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 centers. 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.

The savings have come in many areas.

Strategic Logistics Purchasing  has been a potent source of savings, responsible for perhaps 25 to 30 percent of the reduction in freight costs.  Whereas in manufacturing and purchasing , their global platform strategy is driving to a reduced number of suppliers with bigger shares of AGCO’s business, the opposite was true in transportation. Prior to managed transportation, “three major carriers captured approximately 80 percent of our freight spend. Now we have 70 carriers in Europe,” Mr. Toornman stated. “The TMS can manage the complexity effectively.  It allows us to cherry pick lanes and optimizes our costs.”

“We manage 100 percent of the carrier negotiations across all modes. But 4flow prepares the requests for quotes and helps execute the tactical aspects of the bids. For example, they design bid packages, explain the TMS performance expectations and SLAs (service level agreements) to the involved carriers”

More than 50 percent of freight savings result from optimization. The solution looks to cube out or weigh out trailers, looks for load consolidation and mode shift opportunities, and designs multi-stop shipments.  The multi-stop shipments look to combine less-than-truckload (LTL) shipments from different suppliers and increase milk run utilization. This both drives down costs and carbon emissions.

There are also saving and efficiencies from the self-billing functionality, which helps eliminate carrier overcharges and audit costs.  When a carrier agrees to a rate on a lane, that is what they are paid. The carriers’ create their invoices in the 4flow portal, where the invoice will be accepted if it matches the negotiated rates that are in the route rate sheets.  Demurrage and detention charges can be an exception. “But this is flagged up front.” If there is a supplier issue, AGCO can take the appropriate action. For example, maybe the supplier did not have their goods staged on time; AGCO can charge them for the demurrage. Or maybe the time window used for trailer loading is no longer applicable because of increased volumes; that time window can be expanded. In short, these exception flags do also help AGCO improve their inbound logistics processes.

One thing that is distinctive about the 4flow integrated TMS is that the same solution is used for both network design and day-to-day transport optimization. Going forward, AGCO is seeking to capture more savings in this area.  Many large shippers do network design projects on a preset schedule. For example, a company may do them once a quarter. But because Network Design is part of the same codebase as the TMS, the 4flow team can do new network designs for AGCO on an as-needed basis.

AGCO Team Achieves Massive Freight Cost Reduction

AGCO Logistics Team Accepts Prestigious Supply Chain Award

AGCO and 4flow are acclaimed for what they have achieved in Europe. AGCO’s Smart Logistics initiative won the 2017 ‘European Gold Medal in Logistics and Supply Chain’ from The European Logistics Association (ELA). The press release states that the AGCO “approach is based upon the principle of combining an intelligent transportation management system, a standardized supplier development process, and risk management into a central cloud-based IT solution. The innovative approach utilizes smart algorithms … as well as monitoring a wide range of geopolitical, weather, and economic factors on a real-time basis in order to optimize the material flow.”

ARC has been following the supply chain innovation at AGCO for some time. We previously wrote about their approach to real-time visibility and risk management, as well has having a high level executive from AGCO speak on this topic at our Orlando forum. But the AGCO story just keeps getting better and better.

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