Custom injection molder and mold maker Kelch Corp. of Cedarburg, Wis., has been a supplier of parts to Deere & Co.'s Lawn and Ground Care Division in Horicon, Wis., for more than half its 40 years in business. ``We've seen a lot of John Deere companies over that period of time,'' said Dennis Nourse, Kelch president and chief executive officer.
In the last five years, Nourse said, Deere & Co. of Moline, Ill., significantly changed its corporate structure to a more decentralized business-unit approach, similar to Kelch's structure.
``They actually decided to function around specific capabilities rather than just being John Deere company,'' he said.
That decentralization led Deere to seek suppliers with the expertise and technology to provide Deere with what it needs to be a successful, competitive manufacturer.
``We see that we can no longer maintain an expertise in all the commodities we need,'' said Richard Czarnecki, manager of tactical supply management for Deere. ``Suppliers have expertise that we need to take advantage of.''
Much of this restructuring comes from Deere's efforts at supplier reduction.
``We no longer deal with 10 or 15 suppliers for every commodity,'' Czarnecki said. ``As we [reduce our supplier base] we need to position ourselves with the leaders in those given areas, targeting specific suppliers for a given product.''
Six months ago, Kelch signed a three-year partnership agreement with Deere to supply steering wheels, fuel tanks and fuel-cap vent systems, sensors and gauges for Deere's lawn and garden tractors.
The benefits of aligning the company with a few targeted suppliers is that Deere is able to develop a more solid relationship.
``You get to a much higher lever of communication when you're dealing with two or three suppliers versus 10 suppliers,'' Czarnecki said.
``As we sign agreements, as we did with Kelch, we also get to a higher level of trust.''
Trust, said Czarnecki, is the key aspect of a successful partnership, particularly in areas where pricing and total costs to manufacture are concerned. Under Deere's strategic cost-management system, the company depends on its suppliers to provide Deere with the relevant cost drivers in the products.
Deere develops target costing for its commodities based on its relations with its suppliers. Because Kelch is a sole-source supplier for many of Deere's components, the firm no longer quotes several different suppliers.
``As we deal with the supplier longer, we come to have a better understanding of their costs, and can target where we might think their price will be, but we won't do that in a vacuum, the supplier will be involved,'' Czarnecki said.
This level of trust doesn't happen overnight.
``I don't think you go in cold to a supplier and ask to see their cost structure unless a trust has developed over time,'' Czarnecki said.
On this matter of trust, Kelch's Nourse agreed.
The original equipment manufacturer ``must forego a system that is constantly checking price,'' Nourse said. ``He's not stupid and will still come in and kick the tires, make assessments as to whether your price is in line, but going from price structure to solutions structure is a huge leap of faith.''
Both Nourse and Czarnecki agree that communication is the vital link that determines the success of these partnerships.
Harvey Plummer, manager of supply management for Deere's Lawn and Ground Care Division, said, ``From a technology standpoint, we want to make sure our strategic partners are equipped to evolve as we do.''
Which leads to what Nourse called the principle of shared success, where each partner works toward the success of the other.
``If our customers make it, we make it,'' he said.
``The beauty of these long-term contracts is you know what you have,'' Nourse said.
``It's more than just a production issue. It offers longer-term security to our employees, who need to be able to see the future too,'' he said.