Read the article and discuss the following Questions:
1. What are the business reasons behind John Deere's offshoring of tractor production from the U.S. to other countries?
2. a)How can offshoring production be good operations management? b)How can it be bad operations management?
Bloomberg Businessweek article Top of Form
John Deere CEO Samuel Allen aims to increase total sales to $50 billion by 2018, with half coming from outside the U.S. and Canada, up from 39 percent today. In the last few years, the company has finally begun to make significant gains in Brazil and other countries where its rivals mainly Agco and CNH Global of Amsterdam, which makes Case and New Holland have deeper roots. Twenty years ago, Deere had two tractor factories outside the U.S. Today it has nine, in Germany, India, China, Mexico, and Brazil. Last year in Europe, Deere introduced more than 100 products. Nearly half of Deere’s 61,300 full-time employees work outside the U.S.
Replicating its domestic success overseas hasn’t been easy for Deere. For years, tractors it designed for the Great Plains were too big or otherwise unsuitable for overseas growers, who have to contend with smaller plots, roadway driving, and uneven te
ain. You can’t go with a German tractor and conquer the world or a U.S. tractor and conquer the world, says Markwart von Pentz, who manages Deere’s sales outside the U.S. You have to design to the requirements of the market. European farmers tend to want more speed and turning ability, while ricegrowers in India prefer compact vehicles that won’t sink in paddies.
One key to Deere’s global expansion is the 8R tractor line, the first the company designed for farmers worldwide. The 8R is still too big for some places. India, for example, but it is suited to the growing number of large farms outside North America. A base 8R is about 20 feet long, with a na
ow snout jutting from a boxy, 11-foot-high cab. Depending on which attachments it ca
ies, an 8R can weigh more than 30,000 pounds. Allen likes to boast that its technology has more lines of software code than a space shuttle.
Deere’s global ambitions are important not just to the company and its shareholders but also to the world. To feed a population expected to hit 9 billion by 2050, food production must increase by 60 percent, according to the United Nations Food and Agriculture Organization. With arable land available, Brazil, Russia, India, and China have emerged as new agricultural powers. But even they lack enough acres to meet demand. Advances in seed, fertilizer, and pesticide technology must work hand-in-hand with tractors and other equipment to help farmers squeeze every last bushel of yield from their fields. World tractor unit sales are expected to grow about 1.8 percent a year through 2015, to about 1.4 million; higher prices and the mix of products may push revenue up about 5 percent, says consulting firm Alix Partners.
Deere started developing the 8R in 2006. After interviewing growers around the world, the company in 2009 introduced the 8R with bigger cabs and easier-to-use displays. Even as the 8R made its debut, Deere was working on the next version, in part to meet stricter emissions standards in some countries. The company interviewed 1,500 customers. Many spoke of a labor shortage as the world’s population shifts to u
an areas, putting a bigger premium on automated machinery.
Last year, Deere reconfigured the Waterloo tractor assembly line to be less linear. Major modules engines and front axles in the northeast corner of the plant, transmissions and rear axles in the northwest are put together separately so that a mistake in either area won’t halt assembly altogether.
From March 2011 to March 2012, Deere says, customers ordered more than 7,800 different configurations of the 8R. On average, each configuration was built only 1.5 times. More than half the 8Rs were built just once, for a single customer. Thus, the global tractor: One size does not fit all, from Kansas to Kazakhstan.