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Supply Chain MGMT Project
Supply Chain MGMT Project
Pioneer Hi-Bred International, Inc., founded in 1926, is the largest seed company in the
world. The company produces and sells hybrid seeds of corn, sorghum, sunflower, and soybean,
among others. Competition had steadily increased throughout the years in response to advances
in biotechnology and the resulting shorter product lifecycles as well as because of expanded
global competition. The seed industry certainly had changed, enough so that senior executive
Dave Browning observed, “The seed industry has changed more in the last 4 years than it had in
the previous 20,” this statement clearly reflects the dynamics involved and the need for a
proportional amount of change. The following is a table of a SWOT analysis of Pioneer in 1997.
SWOT Analysis
The following recommendations proposed in planning, production, and distribution are aimed
towards making Pioneer more competitive in the industry based on those issues uncovered by
Planning
The decisions specific to the planning function of Pioneer consist of both strategic and operational
issues. The geographic placement of sites for research, growing, production and distribution
pertain to strategic decisions that affect the company long-term and take several years and much
capital to implement and affect other operational decisions in terms of revenue, costs and product
quality as well. Operational decisions typically involved in planning consisted of the scale of
production, product mix, growing and climatic conditions, taxes, duties and tariffs, distribution
Patterson’s forecasts (Exhibits 3 and 4) are flawed in making too many assumptions and not
including enough information. Although demand can be accurately forecasted, climate and
reorganizations in production and distribution are not properly accounted for and historical yields
above the forecast are not taken into consideration for more accurate yield forecasting.
Foreign production needs to be reviewed and the 33% carryover rate needs to be analyzed.
Recommendations:
Climate: Weather can be very unpredictable and this is very important considering the lengthy
time of production. Efforts need to be made to combat the risks associated with this uncertainty.
regions outside the Northern Hemisphere to take advantage of the weather, not only to produce
hybrids accustomed to different regions, but also as a counter measure against climate.
Reorganization:
Reorganization in production and distribution is not taken into account. Although this may
be fine for the upcoming forecast, in the long run, this will have to change with the
in this growing market. The seed market in North America has been growing at 3% while
elsewhere this number has been 5%. Moreover, Pioneer’s market share in foreign
countries has been increasing above 22.5%, while foreign plantings accounted for only
11%. Further, 59% of production of world commercial corn occurred outside the United
States. To capitalize on this growing trend and to establish Pioneer as a world leader,
before other companies claim their stakes. In depth analysis should be done on the
New facilities need to be strategically located in different areas around the world. An
approach to location decisions would be based on market share. Placing facilities closer
to demand provides a hand over the competition and will lead to cost reductions in
social and political environment. Several methods of evaluating location alternatives exist
Also, although it may cost 25% more to operate foreign facilities, I think an analysis is
necessary to fully understand these costs. An accurate breakdown could reveal costs that
can easily be reduced or eliminated simply by understanding them better. Further, more
evaluation methods exist to try and minimize costs associated with transportation such as
the center-of-gravity method and the transportation model. These methods should be
To address the issues of protection of patents and other proprietary assets, Pioneer
needs to act local and think global. The first consideration is of course the social and
despite being notorious for not respecting such things (i.e. China). To counter these
problems of guanxi (connections and cronyism) to steal customers and ideas, Pioneer
needs to show a local face. Hiring and training locals for production as well as hiring
natives that possess the skills lacking to make real contributions to the company will not
only address issues related to protectionism but may prove quite fruitful in terms of
production and distribution by adding fresh, relevant talent with the local knowledge
needed for longevity and success. Further, this can improve marketability in the host
According to historical data, yield rates can highly vary from year to year, as much as 20% from
the mean and thus a 33% carryover rate has been used for years as a buffer stock against such
highly unpredictable fluctuations. The 33% carryover rate is highly questionable and currently,
• Yield Rates
The current forecast method for yield rates is to use the 4 year moving average and
adding 0.5 to account for biotech advances and provide worst-case scenarios at 80 and
90%. However, yields in excess of these forecasts are not taken into account because
they would not produce a shortage. Because of this, I believe that the forecasting
methods are flawed. The actual yield, excess or not, needs to be accounted for to
produce more accurate information for planning as well as for the issue of carryover.
• Carryover
The current carryover rate of 33% is rather high and has been used for the past 70 years.
However, as pointed out in the case, the industry has changed remarkably in the last 4
years than over the last 20. This is quite a statement indicating the market environment,
and thus historical practices such as this needs to be reviewed and adjusted. No doubt,
carryover is needed given so many variables, but efforts can be made to try and reduce
the number and or dependence on it and would reflect most if not all of the following:
2. Account for actual yield – To more accurately forecast and provide better
3. Rollover – Carryover in excess of the previous year’s set rate should be rolled
over to current year productions and the current rate lowered based on the roll
over amount. (Example: Set rate at 10%, last year’s actual carryover: 15%, set
and harvesting that could increase yield efficiency resulting in less dependence
on high carryover.
SWOT Analysis:
The current market is very competitive, especially in the area of biotechnological break-through.
Pioneer has done a great job at keeping up, constantly investing 10% of revenue for research.
Only so much can be invested and so, Pioneer should analyze itself and realize what its
competencies are as well as those above competitors and capitalize on them as a supplement to
2. To deal honestly and fairly with its employees, sales representatives, business
4. To help its customers make the greatest possible profit from their products.
Such integrity and dedication to quality and “added value” services to customers are what will put
Pioneer above the rest. Expanding these services and increasing marketing on these core ideals
emphasizing Pioneer’s dedication to quality is crucially important given the high competitiveness
of the market.
The case also mentions that many production plants had become certified under the ISO
program, we believe this should be a new company-wide requirement with a plan to do so within
the next few years established to become more competitive, especially in European markets with
the ever expanding EU countries. Doing so only illustrates and further emphasizes the dedication
Production
The production decisions revolve around the following: where to grow and process hybrids,
Recommendations:
(1) Evaluate all current production facilities outside the US. The evaluation should focus on
identifying the production facilities with the highest productivity (in terms of seed volume output)
as well as the lowest production costs. The evaluation will help identify and allow the
• Facilities with high levels of production and low production costs. (Best)
• Facilities with low levels of production and high production costs. (Worst)
(2) Increase production capacity of facilities located outside the US. The case mentions that
59% of world commercial corn production occurs outside of the United States. When the numbers
presented on Page 5 are broken down even further, production capacity is composed of the
following:
There is no question that Pioneer must increase the production capacity in areas outside the US.
The evaluation conducted above reveals that Pioneer should focus on the first two types of
facilities because they have the highest productivity and less costly to work with on
improvements, expansions, etc. and seek for ways to improve production at the third type.
An analysis should be conducted to compare which of the two alternatives is best. For example,
The higher levels of productivity show that these facilities are being utilized to their maximum
potential and are operating at full capacity. Remember, that fixed costs are incurred regardless of
whether the facility is producing anything or not. Therefore, through high levels of production,
they are minimizing the impact that fixed costs have on every unit of output produced. This will
result in a lower cost per unit. However, it is important not to overproduce and end up with a
product that cannot be sold taking up space and money, further analysis needs to be involved to
take demand into great consideration. Perhaps some facilities could serve as back ups for corn
seed production but their primary functions would be production of Pioneer's other products so
(3) Lower production costs. An attempt should be made to lower variable costs. The case
• Detasseling. The company should look into the possible outsourcing of this function. An
advantage. If it turns out not to be, Pioneer can outsource to a company that specializes
way however should Pioneer let the evaluation and control be performed by others, this is
still a very important and competitive function of the business and must be done by
Pioneer, however, a highly accurate statistical model should be performed when doing
so. Costs can be decreased in detasseling by not surveying an entire field, but rather by
a sample method. This would take less time and presumably less people. A statistical
analysis would need to be done and thoroughly tested to accurately calculate how many
Furthermore, the company should look into the possibility of closing the facilities with low levels of
production and high costs. Clearly, they are not utilizing the facilities to their maximum potential
and or are not placed in strategic locations. It could be argued that it is possible to turn them
around, but it would certainly require a detailed analysis of those facilities and the factors
associated with the poor results and only then could management make an informed decision.
Distribution
Distribution related to inventory management, transportation and customer service and was
There was no real coordination in the supply chain with over 400 trucking companies utilized
during any typical peak season. Inventory was high and in addition, highly variable.
Recommendations:
• Increase facilities
Strategically placed facilities will help lower transportations costs as well as decrease the
need for safety stocks, thus reducing overall inventory costs. Further, more facilities
customer service.
The carryover rate of 33% is outdated and is the cause of high transportation costs and
results in higher costs and perhaps even decreased customer service. Efforts need to be
made to dramatically reduce this number and allow more coordination through advanced
technology.
preferred suppliers based on reliability, quality and cost. Inefficient suppliers need
and will become even more so as the company expands globally. Options in ERP
applied to increase reliability and customer service and decrease time and costs.
Perhaps with closer carrier relations produced through the proposed decrease of
technology.
All of the proposed changes will lead to a more competitive Pioneer, not only domestically, but will
place the company as a serious competitor on a global scale. Changes need to be implemented
to remain as the world’s biggest company and to keep up with the changing industry. Although
there are many factors that cannot be controlled or predicted, the recommendations proposed
herein serve as a combat-measure to these variables, allowing for the company to set realistic