The dialog with manufacturers reveals a long list of benefits that are associated with early-order programs. Following is a summary of what they told Farm Equipment (as one might expect, the list is longer for the manufacturers):
Farmers: Ensures the options they need, provides the only protection for in-season availability and delivers a cost savings by having the confidence that they've made the best deal possible.
Dealers: Reduces stock inventory and provides a degree of assurance of delivery when the customers need it.
Manufacturers: Adjusts production schedules and capacities, reduces risk, reduces inventory and work-in-progress costs, allows better sourcing decisions and determines which global markets are most attractive to pursue.
The current lack of equipment, plus the increased complexity and options that manufacturers have built into their equipment, is playing into the hands of manufacturers who want to beat the "early-order" drum. The sentiment that "if they don't order it now, they won't be able to get it later," is a common mantra among manufacturers, something they say holds true for both dealers and their customers. Still, they say an "early-order" won't be early enough in this climate.
"The shortage of equipment is definitely making it necessary for dealers and farmers to commit early to reserve production capacity and time," says Andy Randle, Ace Pump Corp., which has used an early-order concept for 34 years.
Adds Les Hulicsko, owner of Rite Way Mfg., "With the tight supply of equipment, dealers realize that unless they order their equipment early, they just won't be able to buy it on the spot market, or they will have to pay an extremely high price for it."
Ed Barry, cash crop segment leader, New Holland puts it in these simple terms: "Customers must place retail orders earlier than normal in order to receive their product in time for seeding, and harvest. It is a supply and demand issue."
Agric-Bemvig's Ferran Meinhardt says the changing makeup of manufacturers today has necessitated a movement toward early-order. With investors taking the place of "real manufacturers," financials are the big thing. "As production programs create a huge risk for financial trouble, early-orders and purchase programs from customers are a must to allow manufacturers to adjust production programs for a lower financial risk. Farmers and dealers will have to follow."
According to Ivan Bianchi, Berti, early-order programs are all about bringing control back to the manufacturer. While the cost of raw materials and energy is out of manufacturers' control, he says "the early-order campaign has become a decisive factor for efficient scheduling and cost control. All manufacturers are encouraging early-order response. The more this trend becomes well-established, the less room remains for buyers who did not respond in time. Therefore, all orders placed in-season are dramatically delayed."
A New World Order
There's wide agreement among farm equipment manufacturers that the industry has entered a new world order when it comes to early-ordering. While the majors like Case IH and AGCO strongly endorse the concept (and have the most to gain), the smaller firms would like to see it stick, too.
"The continued sophistication of our customer base, with regard to their business approach and controls, has been moving the market increasingly toward planned purchases," says Todd Stucke, AGCO. "The limited availability of products for the professional ag producer will increase this trend for 2008 and beyond. This is the new norm for agricultural equipment."
Many agree that it's the new modus operandi, at least for the foreseeable future. Kongskilde's Jim Allison notes that profitable farming makes planning on major investments — even 2 to 3 years down the road — more viable. "In a competitive market with margins being squeezed, both manufacturers and dealers will plan their business around the early-order concept with the aim to lessen the risk of financing unsold inventory."
To Kuhn North America's Frank O'Brien, the early-order practice will eventually define world-class manufacturing. "The manufacturers that make decisions to invest in products and facilities and maximize manufacturing efficiency will be the ones who continue to grow in this increasing competitive farm equipment market," he says. "With machines becoming larger, more complex and more adapted to customers' individual preferences or needs, more component sourcing and manufacturing lead times are required.
"The practice of early or advance ordering is common and accepted by dealers and retail customers, for certain products, such as planters. The practice can be very different with other products, but will undoubtedly evolve toward more planning and early commitment from both the dealer and retail customers."
Early-Order? Get Real
That's not to say there aren't some naysayers. John Biggins, director of sales and marketing, McHale Engineering Ltd., says farmer-placed early-orders are a joke. "They'll still wait until the last minute. It's up to manufacturers and distributors to try and plan this — but it's a mine field. I don't think farmers will ever get into the early buying concept."
Roto-Mix doesn't use early-order programs, says Allin Butcher, director of sales. "The main issue with early-order or special order programs is that they become a tool that dealers and farmers use to get additional discounts. The other problem this creates is dealers will not order stock units without some type of program, as the inline competing dealer will have a price advantage if they wait for the program."
While the large corporation farms order well in advance of need, Butcher doesn't believe farmers will change to early-order programs as long as they are family owned and operated.
Another problem is that the early-order train loses steam as soon as equipment can be found. Brillion's Mike Irish says that while some farmers realize supplies will be tight this fall and are buying now, dealers still don't want to get stuck with a lot of high priced inventory and have been cautious about ordering.
This spring, he was amazed by how many producers waited until the last minute to buy equipment. "Thanks to long-term strategic planning, we were able to build additional inventory just in case there was a rush at the end of the season. Thank goodness there was."
Customer-Driven, Not Dealer-Driven
While DuraTech has had a dealer early-order program for many years, Al Goehring is seeing more farmers showing interest in early-ordering, due to the savings they can achieve and ensuring availability. "They can be assured of the product when they want it. In that way, the day of impulse buying may be at its end."