WESTERN PRODUCER — Equipment manufacturers are not through the woods when it comes to supply chain issues that have hampered their production for many months.
“We don’t see these challenges easing up until maybe mid 2023 or even later,” said Ben Smith, production and precision ag marketing operations manager at John Deere.
“We’re going to have to continue to kind of muscle our way through these challenges, and there’s really no silver bullet.”
Smith is the single point of contact between Deere’s equipment factories and its dealer network, so when there’s information or updates that need to go to Deere field managers and dealers, it’s his office that disseminates it.
He said Deere had to change how it sources parts and even produces equipment because of a fragmented global supply chain.
Deere faced a steep learning curve when the pandemic started to disrupt global supply chains.
“What COVID really unveiled was just how fragile things were. We didn’t even know we had a problem, but it didn’t take much to just tip the veil on how fragile things can really be across all these various industries,” Smith said.
“The notion of supply chain issues cascades can go in several different directions. Obviously, it’s parts, but it’s also people. Our supply chain disruptions really came to life obviously in early mid-2020 when COVID hit.”
Facilities began shutting down because of COVID restrictions and illness. There were still parts to work with, but it was difficult to maintain a productive workforce.
That changed once 2021 rolled around as people and plants regained their footing, but the surge in pent-up demand quickly crippled the global logistics, leading to parts shortages.
John Deere also faced labour negotiations, including a strike a year ago, which also affected the availability of Deere parts and equipment.
“When we talk about supply chain challenges, what it means to … the customer is obvious. But the reason why can be very different, and it has changed over the course of the last three years, several times, and we’ve had to adapt based on that,” Smith said.
One of Deere’s responses to supply chain headwinds is to spend more money on premium freight to get parts from vendors to factories sooner than it would otherwise arrive.
“Long lead time parts are long lead time parts, but when those are available and built and ready to ship at a vendor or manufacturer that supplies to us, we’re willing to pay the premium fee to get those from point A to point B in our factory much sooner,” Smith said.
“We’re also investing in our logistics, into freight and things like that, just to give ourselves more bandwidth and complete capacity to provide more throughput.”
He said Deere has increased its fleet of trucks and trailers because there have been shortages that have constrained the entire industry.
Deere also had to get creative to keep its factories running in the face of supply chain headwinds.
For instance, prior to supply chain disruptions, Deere had a linear production schedule, including linear work week, a linear month, and linear year with specific production targets.
“We had set a linear production schedule based on a linear inflow of parts and that just wasn’t working, it was destined to cause disruptions,” Smith said.
“We’ve gotten creative to the point where we’ve intentionally not made it (equipment production) linear. We may give ourselves pauses or breaks where we wouldn’t have otherwise.”
He said it was the high variability in the kinds of parts where shortfalls were experienced that forced Deere plants to move to flexible production-line schedules.
Before the pandemic, there could be an issue sourcing one or two kinds of parts and the company could typically find a way to address shortages.
“In today’s environment it’s (part shortfalls) all across the board. It can be wheels, tires, tracks one day. The next day it could be computer chips, the next day it could be paint, from simple common parts to complex hydraulic pumps, motors, and cylinders,” Smith said.
This means the company can’t focus all its effort and attention figuring out how to address a specific part shortfall because inevitably something else would crop up that would force the company to act quickly.
However, since the pandemic started Deere has worked with many suppliers that struggled to meet their production targets.
“Whether it’s a process, planning, strategy discussions, manpower, I mean it can go a lot of different ways in how we help our suppliers, but that’s been an important piece,” Smith said.
“You have to be thoughtful in how you help because we only have so much manpower and resources to do some of that. You have to be critical and think through where you help a supplier, or where you maybe don’t, and try to look for maybe a different supplier or a different solution altogether.”
The just-in-time inventory system, where a manufacturer receives goods as close as possible to when they are needed, works well when the parts reliably show up on time.
When Deere realized the just-in-time inventory system was no longer reliable, it started to keep more inventory on its factory shelves, which also had a cost.
“Maybe we’re ordering double or triple the increment for that day.… That then is the change from the linear production to kind of batching (of production). That’s how we’ve been able to kind of tweak how we think about and how we build and approach things,” Smith said.
“Just-in-time is a great concept, and I think there will still be a place for it. But I think going forward, for some parts, for some commodities, we’re having to rethink that and change a little bit for sure.”
For Deere’s core components, including transmissions and engines, the company is largely vertically integrated, meaning that it builds them in-house.
However, there are still many parts that are outside its expertise, so it has to source them on the market.
This includes computer chips, and when the supply of these parts started to dry up, all vehicle manufacturers suffered, including Deere.
“We have struggled (sourcing computer chips) for quite a period of time. It’s no secret that we’ve had limited availability for our global position receivers because we’re not able to get to chips in the quantities that we need, and we’ve been dealing with that problem well over a year, probably 18 months, and we don’t see that improving anytime soon,” Smith said.
Computer chips largely come from export markets into the United States and can be very difficult for manufacturers to try to solve production problems overseas.
Smith said moving production onshore will help shorten and strengthen supply chains, but this will take time.
For instance, U.S. president Joe Biden’s administration passed the CHIPS and Science Act worth US$52.7 billion to boost American semiconductor research, development and production, but it could take years before equipment manufacturers begin to benefit from a local computer chip supply.
Deere announced this summer it will spend US$29.8 million to shift cotton harvester manufacturing from China to its plant in Thibodaux, Louisiana.
The Thibodaux facility is currently a design centre for sugar harvesting and earth-moving equipment, and by 2025 it will also produce the company’s medium-chassis cotton harvesters.
Deere’s international reach helped it deal with supply chain shortfalls because it has a toe in many different supply-chain regions.
“We build combines in three different parts of the globe: South America, domestically in Illinois and then in Germany. One of those three facilities was able to get wire harnesses and the other two were not. But we were able to source harnesses from that other location and bring them to the one or two facilities that were needing it,” Smith said.
“It may cost a little more to get those wire harnesses, but you’re still able to get the customer the product that they need and keep our dealers supporting those customers.”
Deere’s dealer channel also played a large role in helping the company through supply chain problems.
When Deere was late delivering new products, including a tractors, seeders or harvesters, its dealers could sometimes fill the void with a used piece of equipment to help farmers get through harvest or seeding.
“As a manufacturer, that’s something we cannot do. We rely on our dealers to do that,” Smith said.
