CASE STUDY: Massey Ferguson (major agricultural equipment manufacturer) and Haddy Corp (tractor component manufacturer)

For more than 25-years, Haddy Corp, a 200-employee company located in Hammond, Indiana supplied a major tractor component to Massey Ferguson. Haddy Corp was a vertically integrated company with very little flexibility. As time progressed, and Massey Ferguson purchased more from Haddy Corp, it became more and more dependent on Massey Ferguson as a customer. For instance, in 2000, Massey Fergusons purchases accounted for over 95 percent of Haddy Corps revenue. Similarly, Massey Ferguson found itself growing dependent on Haddy Corp. For example, there are very few manufacturers of tractor components Massey Ferguson buys, and Haddy Corp owned the design of those components that Massey Ferguson purchased. At the time of the signing of the charter, James Franks, vice president of sales and marketing, and Bill Sanderson, director of quality assurance, were the key contacts at Haddy Corp working with the Supplier Development Group (SDG) project team. These individuals authorized the charter (see below) with Massey Ferguson. It was their responsibility to accept/reject, implement/not implement the changes recommended by the (SDG).

Supplier Development Groups (SDG):

The supplier development groups (SDG) consisted mostly of process engineers. However, members of project teams, such as the team assembled for the Haddy Corp Equipment project, included professionals from other areas. Each Massey Ferguson division had an SDG. Company-wide, Massey Ferguson had about 20 individuals assigned to SDG.

Charter Between Massey Ferguson and Haddy Corporation:

1. Business:

Haddy Corp of Hammond, IN, is a major supplier to Massey Ferguson. In terms of annual sales, Haddy Corp is currently in the top 5 suppliers in annual sales to Massey Ferguson.

2. Situation & Goal Statement:

For fiscal years 2018 and 2019, Massey Ferguson has limited Haddy Corp to price adjustments on material costs only. Massey Ferguson has declined to allow price adjustments on material costs for fiscal 2020. Haddy Corp has been unable to fully offset increases in value-added costs, resulting in a reduction of Haddy Corps margins. Massey Fergusons has a 5% reduction goal for fiscal 2020. The goal of this project is to reduce Haddy Corps cost so that current Massey Ferguson prices on affected product lines can be reduced at least 5% and Haddy Corps margins can be increased.

3. Mission and Vision:

A closer, mutually beneficial business relationship.

4. Project Scope:

Primarily, Haddy Corps commercial tractor attachment product lines, sold to Massey Ferguson.

5. Schedule & Deliverables:

Reduce Commercial tractor attachment Manufacturing Cycle Time from 89 months to 2040 days. Streamline Massey Ferguson-Haddy Corp order fulfillment process from 89 months to 2040 days.

6. Assignments and Roles Project Sponsors:

Sam, Massey Ferguson Purchasing Agent:

James, Haddy Corp Vice President:

Edward, Massey Ferguson Manager:

Benjamin, Massey Ferguson Supplier Development Engineer & Project Manager,

Bill, Haddy Corp Director of Quality Assurance

7. Implementation:

a. Manufacturing Cycle Time will be the primary focus of the project, but all opportunities for cost reduction will be explored. Specification changes resulting in lower material and/or processing costs will become part of the project.

b. Massey Ferguson services will be provided at no cost.

8. Savings:

a. If savings are realized, they go toward both increasing Haddy Corp margin and reducing prices to Massey Ferguson. Massey Ferguson will receive 50 percent of the savings in the form of price reductions.

b. Windfall raw material cost savings resulting from the project will be passed on to Massey Ferguson after normal markups.

9. Change Management Plan:

Haddy Corp will assign a Project Manager from its Manufacturing Group who will have overall project responsibility.

10. Communication Plan:

Weekly progress meetings will be held with Haddy Corp management. Haddy Corps Project Manager will chair them. Minutes will be published.

11. Confidentiality:

The project and the results are the property of Haddy Corp.

The Problem:

Each party considered the business relationship important. Haddy Corp relied on Massey Ferguson for most of its sales. Massey Ferguson wanted to keep Haddy Corp as a supplier because it would be cost prohibitive for Massey Ferguson to make these tractor attachments in-house. Massey Ferguson also believed that if it had to find another supplier for all the equipment purchased from Haddy Corp, Massey Ferguson would have to make a significant human resource effort and incur significant risk. The manufacturing cycle time for Haddy Corps antiquated processes was 250 days. This created problems for Massey Ferguson and its customers in terms of delivery and price. In an effort to reduce cycle time from about 250 days to 20-40 days and cut costs by an estimated 10 percent, the SDG created a team to work on the project. The Haddy Corp Equipment project team was assembled in March 2019, and consisted of four key individuals. They were Benjamin, supplier development engineer and project manager; Sam, in charge of purchasing, Edward, the manager of the SDG, was a member of the team but was replaced by Robert in mid May 2000. The teams task was to work with Haddy Corp to redesign its manufacturing process to meet the cycle time and cost goals. The team worked for 23 months, investing hundreds of man-days, and prepared and presented a report on February 24, 2001. The report showed that cycle time and cost reduction targets could be met. The basic parameters of the plan had been available much earlier, but the planning phase continued extending out, due to Haddy Corps reluctance to make changes, in general, and its specific reluctance to adopt a plan advocating such a fundamental change to their manufacturing process. Consequently, the bulk of the 23 months involved gathering more information in an effort to justify the benefits of making the change to Haddy Corp management. Haddy Corp Equipment personnel studied the report, and contacted Massey Ferguson on April, 2001. Haddy Corps unwillingness to change its manufacturing process was the biggest obstacle faced by Massey Ferguson in May 2001. According to an independent assessment, the maximum amount of savings that could be realized by restructuring their manufacturing process would be at most, less than 1 percent. The investment expected to be U.S. $5 million necessary to implement the changes recommended by the SDG. In their minds, the manufacturing process at Haddy Corp was about as efficient as it could be. Massey Ferguson was getting pressure from its customers for quicker and more reliable delivery of the tractor attachments. Massey Ferguson also wanted improved profitability on the attachments. This situation was important and of the highest priority to Massey Ferguson, and the team needed to devise a tactic to get Haddy Corp to buy into the proposed manufacturing redesign. Massey Ferguson management was also interested in getting a payback on the extensive level of support that it had invested in Haddy Corp.

The Meeting:

Benjamin called todays meeting with the objective of determining the best way to solve Haddy Corps objections. In this meeting, he reviewed the case for the redesign of the manufacturing process with the members of the project team. After considerable discussion, the team decided to utilize Massey Fergusons position and demand that Haddy Corp lower its prices at least 5 percent or half the amount Massey Ferguson thought was obtainable by implementing the project. The team believed that Haddy Corp was interested in the stability of a new long-term agreement, and they knew that without the changes, Massey Ferguson was not interested in extending its long-term commitment to Haddy Corp. The team thought this process would force Haddy Corp to make the appropriate changes to its manufacturing process. On the other hand, if Haddy Corp did give the price reduction and still refused to implement the necessary manufacturing flow improvements, Massey Ferguson would have an indication that Haddy Corp was not a supplier that would remain viable in the long run. Massey Ferguson would be forced to initiate activity to re-source the business at the end of the contract. It would take a significant amount of time and planning to find and develop a new supplier. Sam, not wanting to anger his supplier, did not like the proposed tactics, but he agreed to go along with the plan. Even though the team agreed to the approach, Benjamin privately wondered whether it would work and whether it would be an effective way of getting Haddy Corp to improve its antiquated manufacturing processes.

Discussion Questions: (Answer in the order given. See the Grading Rubric. You will lose points in the complete absence of sketches/diagrams etc., and lack of references)

2. From a Supply Chain perspective, what are the implications of this tactic and the possible consequences, positive or negative?