AGCO

Source: Manufacturing Digital

Date :08/05/2008 05:40:45

Financial turmoil might seem commonplace these days, but with global dealings in more than 140 countries, AGCO Corporation is positioned well for success. Exec learns more

Written by Ben O’Hanlon and Produced by James McCann

Today one of the world’s largest manufacturers and distributors of agricultural equipment, AGCO Corporation was founded in 1990 with the purchase of Deutz Allis Corporation from German-based firm Kloeckner-Humboldt-Deutz. The sale included a heritage and reputation reaching back to the mid-1800s. Growth has been rapid in the two decades since; the company listed on the NYSE in 1994 and there have been countless acquisitions, considerably boosting its capabilities and global appeal. This included purchasing the worldwide holdings of Massey Ferguson in 1994 and Caterpillar’s agricultural equipment assets in 2002.

Alongside Massey Ferguson and Caterpillar’s Challenger track tractors, AGCO manufactures industry-renowned Valtra and Fendt products. Diversity in terms of the company’s associated brand names and its technical capability is central to its growth strategy, providing the influence to trade effectively on an international scale. “Any manufacturing firm that’s going to be successful today needs a global footprint, or access to one,” says Steve Koep, Vice President of AGCO’s Application Equipment Division.

Koep has been with the company since 2001. He transferred from Ag-Chem Equipment Co. Inc. when it was acquired that year - a purchase that gave AGCO a leading position in the self-propelled sprayer market. With 20 years industry experience, he has a good understanding of current market conditions: “The agriculture business in North America is very good at the moment, but every time we turn around raw material costs and transportation costs pressure us.”

Financial Frailty

Many of these pressures have been forced by the downturn in the financial markets and the strength of the Chinese economy. Demand for steel, a core resource for AGCO, has soared in China, pushing up the cost globally. The cost of steel to produce a typical Ag-Chem applicator has risen 100 percent from September last year. This has been felt heavily by both the farm equipment and automotive industries – the two biggest users of steel in the US. However, because the automotive industry is struggling at the moment, many steel producers are passing the larger proportion of the increases on to AGCO and its peers.

The company does have an advantage in its global presence, however: with international operations on every continent, administered by a network of approximately 3,200 dealers, Koep believes it is better positioned than much of the competition. “We may be at the mercy of costs and the weakness of the dollar, but we’re integrated into many economies worldwide. Because we have a global footprint we can temper what’s going on in North America with the good things in Europe or Asia.”

A ‘Lean’ Machine

Back in the US, the rising costs have led the division to try and counteract by focusing heavily on programmes of continuous improvement. Lean manufacturing - an approach used to remove ‘waste’ from a process by focusing on individual areas - has been in place at AGCO for the past three years. This has enabled it to offset wage increases with efficiency gains. Last year the company also started using the Six Sigma approach – a set of practices originally developed by Motorola to eliminate product defects by systematically improving processes.

This drive for efficiency has seen cost reduction and improved turnaround times. Bill Kaltenberg, General Manager at AGCO’s Jackson, MN operations, says that this has only been possible with ground level input from employees: “We look for our people to drive the program forward. It takes time to develop a culture of improvement – but when you give a person a chance to improve their part of the operation and they can see the difference for themselves, they’re keen to make it happen.”

Kaltenberg is based at AGCO’s manufacturing facility in Jackson, MN, where technology is one of the key drivers behind efficiency. Advanced systems allow detailed analytical verification of designs before they are made into a prototype, for example. This helps the company to build better prototypes and to take the design phase further electronically, delivering production savings.

Technology is also used to help realise environmental aspirations, a particularly important commitment for a company whose products impact heavily on the natural world. AGCO uses cutting-edge transmission and engine technologies to help reduce emissions and improve fuel economy. It is also advancing the use of biodegradable fuels and bio-diesel fuels, such as sugar cane fuel in Brazil. The company presently manufactures machines that burn B5 fuel (diesel fuel with five percent plant matter) and is researching the potential to increase the percentage of natural component.

Delivering the Goods

The company’s Advanced Technology Solutions division is focused on incorporating these innovative ways of working into operations, but its efforts are driven as much by the customer as by the internal need for efficiency. The modern agricultural industry is very much powered by technology and AGCO is poised to deliver. Its solutions include satellite-based steering, proactive oil and fluid analysis, data collection and yield mapping, a service which enables producers to measure yield at different locations in a field and make future crop management decisions.

Most of these services are sold through specialized Caterpillar dealers who carry AGCO’s Ag-Chem or Challenger contract. Koep says that demand is high because the brand has a strong international reputation: “When you buy from us you get a world class support organization as part of the package. Caterpillar sells 60 – 70 percent of all heavy industrial equipment; that’s as much to do with sales support as it is product design.”

For all the financial uncertainty, it could well be this reputation and the company’s commitment to improvement that continues to drive it forward. On the horizon it remains committed to investigating new product initiatives, assisting dealerships, utilising technology and focusing on customer need. Come rain or shine, AGCO’s vision and aspiration makes it well placed to continue the successful trend.

Click here to view the corporate brochure on AGCO