AGCO’s Material Management: An Agile, Flexible and Globally Integrated System
AGCO started its digitalization journey back in 2012 with the goal of disrupting the traditional way of managing the global supply chain.
AGCO’s Material Management: An Agile, Flexible and Globally Integrated SystemAGCO started its digitalization journey back in 2012 with the goal of disrupting the traditional way of managing the global supply chain.
In 2012, AGCO began its material management transformation with the goal to become more flexible, adaptable, standardized and effective. As a result, AGCO started changing its business practices and operating culture. Instead of being reactive, the company shifted to a proactive model, planning in advance to prevent shortages of supplies in its factories globally.
Greg Toornman, Vice President of Global Materials Logistics and Demand Planning at AGCO, shares how AGCO evolved its supply chain to be more organizationally effective. You will also learn what factors led AGCO to choose its new supply chain strategy and how simplicity translates to higher effectiveness.
Adapting AGCO’s supply chain to a changing world
When the transformation process first started in 2012, AGCO evaluated two sets of factors. The first set were the macro factors, such as globalization, tariffs, market volatility, supply chain complexity and competition growth. AGCO’s global supply network reevaluated the elements that could be improved to become more agile, flexible, and integrated across the global supply network. These factors were essentially outside of AGCO’s control and would essentially affect all players in the global agriculture market.
The second set of factors that were assessed were the micro factors. At the time, AGCO was growing rapidly, and the company called for an integration of all sites and brands to be more effective and efficient while reducing costs. At the same time, AGCO was shifting to a global product platform strategy, which would allow the company to build AGCO products globally using common designs and components.
To accomplish this key strategic initiative, from a supply chain perspective, AGCO needed to simplify its processes and procedures globally. Moreover, AGCO needed to have data and channel standardization all around the world. AGCO’s simplicity and standardization would deliver a competitive advantage in the market to its suppliers.
Key elements involved in AGCO’s transformation
Greg described four main elements required to achieve the transformation process.
- Digital tools: Digitalization provides the team with integrated data in one platform. Moreover, these tools have allowed AGCO to manage complexity and set high expectations.
- Organizational structure: All regions and members of these teams are aligned and integrated while striving to achieve common objectives. TA collaborative work process allows us to work together to have the right supply to match the demand.
- Processes: Running the day-to-day tasks is important to the team. AGCO has changed the way we evaluate the performance from KPIs to an execution-oriented culture.
- Standardization: The standardization of the tools and processes that we engage with our suppliers with on a global basis enables AGCO to be a preferred customer of choice
Flexible, globally digitized, standardized & integrated supply network
In 2012, the company started its digitalization journey with the goal of disrupting the traditional way of managing the global supply chain. As a result, Greg’s team has the tools to work more efficiently, increase productivity and execute tasks much faster. As a result of these operating improvements the team can focus on driving operating performance levels. For instance, one source of integrated transparent data allows everybody to act rapidly. All data is visible to all sites, so if someone from Finland needs access to the dataset, it is available in 27 languages globally.
“The easier it is for our 3,150 suppliers to understand our requirements, the more time they can spend supporting our needs,” mentions Greg.
Digitalization has also brought simplicity and data integration to Greg’s team. Once an issue is identified, the tool escalates it, so the teams are able to focus their resources on priorities. Innovative technologies have provided AGCO with data and data streams to formulate a solution to deliver.
“Innovation in technology enables us to attack things faster and provides us more time to solve the problems,” adds Greg.
Predicting lockdowns before they happen
New technologies have enabled AGCO to set itself apart from its peers. By utilizing risk management tools, when COVID-19 was spreading, AGCO was able to predict to the postal code level which areas would be likely to be affected by governmental restrictions and lockdowns. How did they did do it? AGCO took the risk management data, matched it with COVID-19 case information from the Centers for Disease Control and Prevention and John Hopkins and developed a model.
With this information, AGCO could predict with surgical accuracy which postal code was going to have a problem in seven days. From a predictability and time management standpoint, AGCO was able to make decisions seven to 10 days sooner than its competition. The key to all of this success when COVID-19 first appeared was that AGCO’s team was integrated and acted proactively. They worked together to be able to pull ahead materials and supply when they needed to.
Similarly, when COVID-19 first started appearing back in December 2019, the AGCO team started to perform risk assessments on their China facilities and other locations. With potential shutdowns looming throughout China, AGCO’s team started to evaluate their personal protective equipment (PPE) needs. As a result, the very agile and integrated AGCO supply chain was able to deliver PPE to their Chinese facilities as China was starting to come back from the lockdown in early February.
Learning from COVID-19 times
Greg says in order to have a successful supply chain network, you should ask a few different questions. One would be at the supplier level. Would the supplier be able to reproduce a process in difficult scenarios? How much time would it take AGCO and the supplier to reproduce that process? To answer these questions, AGCO needs to have a business continuity plan. According to IBM, a business continuity plan (BCP) is a document that outlines how a business will continue to operate during an unplanned disruption in service . AGCO has asked its suppliers to prepare this type of plan. So if the unthinkable happens, they would already have the capacity to respond promptly, Greg says. This initiative is already in the works at AGCO, and it is called A.I.R., which stands for agility, innovation, and resiliency.
During COVID-19 times, AGCO material planers had a script that provided them guidance for engaging with suppliers. The information on this script was previously developed by gathering information from the suppliers with scenario analysis questions. As a result, AGCO has been able to identify issues many weeks in advance, preventing shortages. AGCO has continued on with this process of analyzing scenarios and creating solutions in advance.
Consequently, AGCO’s on time in full delivery performance has risen from 82% to 86% during 2020. Similarly, AGCO’s shortages have decreased by 34%, which is 9,300 less shortages YTD through September 2020 than in 2019, states Greg. This key performance indicator has increased AGCO’s performance during a very challenging time, meaning that customer orders are delivered on time. The key to this system is being able to predict what would happen. This approach enables AGCO to have more time to prevent any potential issue or to prepare the solution.
The factors that make AGCO successful during COVID-19 times are the result of advanced business continuity planning with suppliers and ongoing strategic initiatives. But the most important factor, according to Greg, is the team. The regional supply leaders that we have across our global network have led our teams to become a competitive advantage in the marketplace. Our regional supply leadership team members include Kathy Zhang in China, Buelent Ileri in EME, Evandro Subires in South America, and Rafael Saccardi in North America are all suppliers and customers to each other This operating culture has developed something very special and powerful for AGCO.The people at AGCO work towards a goal, and the AGCO team works together like a family. The secret of AGCO’s supply chain success is teamwork paired with the innovative digital tools that deliver simplicity to AGCO’s suppliers and teams around the world.
To learn more about AGCO’s supply chain, visit: https://www.agcocorp.com/suppliers/supply-chain-sustainability.html
Connect with Greg Toornman on LinkedIn.
IBM. Adapt and Respond to Risks with a Business Continuity Plan (BCP). 2019. https://www.ibm.com/services/business-continuity/plan. Accessed November 4, 2020.