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How a Maker of Agricultural Equipment Transformed Its Inbound Supply Chain | 2019-11-11

AGCO’s goal was nothing less than radical integration of its inbound supply chain, supplier relations and factory flows. A collaboration with 4flow helped to launch the “Smart Logistics” initiative.

In a global manufacturing supply chain, the quality of what goes out to the customer is only as good as what comes into the factory.

That truism was clearly top of mind for AGCO, a manufacturer of agricultural equipment that was formed in 1990, following a management buyout of Deutz-Allis from KHD. Today, it sells product around the world under a variety of brands, including Challenger, Fendt, Massey Ferguson and Valtra.

In 2012, AGCO announced a new strategic vision that revolved around two “foundational criteria”: its inbound supply chain, and internal factory flows. The goal was to create a globally integrated network for all inbound transportation, as well as efficient B2B information exchange with suppliers, within five years.

Greg Toornman, global vice president of logistics and materials management, was given the job of executing on that vision. In what the company calls a “bottom-up development process,” all regions in which AGCO operates were “invited” to participate.

AGCO’s software partner in what was termed the Smart Logistics Initiative was 4flow, a provider of apps for optimizing logistics and supply-chain management. Together they set out to create a fully integrated inbound supply chain marked by network transparency, improved performance and savings on transportation costs.

The undertaking faced a highly complex inbound supply chain, consisting of more than 4,100 dealers and distribution partners, 54 production plants, 36 spare parts centers, more than 3,200 material suppliers and some 300,000 part numbers. It involved the movement of more than 240,000 shipments each year, over approximately 27,500 transportation lanes.

The first major challenge involved integrating AGCO’s various sister companies on a local, regional and global basis. Adding to the complexity were an ever-expanding supplier base, the remote location of some production sites, a variety of IT architectures and multiple non-standardized business processes. In Europe alone, AGCO had 10 plants and 10 spare parts locations, each serving as a regional hub while also having to respond to local conditions.

Mapping Material Flows

All of this required AGCO first to map its worldwide material flows, highlighting the intricate series of relationships between plants and suppliers. The company was concerned that growing complexity within that network could result in “devastating repercussions” to multiple plants at once. “Full transparency and high information flow are essential to ensure security of material supply and execution,” it says.

The agricultural commodities market is extremely volatile, subject to wide swings in pricing and demand. During a time of rising prices, AGCO notes, the European tractor market saw cumulative growth of nearly 30 percent, soon followed by market reductions of more than 20 percent. Factors contributing to chronic unpredictability include political changes, international sanctions, currency fluctuations, extreme climatic conditions and wide variances in yield levels.

To cope with persistent volatility, AGCO sought to create an inbound supply chain that allowed for short-term adjustments to capacity. It also needed to shrink logistics response time in line with changing sales figures, all the while continuing to boost the performance of its factories.

To carry out those ambitious goals, AGCO created the Smart Logistics initiative (mirroring its simultaneous transformation of production sites into Smart Factories). A five-year strategic roadmap consisted of seven distinct areas of focus: cost avoidance, cost reduction, network synergies, process standardization, network design, performance optimization and partner collaboration.

Choosing a Partner

Central to the effort was the designation of a neutral partner to provide software for supply-chain management. AGCO says it settled on 4flow because of the latter’s “total neutrality and innovative planning and management expertise,” as well as its cultural fit with the client.

The partnership called for a complete rethinking by AGCO and 4flow of the company’s IT systems in order to better integrate with suppliers and logistics service providers (LSPs). AGCO’s existing supply chain had been plagued by communication gaps and functional silos, the result of isolated and uncoordinated IT implementations throughout the organization.

4flow contributed an integrated transportation management system (ITMS), which allowed AGCO to optimize inbound material flow in real time, based on actual requirements. Supporting the system was the AGCO Performance Excellence (APEX) portal, enabling collaboration with partners under a globally standardized communications protocol. In addition, AGCO feeds extensive risk data directly into APEX and ITMS, allowing it to instantly visualize the various factors that impact its inbound supply chain globally — and take action accordingly.

AGCO’s Supply Chain Risk Management initiative became an essential tool for identifying risk factors in the inbound supply chain, such as a supplier’s financial stability. The company was intent on mitigating the inherent risk in depending heavily on a small number of selected suppliers.

By integrating the risk-management effort into the Smart Logistics Initiative, AGCO could track the key performance indicators that impact supplier service levels, such as financial indicators, sanctions lists, strikes and issues related to sustainability and compliance. Weather and environmental factors are also taken into account, with information sought from multiple tiers of suppliers. Self-learning algorithms and “big-data” analytics help AGCO to make sense of that mass of data.

Implementation of the AGCO Smart Logistics initiative began with a rollout across the company’s European operations. That was followed by China, North America and South America. Today, the company reports, the AGCO network relies on big data to manage more than 20,000 transportation orders each month, connecting in excess of 185 carriers, 3,000 supplier locations and 38 AGCO sites.

Results to date include reductions of approximately 20 percent in inbound transportation costs and 24 percent in inventories, along with a 25-percent improvement in network performance on a global basis.

“The Smart Logistics concept is more than the sum of its parts,” the company says. “In an increasingly competitive business environment, AGCO’s global supply-chain integration initiative is a sustainable strategic advantage in the global marketplace.”

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