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Procurement strategy at a mid size

assembly company engaged in agricultural

mechanization

Peter Vanderhaeghe, Purchase Mgr..

- AVR today- Switch from own production to

outsourcing- Procurement strategy- Wrap Up

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AVR today

AVR today

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Facts & Figures

• Sales in 40 countries– +/- 185 harvesters– +/- 160 cultivators– +/- 40 Speedridgers/Ecoridgers– +/- 60 haulm toppers– +/- 80 planters– +/- 100 in store equipment

• Turnover: 45 M EUR (Belgium + the Netherlands)• 115 employees + 20 temporary employees• 105 dealers• Production in Belgium, the Netherlands and Russia

AVR today

Export today

27%

23%17%

9%

6%

2%

16%

Turnover per Country (2010-2013)

BENLFRRUDEPLRE

AVR today

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Growth

0

10

20

30

40

50

60

2005 2006 2007 2008 2009 2010 2011 2012 2013(B)

Mill

ions

€Turn Over

Turnover

Linear (Turnover)

AVR today

AVR as Full Liner: a wide range of products

AVR today

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1. Soil preparation

• Cultivators and ridgers

AVR today

2. Planters

AVR today

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3. Haulmtoppers

• Rafale

AVR today

4. Trailed Harvesters

AVR today

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5. Self propelled Harvesters

• Puma +

AVR today

6. In store equipment

AVR today

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Our values

• Reliable [correct, respect of customer, solid machinery etc.]

• Steadfastness [innovating, trendsetter, not me-too manufacturer, with passion for the potato cultivation]

• Committed [think along with the farmer, thorough knowledge about his processes]

AVR today

Our mission

AVR’s mission is to help its customers store a higher percentage of sellable

crops with less input.

AVR today

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Decrease vertical integrationSwitch from Own production to Outsourcing

• In 2001 AVR decides to decrease its vertical integration and to stop the own production of custom made components and focus on the assembly process only.

• Why did we do that ?

Own production to outsourcing

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• AVR’s seasonality and its size where resulting in a lower occupation rate of the production machines. – Higher Cost– Difficult to keep investing in ‘state-of-the-art’

technology– Difficult to find technical skilled people

Own production to outsourcing

By outsourcing we are able to :

• Design components which are not limited by our own production technologies & possibilities

• Co-operate with suppliers that have more specific & specialized knowledge of component manufacturing with state of the art machinery

• Concentrate our investments towards our main activities

Own production to outsourcing

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Positive results :

• Major impact on reproducibility and quality. • Better control on costing• Same turnover with less people • Higher gross margin• Less depreciation• Ability to spread some of our seasonal workload with

our suppliers

Own production to outsourcing

Dow side :

• Lower flexibility• Higher efforts necessary to prepare our files• More difficult to solve problems on a short term• ……

Own production to outsourcing

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Procurement strategy

Typical for agriculture– Seasonality impacts the occupancy rate at the

suppliers

– Different economics than other industries– Weather conditions are impacting spare parts sale :

• Fast reaction needed from suppliers during season

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

0

500

1000

1500

2000

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Evolution Open and Critical orders

Procurement strategy

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• Some figures

– Purchase budget : 25,- mio eur– Number of suppliers : 350– Number of purchased items : 7702– Number of orders : 5732– Number of order lines : 25667

Procurement strategy

• Procurement Budget by type of products (value)

Custommade

52,9%Technical products

28,7%

Off the schelf

17,9%

Services

0,5%

Custommade Technical products Off the schelf Services

Procurement strategy

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• Off the shelf/products with a low value :– Partners whit a logistic added value!

• 2 Bin systems

• Vending machines

• ......

– Automation of the order process• Roll out off a EDI system

Lower the impact of the order process and the internal logistic costs

Keep focus on what really matters

Procurement strategy

• Technical products:Products from which the quality and spec’s have a

considerable impact on the functioning of our products

• Partners needs to give added value in• Delivery performance

• Technical support/advice :

– Co-engineering understanding the needs from AVR and our customers!

• Buffer stock in warehouse supplier

• Assembly

Procurement strategy

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• Custom made parts :Parts produced according to design spec’s from AVR and

typical related to our products• Partners need to give added value in

• Delivery performance

• Technical support/advice

– Ensuring Quality

– Controlling TCO

Yearly quantities : from 5 to 10000Lot sizes : from 5 to 1000Volume from 10cm³ to 135m³

Procurement strategy

• Custom made products by technology(value)

Procurement strategy

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• Custom made products :– Welding assemblies and mechanical assemblies :

• Depending on size and labour cost – Local sourcing – Sourcing in LCC

• Reduce TCO :– Add assembly/Add value for the supplier

– Partners need to give added value on • Project management• Suppliers with as well local as LCC production

facilities are preferred sources for thistype of products

Procurement strategy

• Custom made products :– Webs :

• Specific product• Only few sources available

– Sheet metal parts :• Local sourcing : high density of laser capacity in our region

– Wearing parts : specific products, specific sources– Rubber parts :

• Central Europe

Procurement strategy

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• Custom made products :

– Hydraulic Parts :• Local sourcing due to

– quality demands– low quantities– hydraulic tubes/hose pipes : fast service needed

– Machining parts :• Combination of local sourcing and LCC• Depending on complexity/lot sizes

– Plastic parts :• Local sourcing and far east.

– Electrical boxes, electronic assemblies, harnesses :• low volumes / high complexity: local sourcing

Procurement strategy

35,3%

24,4%

8,6%

7,9%

7,5%

5,8%

4,2%3,3% 2,6%

0,3% 0,1%

BE NL PL RO SK DE IT CH UK CZ HU

• Custom made products by region(value)

Procurement strategy

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• Way of working :– Forecasting based on yearly production plan

• Capacity planning

• Material planning

– Call-off orders• Mid term commitment

– Long term agreements

– Critical suppliers :• Weekly communication : Follow up open orders

• Order confirmations

• Regular meetings

Procurement strategy

• Supplier selection :– Need for skills in house :

• Avoid multiplication of margins

• Has impact on delivery performance.

– Quality :• Evaluate functioning in process quality system

– Planning• Capacity planning

– Evaluation of workshop documentation• Is the work well prepared?

• Is all the needed information available

Procurement strategy

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Wrap Up

How to be succesfull as an AVR supplier

We need partners that deliver

The right partsAt the right dateAt the right TCO

Making it possible for AVR to realise our mission

Wrap Up

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Wrap Up

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