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Where the rubber hits the road

By Christine Ferrell

“I was impressed by how such a diverse group came together to attack the project in such a thoughtful and productive way. For sure, we will utilize the output from the team as we strategize on the new long-term agreements that we will be negotiating over time with our tire supplier partners.” Mark Burton, C.P.M., strategic sourcing management, John Deere

Analyzing tire supply chain risks for John Deere

Most NC State Jenkins MBA candidates complete a practicum course, providing them a real company challenge in an academic learning environment. The Poole College of Management Supply Chain Resource Cooperative sourced this project from one of our partner companies, John Deere.

The team

Like most effective work groups, the NC State team brought together a diverse mix of disciplines, knowledge and experience to solve the challenge. Two industrial engineering masters candidates contributed strong analytic capabilities while two MBA students provided finance, supply chain, and project management experience. The team worked under the guidance of supply chain practicum advisor Dianna Wentz.

  • Jessica Newsome, Jenkins MBA Class of 2014 (full-time)
  • Nithin Seshadri, M.S. candidate in Industrial Engineering
  • Delia Miller Smith, Jenkins MBA candidate (Professional MBA)
  • Bo Zhang, M.S. candidate in Industrial Engineering

The challenge

As one of the world’s largest construction and farming equipment manufacturers, John Deere purchases approximately one billion dollars worth of tires each year.  Natural rubber is a major component of these tires, contributing significantly to the price, lead-time and availability.

Most of the world’s natural rubber comes from plantations in Asia.  It takes about seven years for new plantings to become productive, so a spike in global demand for tires—or a supply drop following a tsunami or blight—can result in significant price increases and material shortages. Synthetic rubber can be substituted for natural rubber, but as a petroleum-based product, it is also subject to price volatility.

Over the past 10 years, natural rubber prices have increased approximately 500 percent.  “We asked the NC State Supply Chain Resource Cooperative (SCRC) to assign a multi-disciplinary team of graduate students to look at supplier risk and raw material price volatility,” said Mark Burton, strategic sourcing manager for John Deere tires. “We wanted to gain a better understanding of what drives tire prices, what drives availability—and how price and availability are linked.”

The team’s approach

The semester-long project began with in-depth industry research to gain an overview of the factors that influence tire manufacturing and pricing.  From this knowledge base, the NC State team led weekly conference calls with their John Deere client to review their progress and gain his feedback and direction.  Burton reported, “They were all top-flight people.  I felt like I was talking to consultants, very much so.”

The team’s used the university’s big data analytic tools to gain insight into factors that drive pricing and to predict future volatility. They also studied John Deere’s tire suppliers to better understand their supply chain, vendor contracts, and potential risks.

At the end of the project, the team delivered an in-depth report that showed that natural rubber prices are likely to decline over the next three years and presented recommendations that could be used to modify John Deere’s tire pricing model and negotiate contracts with tire suppliers.

The results

The project was a win-win for John Deere and the students alike.  The students gained practical real-world experience that required them to apply their knowledge and teaming skills to solve a real-world business problem.  John Deere gained data-driven insights that increased visibility into their tire pricing and availability risks.

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