Problem
AGCO Drives an 18 Percent Reduction in Freight Costs while Maintaining Service Levels! AGCO Corporation is a global leader in the design, manufacture and distribution of agricultural equipment offering a full range of solutions under the core brands of Challenger, Fendt, GSI, Massey Ferguson, and Valtra. Headquartered in Duluth, Georgia, AGCO is a public company and had net sales of approximately $7.4 billion in 2016. Over the years, AGCO has been an extremely acquisitive company on a global basis. For many years, the supply chain operations continued to get more and more complex as the company grew. Greg Toornman, the Global Director of Material Logistics and Freight, told me that changed in 2004. The initial focus on operational synergies was focused on production and purchasing. AGCO was migrating to a global equipment platform where they could build similar products around the world with a global supply base. "In 2012, we defined that we needed to take a take a different approach to support our future supply chain needs," Mr. Toornman said. "We needed to integrate and optimize our global supply chain network. We called this the Global Materials Management Transformation (GMMT)." An initial conclusion was that inbound material logistics and freight management should not be run as separate operations. There were synergies that could be captured by running these operations together on a globally integrated basis. AGCO was also looking for a global transportation strategy that would be fully implemented across all regions by 2018. The regional teams were brought together to discuss strategy and define a future state. The company also engaged in SCOR transportation benchmarking to provide an objective view of their regional and global capabilities. "We knew we needed company-wide buy-in based upon company-wide involvement, "Mr. Toornman said. "The regions were involved in designing the future vision and the decision making. We needed to make sure everyone was on board. This was very important! So, as we looked at our options" to improve the transportation process. "We took into account the regional needs." They knew the final solution was likely to be a globally integrated transportation management system (TMS) capable of running in all regions of the world, a 3PL providing managed transportation services (which also relies on TMS technology), or a blended solution that was bit of both. Getting everyone on board upfront would help AGCO avoid customization and inefficiencies based on a lack of alignment. As they looked at their regional capabilities, they realized a blended solution would fit them best. The North American and Latin American operations had worked with TMS and preferred to continue have their planners to use the new TMS; Europe and Asia were not familiar with this technology, and it was thought that managed transportation services (MTS) would fit their needs better. They looked at a few options. 4flow, who they selected, had the best references and global presence. 4flow has developed their own 4flow vista solution that is integrated with a 3rd party TMS. 4flow also provides transportation managed services where they design transportation networks, as well as plan and execute loads on behalf of their shipper customers. In 2013, their business case to work with 4flow in Europe was approved. Within 18 months, the solution was up and running across the continent. 1500 suppliers were using a portal to schedule shipments to AGCO factories or warehouses used to support inbound shipments to the factory lines and aftermarket distribution centres. The suppliers submit their transportation orders (load details/destination) into the 4flow system by 2pm each day. Once the 4flow Control Tower team receives the transportation data they need, they optimize the transportation plan for the following day's pick-ups. Carriers then receive load tenders and confirm back to the TMS. Suppliers then receive notifications from the TMS defining the pickup time that suppliers are asked to have goods staged and ready to load on a trailer or have filled drop and hook trailers for the following day. SAP's Supplier Network Collaboration (SNC) solution is being integrated into the TMS to better optimize future inbound material flows, inventory levels, and costs. AGCO's results have been spectacular! In Europe - they've since been rolling the solution out to the other regions and expanded the scope of planning in Europe - the internal rate of return was 72 percent. They achieved freight cost reductions eighteen months after going live of 18 percent! The savings didn't stop. They have continued to receive 3-5 percent reductions in freight spend in subsequent years.
Balancing supply and demand allows companies to exploit market opportunities while minimising inventory costs. Getting the right price and quantity requires the perfect balance between who supplies with the means to sell and how much is demanded by the market. Examine the role of an integrated business plan ensure that the supply of goods and services according to its demand is seamless and uninterrupted. Apply your discussion to AGCO.