Executives at Deere & Co. were disappointed two years ago when an industry study ranked Deere the nation's seventh-best manufacturer in terms of purchasing practices.
The farm tool company had two responses. One, it wanted to be in first place. And two, it wanted to hire the man in charge of purchasing at the study's No. 1 company.
That man was Dave Nelson, who was then senior vice president of purchasing at Honda of America Manufacturing Inc. in Marysville, Ohio.
Now 60, retired from Honda and collecting a monthly pension check, Nelson drives a 1998 Honda Accord to work each day at Deere's Moline, Ill., headquarters. There, the longtime auto industry sourcing boss is trying to bring the Honda way to an old American firm with 50 factories around the world and an annual purchasing bill of more than $7 billion.
'I always wondered if someday, some American company might want to take advantage of my experience at Honda,' says Nelson, who logged in 30 years at TRW Inc. before spending the last decade at the transplant automaker. He joined Deere last fall.
Other companies that are interested can now glean something of Nelson's Honda experience from his new book, Powered by Honda: Developing Excellence in the Global Enterprise (Wiley, $29.95; see excerpts on Pages 29i-31i). Nelson's co-authors are his fellow manager at the carmaker, Rick Mayo, and manufacturing consultant Patricia Moody. The book lays out Honda's philosophy of supply-chain management, including its approaches to improving business conditions at its auto parts suppliers.
Life after Honda
But now, Nelson has thrown himself into making improvements at Deere.
In one of his first meetings as purchasing chief, Nelson told the staff that something really needed to be done to reduce Deere's excessive number of suppliers. Only about 165 firms supply 75 percent of Deere's purchased parts and material. But some 1,500 others deliver the remaining 25 percent - all of them selling less than $4 million a year in business. That was, in Nelson's plain-spoken words, 'way in hell too many.'
He recalls, 'They were all crestfallen when I told them that. They had just completed a big campaign to bring those numbers way down.'
'There has to be a real good reason for us to be doing $10,000 worth of business with a company,' Nelson says. 'Like maybe you're the only company in the world that makes the damn part.'
Nelson also immediately implemented practices that had helped distinguish Honda. Honda employs a small army of 'cost managers,' whose job, in a nutshell, is to be experts on what everything costs. That way, if a supplier tells Honda a widget costs $2.37, a cost manager can respond, 'But it should only cost you $2.27.' The question then becomes, is the supplier mismanaging production, is it padding costs, or is the charge simply erroneous?
Nelson also created a 50-person cost-management team to do that job at Deere. As at Honda, the Deere group also will be involved in new-product development. By being more familiar with piece costs on the front end of a project, a company can better control the cost of the completed product. This is one way Honda eliminated 26 percent of the cost of the 1998 Accord that Nelson now drives to work at Deere.
Out and about
Another key Honda practice is 'supplier development.' Honda routinely sends its personnel into supplier plants to help the companies look for efficiency gains. The results include higher factory output and greater profit margins - both of which benefit the automaker.
Deere had a very small staff working on supplier issues. Nelson assigned 100 more people to launch a Honda-style development staff.
He also has declared a new emphasis on what he and his colleagues at Honda used to call 'value engineering.' The term refers to the art of tinkering with parts and systems during their design stage to improve their value. The idea is to get the component to perform the same function without costing as much.
Nelson also has requested new methods for the way Deere buys indirect materials. He discovered that when it comes to such everyday items as work gloves, office supplies and company grounds-keeping, Deere's 50 plants do not talk to one another.
'We're spending a billion dollars a year on indirect materials,' he marvels. 'It's a damn gold mine of savings.'
Nelson is hardly a militant at his new job. He admits taking a wicked pleasure these days in some old-fashioned American practices that would make his former Japanese bosses wince. He lunches in Deere's executive dining room - there's no such thing at egalitarian Honda. And he parks his Accord every morning in a reserved parking spot. Not even the CEO at Honda has his own space.
Nor does Nelson think Honda can supply Deere with all of the answers. He recently worked out an arrangement with pharmaceutical maker Bristol-Myers Squibb Co. to study how it is eliminating $1 billion a year from its indirect material costs. And he intends to be active in a new government-backed think tank on supply-chain management, called the National Initiative for Supply Chain Integration Ltd. (See story on Page 27i.) Deere and Honda are charter members of the organization.
'It's a little bit risky to try some of these things,' Nelson says. 'I tell my people that there's no guarantee they'll work.
'But you'll never know until you try them.'
Lindsay Chappell is a staff reporter for Automotive News based in Nashville, Tenn.