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Published: May 28, 2008

 
 

Six Keys to a Winning Manufacturing Strategy

4. Multiple “home markets” plus export strategy. Some companies may locate manufacturing in a particular country to satisfy demand there, but Deere embraces a dual approach, considering the demand in major markets, which it calls “home markets,” and also factoring in possible exports from those markets. “We build diesel engines, transmissions, and tractors in India. We aim to be able to serve the Indian market and at the same time we export from there to 52 countries, including the United States. But we probably wouldn’t be doing that that if we didn’t have the Indian market,” says Lane. “In Brazil, we just opened a brand new tractor factory, and we export from there to Latin America and Europe.”

Deere facilities in China are exporting to a limited number of countries, but the prospect that they will one day engage in more extensive exports is baked into the equation. “Right now, what we build in China primarily stays in China,” Lane says. “Certainly, there will be a growing amount of exports as we develop.” Most of Deere’s tractors built in China have fewer features and meet lower specifications than farmers in many other markets are demanding. Those products are right for China because its level of mechanization of agriculture is lower. As the company can identify other markets that have similar needs, it will begin to export Chinese-made tractors.

5. Labor flexibility. Until very recently, U.S. auto manufacturers hadn’t done much to modernize their manufacturing techniques because of resistance from the United Auto Workers (UAW). Deere has a different sort of relationship with the union. In exchange for greater flexibility in work practices, Deere offers its UAW employees profit-sharing schemes based on SVA and productivity. That kind of collegiality has built a relationship that can handle even tough calls, like closing down production, as the company did with engines in Dubuque. “When we can’t compete, we lay it out,” Lane explains. “We showed them that we wouldn’t be able to build these diesel engines, and we closed down our engine manufacuring in Dubuque. But in other places, we’ve reinvested in our UAW factories. We work very cooperatively with them.”

6. Lean production. The company has embraced lean production with the Deere Production System (DPS), which is adapted to its unique needs. “We are not an auto company with huge volumes,” Lane says. “What you have is lots of different products — planters, sprayers, combines, tractors — all of them quite different. So our Deere Production System is tailored to low-volume, high-quality production.” The system has been implemented at virtually all of Deere’s factories over the past four years.

One critical element of DPS is its “pull system.” In the old days, Deere aimed for a steady, even pace of production. But now Deere bases its manufacturing on customer demand, and products are made only after a customer has ordered them. This approach lets Deere adapt to cyclical and seasonal factors much better than in the past.

Another element of DPS is a constant push to update machine tools, eliminate waste, and enhance flow-through. The advances have been dramatic. “We’re ending up with significant productivity gains — close to double digits every year,” Lane says. In any form of manufacturing, productivity gains of 8 to 9 percent a year are huge.

Deere’s rigorously analytical approach has given it the market muscle to discourage the emergence of a competitor that can challenge Deere’s agricultural products on a global basis. Even in India, where a giant like Mahindra & Mahindra is posing a challenge to so many automotive and related companies, Deere has prospered. Thus far, at least, Deere’s strategy has yielded global dominance and stands as an example of how U.S. manufacturing is proving remarkably resilient in an increasingly competitive global economy.

 
 
 
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Resources

  1. Kaj Grichnik, Conrad Winkler, and Jeffrey Rothfeder, Make or Break: How Manufacturers Can Leap from Decline to Revitalization (McGraw-Hill, 2008): An examination of the flaws and limitations of lean manufacturing and Six Sigma, and how businesses can revolutionize their manufacturing practices.
  2. Kaj Grichnik, Conrad Winkler, and Peter von Hochberg, “Manufacturing Myopia,” s+b, Spring 2006: How manufacturers can avoid drifting into decline and irrelevance.
  3. Bill Jackson and Conrad Winkler, “Building the Advantaged Supply Network,” s+b, Fall 2004: Focused, flexible, and lower-cost manufacturing through supply chain network innovations.
  4. Hans-Jörg Kutschera, Peter Obdeijn, Michael Ilgner, and Peter von Hochberg, “Relocate? Transform? Which Option Is Right?s+b Resilience Report, 10/17/06: How to make smart decisions that will maximize manufacturing efficiencies.
  5. Jeffrey Rothfeder and Georgina Grenon, editors, Manufacturing Realities: Breaking the Boundaries of Conventional Practice (strategy+business Books, 2006): Offers a set of solutions for the crisis facing manufacturing today.
 
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