers needed to meet the total
cost management goals. Another factor in this
rating is participation in John Deere Cost
Reduction Opportunities Process (JD CROP). |
According
to Debora Murphy, Commercial Mowing and Golf &
Turf Supply Manager, sourcing strategy is developed
at the enterprise level and communicated through
each of Deere’s four divisions to the business
unit. Deere sets yearly goals for each division,
and its supply management employees are measured
in DPMS (Deere Performance Management) for their
division’s performance, as it relates to the
development of supplier alliances (3).
Achieving Excellence, as an example, is designed
such that, as the number of suppliers at the partner
level increases, the total number of suppliers decreases.
In other words, higher performing suppliers will
get more business. The intended result is a more
efficient and responsive supply chain.
As Murphy stated, the development of a strong alliance
is extremely important for global competition. “It’s
like Mike Triplett, VP of Deere & Company Worldwide
Supply Management, told our Partner suppliers,”
said Murphy. “‘Deere is expanding globally,
and we want you to be able to go with us.’”
References:
(1) Lane, R. (February, 2003). Speech: Achieving
Excellence In Our Business. Achieving Excellence
Suppliers Ceremony. Deere
web site
(2) Deere & Company. (November, 2003). Achieving
Excellence Criteria.
(3) Murphy, D. (June, 2003). Conversation with
author.
|
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Achieving
Excellence Criteria
|
| Supplier
Classification |
Quality
(PPM)
|
Delivery
(PPM)
|
Technical
Support
|
| Partner |
<
500
|
<
15,000
|
>
92 – 100%
|
| Key |
<1,100
|
<
36,000
|
>
80 – < 92%
|
| Approved |
<2,200
|
<60,000
|
>
70 – < 80%
|
| Conditional |
>
2,200
|
>
60,000
|
<
70 %
|
|
|
| Supplier
Classification |
Wave-Length
|
Cost
Management
|
| Partner |
>
92 – 100%
|
>
92 – 100%
|
| Key |
>
80 – < 92%
|
>
80 – < 92%
|
| Approved |
>
70 – < 80%
|
>
70 – < 80%
|
| Conditional |
<
70 %
|
<
70 %
|
|
|
