John Deere’s Global Parts Distribution Network Strategy

John Deere’s Global Parts Distribution Network Strategy

It all started with an innovative answer to a farmer’s complaint which led to a blacksmith’s revolutionary invention of the farmer’s plow in 1837. That blacksmith was John Deere and soon he was turning out hayforks, horseshoes, and other essentials for life on the prairie.

Fast forward to the current day and the John Deere Company continues to design and manufacture advanced equipment for those who work the land. John Deere (NYSE: DE) is a publicly traded company with annual worldwide sales in 2011 of $US 29.5 Billion (note that parts make up 15% of revenues). The company is headquartered in Moline, IL where John Deere relocated in 1848 in order to have access to the railroad and the Mississippi River.

John Deere provides its customers with the highest levels of customer support for aftermarket sales through an international parts distribution network that is intelligently designed to provide high speed order turnaround time balanced against the need to minimize logistics operating expenses and inventory assets. This is a particularly difficult challenge for any company that supplies a global dealer network with upwards of 800,000 parts. Within the North American parts network, John Deere dealers have access to the complete catalog of unique stock parts, which support all product lines, including agriculture, turf, construction and forestry products. For John Deere, the goal is to service most of these parts to dealer locations within 48 hours and to maintain a 99% order fill rate.

John Deere has done an excellent job of figuring out how to optimize its logistics strategy through what we call a rear / forward inventory deployment strategy. In simplistic terms, this stocking strategy calls for the centralized distribution of the vast variety of parts that are slow moving and obsolete SKUs; and the regional distribution of parts that are fast velocity. This strategy ensures that the SKUs that account for the majority of sales revenue are closest to key market demand points to minimize order turnaround time which is an important competitive advantage. In other words, if 80+% of the sales revenue is derived from a small subset of SKUs then position these SKUs closest to their demand points so that customers can be serviced as quickly as possible. For the balance of slow moving parts, centralize the inventory in one distribution center to minimize inventory assets and space requirements. Of course there are nuances on this theme whereby slow moving parts that are expensive to transport may be stocked regionally; or very high value parts with medium velocity may be stocked centrally; but the rear / forward deployment strategy is highly suited to the parts distribution industry.

John Deere Parts Distribution Network in North America

John Deere’s parts distribution centers in North America exceed 4.6 Million square feet of space and are listed below. All figures provided are approximate estimates.

John Deere Parts Distribution Network Outside of North America

The John Deere parts distribution center network outside of North America exceeds 3.1 Million square feet of space and all distribution centers are listed below. All figures provided are approximate estimates.

Discussion on Global Parts Distribution Network Strategy

John Deere’s rear / forward deployment strategy is a critically important concept that is required to support the company's global distribution network of 800,000 parts. Fast moving SKUS are duplicated in multiple distribution centers positioned closest to the customer demand points. Slow and obsolete parts are centrally stocked in Milan, IL and in Bruchsal, Germany (See Green facilities above). The company’s stocking locations and inventories are managed by a centralized computer system (SAP) such that every night the computer can map customer orders to the most logical distribution center for rapid and complete fulfillment..

If one had to generalize, the rear / forward deployment strategy works best in markets characterized by:

1. High revenue opportunity
2. A large geographical footprint therefore a high transportation expense
3. High levels of competition where speed to market is a critical competitive advantage

With this in mind, it makes perfect sense for parts distribution companies servicing large national markets to establish a rear / forward deployment strategy to ensure that the highest levels of customer service are achieved and to ensure that this objective is balanced against minimizing logistics operating expenses and inventory assets. This strategy may not necessarily be applicable to all global markets for several reasons:

• In Western Europe the smaller geographical footprint combined with the high cost and low availability of land influences the economics of distribution. For many parts distributors a single centralized distribution center is established to service the entire European continent. John Deere has gone further by establishing a local presence in England, Sweden and Russia to improve customer support in these regional markets by providing faster order turnaround times.
• In China, growth opportunities are significant but not without challenges. For many companies, the solution is to initially establish an arm's length presence by establishing outsourced 3PL distribution centers. This will be a significant 3PL growth opportunity in the years ahead.
• India is an emerging economy that will ultimately require higher levels of support for parts distribution. Western companies are gradually moving to India but conditions need to become more business-friendly to influence companies to invest in this market.
• Australia and New Zealand represent a limited market in terms of revenue opportunity spread across a large geographic area hence a regional parts distribution center makes economic sense for this region. John Deere has followed deployed this strategy and has extended support into New Zealand by operating a local parts depot there.
• Africa is a massive geographical continent with a large population-base and in theory a rear / forward deployment strategy makes sense for this market. Many companies establish a beachhead in South Africa because this is a country that is business-friendly and therefore lower in terms of overall supply chain risk management. Expansion of distribution networks into other parts of Africa remains challenging for many Western companies due to the risk-return proposition.

Marc Wulfraat is the President of MWPVL International Inc. He can be reached at +(1) (514) 482-3572 Extension 100 or by clicking here. MWPVL International provides supply chain / logistics network strategy consulting services. Our services include: distribution network strategy; distribution center design; material handling and automation design; supply chain technology consulting; product sourcing; 3PL Outsourcing; and purchasing; transportation consulting; and operational assessments.

Legal disclosure

MWPVL International Inc. does not represent or have a business relationship with John Deere. This is a research paper for supply chain educational purposes. The information assembled in this research paper is intended to provide the audience with intelligence on the subject of world class strategies for distribution networks. In preparing this material, MWPVL International Inc. has not disclosed any private or confidential company information. MWPVL International Inc. has made every effort to ensure that the information contained within this white paper is as accurate and up to date as possible. However, it is important to note that distribution networks change over time and for this reason there is a possibility that information contained within this paper may be out of date or inaccurate. If you wish to submit any information to improve the quality of this white paper, please be sure to send us some feedback.

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