Building Efficient Product Portfolios at John Deere and Company

Abstract

Company (Deere), one of the world's leading producers of machinery, manufactures products composed of various features, within which a customer may select one of a number of possible options. On any given Deere product line, there may be tens of thousands of combinations of options (configurations) that are feasible. Maintaining such a large number of configurations inflates overhead costs; consequently, Deere wishes to reduce the number of configurations from their product lines without upsetting customers or sacrificing profits. In this paper, we provide a detailed explanation of the marketing and operational methodology used, and tools built, to evaluate the potential for streamlining two product lines at Deere. We illustrate our work with computational results from Deere, highlighting important customer behavior characteristics that impact product line diversity. For the two very different studied product lines, a potential increase in profit from 8% to 18% has been identified, possible through reducing the number of configurations by 20% to 50% from present levels, while maintaining the current high customer service levels. Based on our analysis and the insights it generated, Deere recently implemented a new product line strategy. We briefly detail this strategy, which has thus far increased profits by tens of millions of dollars.

Mass Customization Versus Mass Production: Variety and Price Competition

“…Thonemann and Bradley 2002, Randall and Ulrich 2001, Fisher and Ittner 1999, Gupta and Srinivasan 1998, MacDuffie et al 1996. A few exceptions recognize both demand and supply sides in exploring optimal assortment to balance market gains and inventory costs due to variety (Gaur andHonhon 2004, van Ryzin andMahajan 1999); interaction of product line, pricing and maketo-order / make-to-stock decisions (Dobson and Yano 2002); link between conformance / performance quality and product strategy (Karmarkar and Pitbladdo 1997); marketingoperations impact of higher variety and the resulting coordination issues (Netessine and Taylor 2005;Yunes et al 2004;Cattani, Dahan and Schmidt 2003;De Groote 1994;Kekre and Srinivasan 1990). Dewan et al (2000) study product strategy -location -price competition of two firms that can offer a single standard product or a range of custom products on a circular space.…”

New product introduction against a predator: A bilevel mixed‐integer programming approach

“…Furthermore, if no products in O i have been introduced in the market, then segment i will not purchase any product. It is worth noting that the construct of preference lists have been successfully used in an actual industry application on rationalizing product lines [45] and in a theory of inventory competition between multiple firms each offering a single substitutable product [30]. Besides, because we do not impose any particular structure on the preference lists, they can come from a wide variety of discrete choice models.…”

“…In this case, the leader should introduce product 2: if the competitor introduces product 1, the leader will earn $91, while if the competitor also introduces product 2, the leader will earn $86.45; hence, the leader is guaranteed at least $86. 45. One important note here distinguishes the difference between a predatory and a self-interested follower (i.e., a follower that only tries to maximize its own profit).…”

“…Although integer programming formulations for product introduction do appear in the literature in monopolistic settings ( [11,12,31,32,45]), ours is, to the best of our knowledge, the first exact optimization approach to a competitive product introduction problem.…”

Editorial: How to Monetize the Value of OR

“…One was an Edelman finalist in 2004 (Troyer et al 2005); as a result of this project, Deere either eliminated or avoided over $1 billion of inventory. In the second project, we helped Deere save tens of millions of dollars by optimizing its product portfolio (Yunes et al 2007). …”