Bob Trebilcock: Welcome to The Rebound where we'll explore the issues facing supply chain managers as our industry gets back up and running in a post-COVID world. This podcast is hosted by Abe Eshkenazi, CEO of The Association For Supply Chain Management, and Bob Trebilcock, editorial director of Supply Chain Management Review. Remember that Abe and Bob welcome your comments. Now, to today's episode.
Bob: Hello, and welcome to today's segment of The Rebound. What AGCO got right about COVID. I'm Bob Trebilcock.
Abe Eshkenazi: I'm Abe Eshkenazi.
Bob: Joining us today is Greg Toornman. Greg is vice president of Global Materials Logistics and Demand Planning for AGCO. One of the world's leading manufacturers of agricultural equipment. Now anybody looking for a manufacturer that figured out how to navigate its way through the COVID pandemic need look no further than AGCO. With an early detection system in place to highlight potential supply chain disruptions, AGCO was able to keep production rolling even with suppliers and hard-hit areas in China and Italy. With that, I'm going to let Abe get us started.
Abe: Thanks, Bob. Greg, Bob gave us a little bit of insight into echo. Why don't you give us a little bit more tell us about who echo is some of the territories and products that you service and a little bit more so for our listeners.
Greg: That's a common question I get at most conferences when I'm speaking to them. I always ask the audience, "Who knows about AGCO?" Most people do not but they knew our brands. I'll give it a little bit of a background, and we were born in 1990. We were growing through acquisition and along the way, we've acquired 54 companies in the last, almost 30 years. In 2019 we had $9 billion in US sales and we're the third largest agricultural manufacturer on the planet.
We are the largest agriculture-only producer. We have around 20,000 employees and why most people in the US or North America may not know about AGCO is 77% of our businesses outside the US. We have five main brands: Massey Ferguson which most people in the US would recognize. Challenger, which is sold through the Caterpillar distribution network. Valtra, which is a Scandinavian or Brazilian brand. Fendt, which is what we consider the top of the line tractor in terms of internet innovation technology in the world and GSI. GSI is our grain and storage business unit.
With that, you may think of grain silos or protein feeding systems that you'd see out in the countryside. Aggregately, we have 41 manufacturing facilities across the globe and 37 distribution centers supporting our clients across the globe with our aftermarkets. Supporting us is about 3,150 direct material suppliers. We're currently going through what we call our third leadership transition. When I say third our first leadership the starting founders of our company Bob Ratliff and company. They started the company that focused on top-line growth.
In came Martin Richenhagen as our second CEO, with a focus on functional excellence and how is it that we start to drive bottom-line margins? We're now entering our third leadership, Eric Hansotia, coming in, and with that, organizational optimization is at the forefront of what we're trying to do. Each three of these leadership sessions have enabled AGCO to continue to build upon in a sustainable manner of growing our business.
Bob: Great. Thanks for that. I'm going to step in here for a second. We published in Supply Chain Management Review, an article about some of the things you did at AGCO. Before we talk about actual COVID, I know that risk management is something that you folks take pretty seriously. One of the things you do, and I think it played a role in your response to COVID, were these weekly supply-side calls. I guess you've been doing them for about eight years. Can you tell us a little bit about that?
Greg: This goes back to about 2012 when we were putting together what we call our growth global materials management transformation strategy. With that, all four of our regions came together and did a where are we at today, where do you want to be in five years when we're going to be great? And along that path are a whole bunch of different workstreams and the way to keep work streams rolling forward is through solid communication together with a strong program management.
One of the elements that we utilized was these weekly supply calls, where all four regions would be sharing status on the workstreams that they're leading and driving. Secondly, how their supply and demand strains are looking. Thirdly, where are the potential hot buttons that we need to be on the lookout for? As part of that, risk management was an area that we said we need to expand upon in a pretty aggressive manner.
Why? Because within supply chain, time is one of the most critical resources that you can have. By identifying risks early on or ideally, potentially before they happen, enables you as a team to work time more effectively than when someone calls you and tells you that, "Hey, you've got a supplier problem here. Something happened two weeks ago." With that, we've developed together with a partner of ours by the name of risk methods, very aggressive risk management policy and process that maps all of our suppliers looking at the financial status, how are they doing, where risks are.
Maybe, more importantly, it grabs that social media content that's out there on the web or different ways and brings that to us in the form of alerts. That could be things like hold "Oh, there's a whole bunch of people concerned about something happening in Wuhan." A few weeks later, we get some more words about it. What we were able to do with that was hear about what was happening in China in, let's call it, in late December that grew to, let's call it a global discussion and about mid-January.
At that point in time, we said, "Ladies and gentlemen, we think we have a challenge here, that's going to be quite large and we need to be taking immediate action. Our risk management policy and practices enabled us to identify this within China in December and then bring it to the Global Group in mid-January, later in the third week of January.
Abe: Greg, give me a little bit more information. We get, as supply chain professionals, data almost on a continual basis. How did you discern what was the appropriate data signals that were driving you to action? More importantly, who was involved in the evaluation of the information? One of the things that we often hear about from companies is that having supply chain professionals with real-world experience and the ability to understand the problem before they apply a solution is a critical aspect of an effective supply chain.
Who was involved in your evaluation process and then, how much did you communicate out after that? This was internal communications. How much did you involve your vendors? Give me a sense of how you tackled that sort of challenge?
Greg: Sure. The way it typically works is when the initial alerts, we'll call it, come up, they're assessed by the local folks on the ground. In this particular case, it was one of our purchasing team members who received the alert on one of his suppliers in the Wuhan area that there was something going on. He digests a little bit. Then he communicated up to his boss. Later on into December as things started to get more, let's call it, a lot more media content, he as the boss escalated it up to the purchasing director for the region, which then brought the content to the January meeting, in the middle of January.
At about the same time as we do each year, we're getting ready to wrap down the China supply chain because of Chinese New Year and Spring Festival, which typically for us is about a four-week period, two weeks of shutdown, and two weeks of rewrap that has a structured set of activities that happen. The individuals brought this to the call the Global team's attention in the middle of January, the question was asked, "What impact will this have on the restart?" Immediately, the question started to happen within China.
About two days later, on or about, I think it was the 17th to the 21st, we got some really clear insight that lockdowns were going to be coming, that the expected restart was going to have this that and the other type of government regulations or requirements or the restart. We asked the question, "What does that mean to us and to our supply base?" One of the very first things that came up was that the PPE, personal protective equipment. When we started to basically understand what our suppliers' readiness would be when they would be able to restart the answer was pretty, "We have a problem here in Houston, we need to act." The following day, the call for support went out to the North America, South America, and European regions who immediately started to aggregate PPE for what at the time was potential need in China. Fast forward, three or four days later on the ground in China, shutdown is announced February 10th, as far as a restart date is what they were planning to have from there. The restrictions on restarts would be defined at a time. Many people were coming back from Chinese New Year migration, which is as most people know or many people know is a huge migration of people back home. Then back to the working areas. We said, "Wow, that's going to be quite challenging."
Bob: Greg, this is Bob Trebilcock. One of the things in terms of amassing PPE, for instance, I understood that you amassed a PPP in Chicago and came up with critical components and alternative logistics plans. How did you adapt to the new restrictions in China when production resumed?
Greg: We didn't react when production resumed, Bob. It was weeks before. It was, "How will we restart? What do we need to have for our team members?" Our team members in China were relaying information to us and the rest of the world was taking action to support a successful restart. From there, once we understood what our restart would look like based on the February 10th restart, authorization from there, the level of people that we would have, the industrial output that we would be able to attend over the following, call it four weeks.
Our initial plan was that we would start at end of 15% in that first week in February 10th, then by early March to mid-March, we'd be back up to a 100%. At that point in time, we were able to do supply versus demand simulations and determine where our critical factors were. We immediately started to change our sourcing splits, where I may buy 50% in China and 50% in Italy. I shifted it to a 100% Italy and China demand got pulled out or pushed out a few more weeks. Other cases we would be sourcing product that was produced, say metal fabrication in China. We produce in our factories in Brazil and send it to Italy.
Other cases where we had sites that were sharing inventory based on criticality and expected run-out dates, and resupply. We immediately went into a fact to solve the supply versus demand challenges in late January, based on the restart plan that we had put together with our team based on the China government regulations and restrictions and how they envisioned the return to work would be.
Abe: One of the things that you've highlighted here is visibility. That you were able to make the necessary adjustments across the globe with your various manufacturing and support nodes. Give me a sense, the listeners, a sense about your risk notification, your visualization, how important was it before, and how critical is it now? What have you done differently now to get visibility across the enterprise?
Greg: Very, very, very good question, the basis of the global supply chain these days. In 2012, as I mentioned earlier, we put together our strategy. There were a number of call it, work streams as mentioned. One of those was standardization. The second was tools. We have a global transportation management system that is the same operating condition across the globe. The only difference is, is when you sign in, if you're in China, you'll see it in Mandarin. If you’re in France, you'll see it in French. That's pretty much the only variability that we have.
With that, it enables us to see what's actually shipping from a supplier in China and Wuhan to one of our distribution facilities say in Ganzhou or up in Shanghai are or wherever it may be, and start to sense what is shipping versus what is actually shipping. We pretty much already knew that nothing was shipping because of the government restrictions, but as we then move forward, we were able to see relatively quickly as shipments started to move to port were those shipments actually getting out of the ships then making their way across? How much time was the shipping actually going to take versus the targeted transit days? We took decisions to move product by train because we did not see that things were moving fast enough through the ports in Shanghai. As a result, we paid some higher costs, but significantly lower than we would have paid on airfreight.
The visibility to where the potential challenges would be in terms of transportation that is bringing supplies, enabled us then to pretty quickly take alternative decisions based at scenario A happening, scenario B happening, scenario C happening and subsequently, save more time because we're not recalculating, "What do we do next since plan A failed?" Which really comes down to our playbook and having the backup scenario of, "If I do have a challenge, how do I mitigate that?"
Bob: Greg, one of the things that I find interesting about the story when you were talking about alternative sources of supply from China, you were moving them to Italy and Brazil which subsequently became two very hard-hit areas. What did you learn from China and how did you apply those lessons to Italy and Brazil and maybe any other place where you have operations as the pandemic moved globally?
Greg: When we started talking in the end of January and as the supply and demand from China itself started to become a little bit more clear, we said, we asked the question, "What's next? Where is this going?" At that time, our risk management thing was picking up the social media in Japan and in Korea. What we did is we took our risk management functionality and overlaid that with case counts per postal code or ZIP code, enabled us to see with surgical accuracy, the case counts relative to where our supplies were producing.
Subsequently, we had very good results in Japan and Korea that enabled us to pull things out two to three days before we would have if we weren't investigating it, right? Then two or three days is a lot when the alternate it to zero days. We took that same methodology then to Italy, and we're able to pull things out seven to 10 working days before the government restrictions came into play, which will enable us to have a much more work in efficient.
That works well that we then moved it to North America and to South America and where we continue to use this today because this is not over, we still a very active activities in South America, particularly Brazil. On a weekly basis, we are looking at case counts, taking decisions, particularly São Paulo area. Why? Because we need to and we will continue to monitor this until we believe that it's no longer an active.
Abe: Greg, one last question extraordinary work and a very committed response to this. Give me a sense of your talent development. How important was that coming into this disruption, then more importantly, how critical is it coming out of this disruption?
Greg: Again, I got to go back to 2012 when we said, where are we going? We also asked the question of, "Do we have the right talent to utilize this, this new way to work?" Along the path, we've had a very large number of successful implementations that have been viewed as, let's call it, very good. We've won a number of awards, been up for a number of other awards that in itself draws talent, that in itself, retains talent. Why? Because people like to be associated with success.
A lot of the big buzzwords these days are digitalization. If you have the ability to offer an employee or potential employee working in a very highly recognized, highly successful organization when it comes to state-of-the-art supply chain tools and digitalization, people get excited. When you have people that are excited about what they do and who they work for, they go the extra mile when they're called upon. We've seen that. Like no one could ever have imagined over the last 16 weeks as this thing has been, really rolling for us.
We are fully convinced that the talent that we have, the people that we have, are the difference in our success factor, in dealing with this COVID-19. How they were able to take care of their brothers and sisters across the pond and across the globe because they are customers of theirs as they are suppliers and that's part of what we consider the family effect. When you step back and look at that and say, "We've got very talented individuals, very passionate employees, we've got the greatest tools that they are on offer right now on the planet in this area, are we going to be able to execute? The answer that we have for ourselves has been, with the result of our team's effort and dedication have been successful and able to support our sites and support our customer expectations through this better than what our competitors have been able to do. That in itself, then drives more pride and more excitement about, "Okay, well, what are we going to do next? How do we stay ahead?" When you've got people that are saying, "I'm willing to do change, I'm willing to do something different. I'm willing to do whatever, because I want to get better," talent evolves. Talent comes to you and talent in many cases, comes out of the word work that you didn't even know you had.
Abe: Great story. Bob, why don't you take us home?
Bob: Thank you, Greg. It really is a great story and it's really pretty remarkable one, just how AGCO got ahead of this at a time when the pandemic wasn't on most people's radars. Really great job and I know that your whole team is proud of what you've accomplished and rightfully so. That's all the time we have today. I want to thank everyone for joining and we hope you'll be back for our next episode: What We Learned From The Recession. Now in that episode, Texas Christian University, professor Morgan Swink is going to share the results of his research for ASCM.
Bob: We look forward to seeing you then. I'm Bob Trebilcock.
Abe: I'm Abe Eshkenazi. Thank you all.
Greg: Thanks a lot.
Bob: The Rebound is a joint production of The Association For Supply Chain Management and Supply Chain Management Review. For more information, be sure to visit ascm.org and scmr.com. We hope you'll join us again.
