effective strategies for optimizing managed dealer inventory

AGCO Parts – MDI Program

Effective strategies for optimizing Managed Dealer Inventory

Benjamin Matthies

5 Years at AGCO – Focus on MDI, Dealer Optimization and Strategy

Sears Holdings – Inventory management for Sears and Kmart Toy department

Executive MBA – University of Illinois Urbana-Champaign

Bachelor – Industrial management w/ minor in operations – Purdue University

Professional Experience

Benjamin MatthiesManager, Parts Strategy and MDI

Years of Service - AGCO5 Years

Provide improved service and parts availability to our customers− Improve dealer stocking behavior

Leverage MDI data across the business AGCO Parts Terms and Conditions AGCO Parts Key Initiatives to drive growth at the dealerships as

well as AGCO

Current Priorities

Responsibilities at AGCO

Benjamin Matthies

Strategy and Performance

Managed Dealer Inventory

Benjamin MatthiesManager, Parts Strategy and VMI


3 7

Rationale for Collaboration with Dealers – Why MDI?2

Results of the Program 3

Continuous Innovation with Dealers and AGCO4

Introduction - AGCO1

AGCO –Company Introduction

AGCO - Complete Farm Equipment Company

AGCO by the Numbers

OUR COR VALUE

EAME: 57%

North America: 24%

South America: 12%

Asia/Pacific: 7%

Tractors: 57%

Replacement Parts: 16%

Other Machinery: 7%

Grain Storage and ProteinProduction Equipment: 12%Combines: 4%

Application Equipment: 4%

2016 Net Sales by Geographic RegionGLOBAL DIVERSIFIED

2016 Net Sales by Product

We have an established presence throughout the world’s agricultural growing regions.

Our product portfolio provides customers withcomprehensive solutions to support their farms.

2016 Net Sales - $7.4B

AGCO by the Numbers

OUR COR VALUE

LEVERAGING A GLOBAL PRESENCE

NORTH AMERICA SOUTH AMERICA

GLOBAL SALES

DEALERS

24%

1,390

CORE BRANDS DISTRIBUTEDChallenger, Fendt, GSI, Massey Ferguson

MAIN CROPSWheat, hay, corn, canola, soybeans, cotton, dairy and livestock

GLOBAL SALES

DEALERS

12%

290

CORE BRANDS DISTRIBUTEDChallenger, GSI, Massey Ferguson, Valtra

MAIN CROPSSoybeans, sugarcane, corn, coffee

* Dealer number includes GSI , as of December 31, 2013

About AGCO

AGCO CORE BRANDS

Rationale for Collaboration with Dealers – Why MDI?2




Factors to Switch Equipment BrandParts availability is # 1 reason why customer switches equipment Brand


Source: https://www.farm-equipment.com/articles/5388

Breadth setting is more important than Depth

Your Retail Fill Rate depends on your Breadth Setting

Dept

h

Breadth

C

Current state

B

D

A

MDI Goal

Breadth – What Parts to Stock? X Hits in Y months

Depth – How much to Stock? X Month of Supply Safety Stock

Inventory planning module configured on to recommends parts based on two criteria

What is MDI (Managed Dealer Inventory)?Managed Dealer Inventory

Addressing low Parts Availability to End CustomerObjective of MDI is to improve Parts Availability at the Dealership to minimize lost sales, down time & driver faster repairs


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Parts Availability with MDIParts Availability - 2012

AGCO Parts

Dealer

End-customer

~ 97%

~ 65%

AGCO Parts

Dealer

End-customer

~ 98%

~ 80%

MDI Journey & Capabilities MDI is a Dealer Inventory Planning tool launched in US & Canada


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Forecast calculation based on 2 years of end-customer demand to maximize fill

from dealer to end-customer

2. Forecasting & Inventory PlanningDaily Data Exchange between Dealer

Management Systems (such as Inventory levels, Customer Demand …) and AGCO

Master Data

1. Data Exchange with Dealer

Daily stocking proposals to dealers with visibility of AGCO stock, other Dealers

Inventory (Parts Locator) and Dealer Network (Balancing)

3. Replenishment Process

MDI reports, KPI’s and alerts to constantly monitor processing, inventory levels, fill rates, dealer compliance, etc...

4. Reporting

Designed & developed solution with providers

Piloted & rolled-out to35 location across US &

Canada

2011 2012 / 2013

Roll-out to 250+ location with further enhanced functionality

2013 - Now

MDI Functionalities

Benefits of MDIMDI brings tangible benefits to our Customers, Dealers and AGCO


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Higher availability of service and repair parts due to improved planning and stock profile at dealer [Retail Fill increase from 65% to 80%]

Faster service and repairs driving a higher machine up-time [avg. Repair Lead-time reduced by 1 - 2 days]

Increased Parts and Machinery Sales due to higher Parts availability and customer satisfaction [reduction in lost sales]

Improved working capital utilization

Efficiency Gain through optimized (planning) processes [3 hours per week per location]

Exchange of slow-/non- moving stock with other dealers via Parts Locator (additional sales and inventory reduction)

Increased parts & machine sales (less ‘lost sales’ caused by inventory outages) & higher customer retention

Higher dealer loyalty due to convenient planning/ordering and improved dealer communication

Improved availability and inventory management through more transparency of point-of sale information (dealer inventory, order behavior and end customer orders)

Customer benefits Dealer benefits AGCO benefits

Rationale for Collaboration with Dealers – Why VMI?2




CommentsRetail Fill Improvements %

MDI Availability Achievements since 2012Parts availability at the dealership has improved with MDI


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• Improved Retail Fill Rate every year

• On track to deliver 80% Fill Rate Improvement Goal by year end

• Added 50-75 location thru 2015

• Program enhancement with collaboration with Dealer to drive Fill Improvement (Seasonality)

• Achieved or exceeded incremental sales target

2013

2.7%

2015 Current2012

4.6%

2014

6.4% 78.7%

65%

79.5%

2016

6.4%

4.6%

2.7%

0.8%

Sales Increase

Dealer MDI Results Validating the business case MDI has increase dealer retails sales & fill rates through recommendations


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Dealer accepting recommendation grow their retail business at significantly higher rate than dealer don’t stock based on our recommendation Reduced Lost Sales

51% 47%

49% 53%

Before After

No Moving Moving

• After MDI Dealers Stock turns more, Non Moving Material decreases

Improved Retail Fill Rate

Dealer fill rates improves based on stocking recommendation Recommending Right Parts

-1,7%

5,8%

-4% -2% 0% 2% 4% 6% 8%

<4% In Stock % ∆ YOY

>5% In Stock % ∆ YOY

In Stock vs. Retails Sales YOY ∆ %

Retail Sales % ∆ YOY

1,0%

1,5%

1,6%

3,9%

0% 1% 2% 3% 4%

≤1% In Stock % ∆ YOY

2-5% In Stock % ∆ YOY

6-9% In Stock % ∆ YOY

>10% In Stock % ∆ YOY

Stocking Recommendation vs. Retail Fill YOY ∆ %

Rationale for Collaboration with Dealers – Why VMI?2





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MDI Annual Survey Results 2016 We continue to collaborate with our dealers to drive improvements

2017 MDI Goals

Recommend MDI

Program – 90%

Analyst Satisfaction –

100%

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Seasonality – leverage dealer network and geographic farming practice to plan parts stocking & destocking Benefits – Inventory turns & availability

Dealer Facing Improvements

Strategic Machine Support – leverage like dealer and network demand to create a step improvement in fillBenefits – additional support can be leveraged in new machine sales and increased customer retention

Customer Returns – new approach that takes into account how our dealerships process returns Benefits – correct processing of returns to ensure accurate recommendations

Promo Order Support – provide recommendations to maximize promo order discountBenefits – increase dealer productivity and reduce obsolesce by not over purchasing parts

AGCO Improvements Utilizing MDI Data

AGCO Facing Fill Improvements – take into account MDI recommendations into facing PDC stockingBenefits – provide shorter order to delivery cycles and aligns with dealer stocking

Innovate with Dealer & AGCOManaged Dealer Inventory

Backorder Clearing – using dealer inventory to clear long lead time backordersBenefits – increased customer uptime, improved satisfaction

Sales/Marketing Support – identify trends in dealer’s sales/inventory in forecasting and promotionsBenefits – create promotions more in line with dealer expectations and identify trends at dealerships that

can produce sales opportunities

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Future Program Enhancements - DealerManaged Dealer Inventory

Goal: Drive MDI as Primary Replenishment Tool

Objectives:

Increase dealer in-stock

Increase dealer fill rates

Increase satisfaction

Seasonality 3.0

Dealer Satisfaction Improvements

New Machine Proactive Support

Right Part Stocked at Right Time

Overrides & Min/Max Integration

Automatic Order Placement

Promo Order Mgt

Return Rec. Integration

Like Dealer Proactive Stocking

Customer Order Level Fill

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Future Program Enhancements – Dealer/AGCOManaged Dealer Inventory

Upsell/Cross Sell

Targeted Marketing

Perfect Order Fill

End customer loyalty

Repair job groupings

Machine purchase and repair cycle

Transactional Level Data

AGCO

Low demand, no supplier, high MOQ parts Purchase back dealer inventory Proactively recommend returns Benefits - reduce inventory investment

and cost of ownershipDealer Buy and sell portions dealer inventory in

batches instead of 1 part at a time Benefits – reduce returns to AGCO, free

up cash at dealerships, and right size inventory across network

Inventory Optimization – AGCO & Dealer

Collaborate With your Partner & have robust

program with right people, process & technology

Key Message

Innovate Continuous improvement to

create/drive win-win solutions

1

2

Repeat Repeat Step 1 – 3

Measure your results & communicate success stories Measure

3

4


Key takeaways

Thank You

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effective strategies for optimizing managed dealer inventory

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