For manufacturers to replace the farm equipment industry's traditional "just-in-case" approach of maintaining large inventories for retail with the "just-in-time" model of little or no inventory represents a major shift in how dealers and customers view their businesses.
A lot of re-educating, willingness and acceptance are the order of the day. From all appearances, at least in the case of the majors, this task has been assigned to the retailers. Manufacturers believe dealers' focus on pre-selling and early ordering is the key.
"We need to order equipment at least a year ahead to fill the companies' production slots," says Jeff Suchomski, Suchomski Equipment, Pinckneyville, Ill. "They [suppliers] want no part of keeping any inventory and are actually giving incentives to go straight from factory to retail — no floor plan. I think that's the majors' dream — no inventory, no floor plan, a cash-and-carry business."
While Suchomski's view is one take on the new supplier-retailer model that's emerging, many of his counterparts agree that this is precisely what's in the wind.
Suppliers, of course, see the new manufacturing-retailing model as being a win-win-win for everyone involved.
Jim Walker, vice president of Case IH's ag business for North America, clearly sees the evolving system as benefiting retailers and customers as well as the manufacturer.
"Long term, we believe a larger share of the market will move in the direction of early order because it provides benefits for the customer, dealer and our company.
"First and foremost, it reduces costs and complexity within the system. As a manufacturer, we can better plan our production at the plant and reduce inventory costs, as well as manage risk because we know what the coming year's business will look like," he explains.
"In the same way, dealers reduce their risk and inventory. Customers have the opportunity to preplan their business, save money and precisely spec out the machine to match their operation's needs."
Balancing Supply & Demand
In an ideal world of supply and demand, everything is balanced. Manufacturers build only what the market will bear and profit margins abound. The catchall term being used to describe this balancing act is "lean manufacturing."
The concept is rooted in "just-in-time" and smart automation practices that have been developed and perfected through the Toyota Production System as well as other practices like Kanban.
As adherents describe it, "If production flows perfectly, then there is no inventory. If customer-valued features are the only ones produced, then product design is simplified and only expended on features that customers value."
While more and more farm equipment manufacturers are moving toward "lean manufacturing," few have been more aggressive about smoothing out production schedules that have traditionally centered around agricultural cycles as John Deere.
In the past, the generally accepted business model for heavy equipment manufacturers was based on a "build-to-forecast" philosophy, says Ken Golden, director of strategic public relations for Deere & Co. "Therefore, companies like Deere had significant dollars tied up in assets and inventories that could be better used for investment in research and development, growth and job opportunities.
"Deere's focus on the customer is meant to understand what features help John Deere customers be more productive and profitable. The company then can design technology into its machines that will deliver these features. Deere has invested to meet the demands of the customer, while significantly changing its operations to a 'build-to-demand' operating model by investing in factory efficiency," says Golden.
Deere, in fact, recently invested $140 million in its Waterloo, Iowa, tractor factory that reduced floor space by some 2 million square feet and helped achieve major reductions in manufacturing cost, cycle time and inventory levels.
Similar efforts, though smaller in scale, are progressing or have been completed at other John Deere factories worldwide. The company is also accelerating its implementation of the Deere Production System (DPS) to make its factories even more efficient and keep production rates in step with retail-order patterns.
Golden adds, "Because Deere has made these significant changes, the company has been successful in moving from a build-to-forecast business model to one that is based on build-to-demand concepts. With significant investments, we have adopted lean manufacturing and created flexibility in building products, allowing the company to meet the market demand for equipment, but not exceed it."
Like Case IH, John Deere believes that its retailers will ultimately benefit as a result of the company's change in philosophy.
"As the company has changed its business model, so has the dealer," says Golden. "Dealers are sophisticated independent businessmen and women who understand that true economic value will be created by changing the traditional ways of build-to-forecast and adopting the build-to-demand philosophy and resulting lower level of field inventories."