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Supply Chain Transformation around the World
By Greg Toornman, VP, Global Materials, Logistics, and Freight Management, AGCO Corporation
With more than 20,000 employees at 54 manufacturing facilities and 32 after-sales locations in six continents, AGCO is one of the world’s largest manufacturers and distributors of agricultural equipment. AGCO’s range of products from tractors and combine harvesters to grain and seed storage, and handling systems including well-known brands such as Challenger, Massey Ferguson, Fendt, Valtra, and GSI. Since its inception in 1990, AGCO Corporation has continued to enhance its portfolio through acquisitions, making the AGCO global supply chain particularly complex.
In order to streamline and future-proof its existing logistics operations, AGCO collaborated with 4flow, a neutral partner for logistics software, optimization, and management, to successfully develop and implement the award-winning AGCO Smart Logistics initiative. In the space of five years, AGCO and 4flow utilized proactive and dynamic network management to create a single, fully-integrated global supply chain with siganificant improvements in network transparency, performance, and transportation cost savings.
The impetus for digitization
AGCO was not immune to the challenges of an increasingly complex global market, especially on account of the company’s broad exposure with its portfolio of more than five brand names. AGCO’s multi-brand strategy and long road of acquisitions created an increasingly complex series of logistics challenges–the growing levels of product complexity driven by local, regional, and global product requirements in addition to a wide spectrum of parts, resulted in increasing levels of complexity across the AGCO global network.
A historical decentralized sourcing approach, coupled with a wide range of logistics maturity across the global supply chain, resulted in a number of major opportunities including transparency, standardization, tools, systems, process, performance levels, and network economies of scale. Another contributing factor was the seasonal nature of the agricultural equipment market and the resulting high volatility.
These complexities, coupled with the rapid growth across the AGCO global network, signaled that a long-term strategic solution was required to drive sustainable global performance improvement levels, drive out significant cost, and increase transparency levels, while enabling a competitive advantage in an increasingly complex global market.
The Smart Logistics innovation roadmap
The company identified supply chain management as a critical success factor in the challenging market of agricultural equipment manufacturing. To ensure an increasing level of sustainable performance across its global supply chain, in 2013 AGCO developed its first five-year strategic roadmap for Global Logistics that was titled “Smart Logistics”. The Smart Logistics strategic roadmap consisted of six phases: cost avoidance, cost reduction, network synergies, network design, process cooperation, and partner collaboration.
The Smart Logistics concept is more than the sum of its parts; in an increasingly competitive business environment, AGCO’s global supply chain integration initiative is a sustainable strategic advantage in the global market place
4flow as collaborative neutral partner
Starting in 2012, AGCO sought alternative cooperation arrangements with logistics partners within the scope of its innovation roadmap: the company wanted to create a hybrid team of AGCO representatives and an embedded, best-in-class, fully neutral 4PL that would act as an internal, service-oriented partner in the context of the Smart Logistics endeavor. In 2013, AGCO selected 4flow as its primary collaboration partner in this endeavor and tasked them with building a hybrid operating model, the objective of which was to increase transparency, improve supply chain performance, and further reduce costs by means of an integrated transportation management system (iTMS) and network consolidation. 4flow’s overall concept for cost reduction and performance improvement required no additional IT investment on AGCO’s part, and 4flow also assured quick implementation of its proprietary iTMS.
From process pilot to global rollout
AGCO and 4flow’s objective was clear: digitize and optimize global material flows in order to increase transparency and drive significant network performance improvements, while reducing transportation costs and inventories.
In Q3 of 2013 the implementation of AGCO Smart Logistics began. This included the rollout of a completely new process, organization, and integrated transportation management system across all of AGCO’s European operations, including 1,500+ supplier shipping sites and 18 AGCO destinations. The pilot’s results were extremely positive through the rapid implementation of the integrated transportation management and optimization of the global network in parallel, and AGCO successfully reduced transportation costs by more than 25 percent, reduced on hand and in transit inventories, and reduced external warehousing costs. AGCO also significantly reduced CO2 emissions through optimized transportation utilization. On time delivery performance levels increased by 22 percent, while at the same time enabling a significant improvement in the receiving dock productivity levels resulting from the balanced inbound workload.
AGCO and 4flow’s rollout of the Smart Logistics initiative in Europe was completed in mid-2015, with China following in 2017, North America in early 2018, and South America scheduled for completion in late 2018. The AGCO network now leverages big data to handle monthly volumes of over 20,000 transportation orders by connecting more than 185+ carriers, 3,000+ supplier locations, and 38 AGCO locations. The effort has also resulted in the implementation of 755+ cost reduction initiatives.
One key additional process innovation that was realized as part of the iTMS implementation was the convergence of the supplier forecasting & ordering process (SAP Supplier Network Collaboration, aka SNC) data and the packaging details (dimensional and weight) into the iTMS. This enables AGCO to provide a forward-looking forecast of our freight requirement with its carries on a lane by-lane basis.
Reaping what you sow
As a result of the initial 5-year Logistics Strategy and cooperation with 4flow, AGCO is positioned to operate complex networks much more efficiently and cost-effectively, while further promoting supply chain convergence.
The results of the Smart Logistics concept speak for themselves: AGCO and 4flow’s efforts have reduced AGCO’s total inbound transportation costs by 28 percent, reduced inventories by 24 percent, and improved network performance by 25 percent. In 2016, AGCO’s European region won the prestigious German BVL award for supply chain innovation, and then, in 2017 won the European Logistics award for supply chain innovation.
Only the beginning
The Smart Logistics concept is more than the sum of its parts; in an increasingly competitive business environment, AGCO’s global supply chain integration initiative is a sustainable strategic advantage in the global market place.