How agricultural equipment manufacturer, AGCO, is overhauling its supply chain in a quest to become the industry leader
A leader in the agricultural equipment world, AGCO was founded in 1990 and has been developing a global network ever since. Of course, the quicker a business grows – particularly at the rate AGCO has done – the more often its processes need to be overhauled and improved, at which point talented transformation specialists must be recruited.
Enter Greg Toornman, an AGCO employee since 2004 who stepped into his current role as Director, Global Materials, Logistics, and Freight Management six years ago after a trio of successful transformational assignments within the company’s Global Purchasing organization. He is responsible for leading the transformation of AGCO’s Global Materials and Logistics functions, the issues inherent in which were identified back when Toornman was first hired.
In 2004, AGCO realized that the mergers and acquisitions approach was having a huge impact on the top revenue line. With the view to create greater synergy, two SVPs were brought in – one to focus on manufacturing, one on purchasing and materials management – and AGCO embarked on integrating its operations in North America, South America, Europe, and Asia.
“That took from 2005 until about 2012,” Toornman explains. “In 2012, we saw that there were still opportunities within the materials management and logistics, and that the tools we utilize in supporting our factories from a global-wide network perspective were not well integrated and not well connected. The product development roadmap direction we embarked upon was moving towards a global platforms strategy, similar to what you’d find in the automotive industry where you have a similar platform produced in multiple regions with a common supply base.”
Looking at the options the business had, the team came up with a global material management transformation initiative called GMMT. This initially involved bringing in experts from within manufacturing, logistics, IT, finance, and purchasing to brainstorm where to focus first.
In 2013, a vision was in place to have a globally-integrated network for all inbound and outbound transportation, plus all B2B information exchange (forecasting, releases, order confirmations, ASN’s) required for supplier relationships, by 2018. All the regions AGCO operates in were invited to develop what the future of the business would look like; rather than a top-down approach, the company worked with a tactical execution layer to understand the challenges involved and ensure a better service would be provided.
The plan and approach proved so successful that, rather than being a challenge, it was very efficient to move forward with the globally aligned five year strategy as the regions were key contributors to the future state vision.
“In any type of corporate-led global initiative, typically you’re fighting with the regions or sites for them to embrace it,” Toornman explains. “In this case, we had to fight high demand because we couldn’t implement it as quickly as everyone wanted. So that was kind of a good problem to have.”
The inbound-outbound transformation became standard after its success in Europe; it has since been successfully implemented in China, and is currently in the implementation phase in North America. South America will follow, with implementation starting there in January 2018.
No large-scale change ever happened without hiccups. However, with AGCO’s Supply Chain leadership team being entirely behind Toornman’s plans, the company was able to work through the obstacles as they emerged.
“If you are part of the ownership and you embrace the change, typically you’re more open to delivering solutions rather than pointing the finger, because it’s your project,” he explains. “Really, the key strategies that we focus on are within various levels of the organizational function are 1. to believe in it, 2. to understand it, 3. to embrace it, and 4. to enable it.”
This cooperation has to extend away from the company itself, of course, and through the supply chain.
“We paint a picture to the supplier, saying ‘yes, we hear you as a collective group – here are the things we are doing and investing in to make it easier for you, as the supplier, to do business with AGCO’,” says Toornman. “You start working on that a year in advance, and when you then reach out to those suppliers and ask them to change what they do, how they do it and when they do it, they are aware of why you’re doing it because it helps them satisfy their opportunities or the needs they’re expressing to you.”
It’s all about teamwork and collaboration for AGCO. Thanks to this approach, when the initial European regions inbound 4PL freight initiative roll-out occurred, only 10 suppliers out of 1,550 proved resistant. Toornman says: “We were very happy with that because we focused on how to get supplier participation and compliance to the level we needed beforehand.”
It worked so well because AGCO’s ideas benefitted the suppliers too. Under the previous logistical infrastructure, a supplier would have an AGCO truck show up at each factory door, but it could be 20+ different trucks over the course of a week. Now, it’s one truck per day picking up for 20+ factories across the globe
This mutually beneficial type of partnership stems from AGCO’s core values, all of which embrace ethical working – which, again, extends to suppliers.
“In our supplier performance manual, there is an expectation and understanding of what it means to do business with AGCO, to grow your business alongside us, and what happens if you are not in line with our values,” Toornman explains. “Transparency, integrity, respect – basic things that are just part of doing business with AGCO and how our team members operate when engaging both internally and externally. To us, it doesn’t matter much who you’re engaging with – it’s the way you do that thing, the way you say the thing, and how you deliver on your commitments.”
Technology helps AGCO interact with every faction of the supply chain, from freight management tracking through the company’s performance measurement system, to openly sharing of AGCO’s own performance statistics. Whether purchasing, quality, logistics, materials, or engineering, there is one transparent, standardized way that supplier performance is evaluated and made easily visible both internally and externally. AGCO has seen great improvements in its direct material suppliers as well as its freight carrier performance over the past few years as the business has started to measure, track, and drive delivery performance improvements.
“The freight carrier performance is something that we have truly realized the benefits of taking a global approach to evaluation and awarding,” says Toornman. “A great example of this is our partner, ACL (American Container Lines) who handles our transatlantic shipments of our agricultural equipment. We have seen great level of ongoing and sustained performance from ACL over the past years. AGCO provides a consistent set of expectations, this makes it more efficient and subsequently effective for our suppliers to meet or in the case of ACL, exceed our overall performance expectations.
“ACL has set high service level standards during their seven-year partnership with AGCO and raised the bar on expectations of what a freight partner should look like. ACL has improved AGCO's supply chain through expedited product release, export clearance services and special project support in addition to services such as loading/off-loading, tire mounting, washing and storage.”
Dustin Barney, AGCO N.A. Materials Management Director at AGCO, adds: “With its latest fourth generation ConRo vessels, ACL provides a solution that is faster and more fuel efficient while providing increased space and easier loading and offloading. Investing in its equipment and technology while remaining focused on value added services for the customer is what makes ACL a great partner for AGCO.”
AGCO is able to share all of this gathered information cross-functionally, Toornman says. “A lot of times some of the supplier engineering team members or sales engineers may not know how their company is actually doing in terms of quality, purchasing, or logistical performance. At the same time, on our side, if we have an engineer developing a new product with a supplier that has terrible quality or delivery, we don’t want that.”
The main advantage of this visibility is that it makes both the suppliers and AGCO itself work harder and forge stronger relationships, both internally, at every level, and externally. This is all part of AGCO’s Supply Chain digitalization initiative, which focusses on elements of what Toornman calls ‘truly innovative manufacturing’, utilizing such advancements as Google Glass and IoT. “We have many companies wanting to come and see our sites’ digitalization levels; this is occurring across global level we share what we have done, how we have done, and also learn from these visits,” says Toornman.
“All those different elements have what we call a ‘center of excellence’ that develops them on behalf of the rest of the global organization,” he explains. “Our most mature facilities within a particular activity develop, do discovery work, perform the initial discussions, and conduct he initial internal pilots – whilst sharing the results – on a specific digitalization element before the global roll-out process starts.”
A great example of this is how AGCO develops its returnable container projects. Three years ago, the company was looking to develop returnable packaging solutions between the Chinese and European operations. It piloted a concept with a company named Goodpack Ltd, which supported AGCO with creative options that proved to be very successful led out of its Changzhou, China site.
The concept was to rent the large steel containers from Goodpack’s China operations and utilize the containers for shipments between the Changzhou facility and two European sites. Goodpack would then pick up the empty containers in France and Finland.
“We saw an 18% improvement in our sea container density, significant improvements in product quality, major waste reduction, and container unloading efficiencies,” Toornman says. “Within six months of the pilot’s very successful start, we were able then to develop and implement similar solutions with our products shipping from Brasil into Mexico and Argentina.
“AGCO is realizing a huge level of value and return from our relationship with Goodpack,” he continues. “This type of approach only works if a company has a strongly aligned communication methodology and global network of relationships. This enables much more to get done as we do not see solutions to the same opportunity being developed independently. Our leadership teams talk on a regular basis on our global logistics alignment calls; these sessions are essentially a status update for various initiatives that are ongoing across the AGCO globe.”
The work AGCO is doing to increase its digital capabilities is viewed by Toornman as an “opportunity to differentiate ourselves from what our competition is doing at a much more intimate level,” because customers spend a lot of hours in the machines AGCO sells, and when the process of acquiring the high-quality item is as simple as it can be, brand loyalty is born.
“Sometimes a customer gets so excited about their new tractor or combine coming up the line that they want to visit the factory,” Toornman says. “We want that too. Our path is to be number one in customer-perceived quality, and with that, we’re on a very strong journey and making the best in class product inroads.”
Purchasing decisions tend to be based on recent experience in this industry; from a sales and marketing perspective, one may be selling a product, but from the point of view of service and after-market support, one is maintaining customer repurchase and loyalty. AGCO aims to create a proactive customer experience that includes preventative maintenance and limiting downtime for the customer.
“By proactively ensuring the customer is not having an unplanned breakdown, we’re able to maintain a stronger level of repurchase loyalty because the customer’s recent experience is positive,” Toornman says. “We manage the complexity of customer need through innovation, and we’re more agile and adaptable than bigger companies.
“We are really proud of what we’re doing,” he concludes, “but at the same time we have a long way still to go in our journey to supply chain excellence.”