Transcript Slide 1

Building a Business
as Great as Our
Products
Glenn Baker
Director - Manufacturing Engineering,
Technology & Quality Services
Building a Great Business…
Growing a Great Business…
– Company Background
– Megatrends
– Building a Great Business
– Customer Intimacy
– Exceptional Operating Performance
– Positioned for Growth
It all started in a blacksmith shop…
Integrity – Quality – Commitment – Innovation
John Deere Global Footprint
Operations in 35 countries
>60,000 employees
Sell products in 135 countries
40% of sales outside North America
>$3 million/day in R&D
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John Deere Recognition
2012 – Ranked in Fortune’s top 50 “Most Admired” companies
globally (38th), 2nd industrial and farm equipment sector
2012 – Included in “World’s Most Ethical Companies” for the
sixth consecutive year by Ethisphere Institute
2012 – Ranked as “Best Employer” by Peking University
2011 – Listed as a “Great Place to Work” by Época magazine in
Brazil, named “Attractive Employer” by SuperJob in Russia
2011 – Recognized as a “Best Diversity Company” by Diversity/
Careers in Engineering & Information Technology magazine
2011 – Included in “Best Global Brands” by Interbrand
2011 – Ranked in Fortune’s “Top Company for Leaders”
(9th in U.S., 14th globally)
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John Deere Today – 2011 Financial Results
Solidly profitable
– Earnings increase 50% to $2.8 billion.
– Operating margins rise to 13%
Disciplined asset management
– OROA (Operating Return on Operating Assets) nears 30%
Funding Growth
– Equipment operations generate $3.0 billion of cash flow
– Capital expenditures reach nearly $1.1 billion
– R&D expenses hit record $1.2 billion
John Deere well-positioned to meet world’s growing
need for food, fiber, shelter and infrastructure.
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2000 Challenge
Building a business as great as our products
Executing the John Deere Strategy
Strategy Pillars:
– Exceptional Operating Performance
– Disciplined Growth
– Aligned Teamwork
Exceptional Operating Performance
Earning our customers’ business with
highly valued product offerings and...
...relentlessly improving global
operations, highlighted by a focus
on asset efficiency
Disciplined SVA Growth
Investing the cash generated from
exceptional operating performance in
energized growth initiatives that
enhance SVA, in addition to directly
returning to our investors.
Operating
Performance
John Deere Strategy
Growth
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John Deere Strategy
Sprint North
Operating
Performance
Disciplined Growth
Growth
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The Mechanics – OROA and SVA
OROA = Operating Income
Average Assets
(Measured in %)
SVA = Op. Income – (Avg. Assets * 12%)
12% OROA = $0 SVA
(Measured in $’s)
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Building a Great Business
Focus is on being “above the line” based on OROA
30%
OROA %
25%
28%
20%
20%
15%
10%
12%
5%
0%
Low
Normal
Business Cycle ( Dollars)
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High
Growing a Great Business
Focus is growing SVA at Normal Volumes
$200
SVA
$150
$100
$100
$80
$50
$0
($50)
$700
$900
$1,100
Business Cycle ( Dollars)
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$1,300
Aligned High Performance Teamwork
Linking employee, unit and divisional
goals and compensation to enterprise
objectives for exceptional operating
performance and disciplined SVA
growth
Key Enabler –
Process Discipline
Worldwide Business Environment
Deere & Company Competitors, Governments Regulations & Requirements, Standards, Economies
Customer’s Process Needs
Business
Controlling
Process
Customer Processes
that create value for the external customer
Customer
Acquisition
Processes
that direct
And tune
other processes
Product
Delivery
Order
Fulfillment
Customer
Support
Processes
that monitor
and report
the results
of other
processes
Enabling Processes
that supply resources to other processes
Leadership
Processes
Channel
Management
Supply
Human
Resources
Information
Technology
Application
Supplier’s Processes
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Business
Measuremen
t
Process
Business
Acquisition
Key Enabler –
John Deere Quality & Production System
Exceptional Customer Experience
• Distinctive Product Quality
• On-time Delivery
• Rapid Problem Resolution
Sustained Employee & Business Results
• Safety and Work Environment
• Reduced product and process complexity
• Decreased Waste
• Increased Productivity
• OROA evidence of Business Results
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Key Enabler –
Order Fulfillment
“Build to Demand”
“Estimate to Cash”
“Build Anywhere”
Waterloo Works Redevelopment Project:
Project Drivers
Customer Expectations
– Speed to Market
– Flexibility
– Quality/Reliability
– Total Value
Shareholder Expectations
– Return on Investment
– Continued Growth
– Profitability in All Cycles
Waterloo Works Redevelopment Project:
Tractor/Cab Operations
• Began production 1980
• 2.1M sq. ft. under roof
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Tractor/Cab Operations Redevelopment:
Manufacturing Evolution
Yesterday
–
–
–
–
–
–
–
–
–
Regional Market
Push to Market
Little Competition
Simple Product
Dedicated Machinery
Large Inventories
Mass Production
Computerized High-Rises
Planned Inspection
Today
–
–
–
–
–
–
–
–
–
–
Global Market
Market Pulled
Intense Competition
Complex Product
Single-story
Flexible Machines
Minimum Inventories
Single Piece Flow
Lean Principles
Process Capability
“In short, the John Deere Tractor Works embodies many principles and ideas
whose time has come in the automation of American ‘BATCH’ Manufacturing”
Materials Handling Engineering, June 1982
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Tractor/Cab Operations Redevelopment:
Manufacturing Flexibility
Yesterday
–
–
–
–
Fixed manufacturing monuments
Difficult to redistribute / balance work flow
Need to relearn work assignments
Expensive to relocate material, tooling,
and equipment
Today
–
–
–
–
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Easily-revised line configurations
Flow manufacturing concepts
Move operators to work
Multiple-shift operations
Tractor/Cab Operations Redevelopment:
Automate Cab Fabrication/Welding
Yesterday
–
–
–
–
Manual Welding
Inconsistent Tolerances
Excess Inventory
Non-value-added Material Handling
Today
–
–
–
–
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Newest Technology
Consistent Quality
First Time Yield Increases
Workforce Reduction Through Automation
Waterloo Works Redevelopment Project:
Drivetrain Manufacturing
• Began operations in 1918
• 4M sq. ft. under roof
• 40% of buildings > 70 years old
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Drivetrain Operations Redevelopment:
Manufacturing Evolution
Yesterday
Today
– Regional Market
– Global Market
– Push to Market
– Market Pulled
– Little Competition
– Intense Competition
– Simple Product
– Complex Product
– Multi-story Buildings
– Single-story
– Dedicated Machinery
– Flexible Machines
– Large Inventories
– Minimum Inventories
– Mass Production
– Single Piece Flow
– Planned Inspection
– Lean Principles
– Process Capability
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Drivetrain Operations Redevelopment:
Upgrade Manufacturing Technologies
Yesterday
–
–
–
–
Outdated machine tools
Inefficient and slow changeovers
Extended downtime with older equipment
Replacement parts are expensive and
hard to obtain
Today
– Achieve tighter tolerances
– Enable quick changeovers, small lot sizes
– Requires fewer machines and
less maintenance support
– Enables Six Sigma
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Drivetrain Operations Redevelopment:
Reduce Manufacturing Space by 50%
Yesterday
– 4M sq. ft.
under roof
Today
Cast Iron
Assembly
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Gear/Shaft
Vacated &
Revitalized
– 2M sq. ft.
under roof
Manufacturing Efficiencies – Waterloo, IA
Journey to 6-Day Drivetrain
-12 Days
50


Relocation of 412 machines
Eliminated 155 machines
45
-14 Days
40



Machining departments based on part families
Arranged machines using cellular concepts
Started evacuation of multi-story buildings
Production Days
35
30
-10 Days
25





20
15
Total evacuation of multi-story buildings
New heat treat fully operational
Set-up improvement
On-site forging storage
Insourcing of core processes
-2 Days
10



5
0
Prior to 2005
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2005
2006
2007
2008
Run size optimization and
set-up improvement
Daily run size parameters
Outsourcing non-core processes
Waterloo Works Redevelopment Project Results:
– Tractor cost savings
– Improved manufacturing cycle times
– Reduced factory inventories and receivables
– Supports growth initiatives with level workforce
– Hiring avoidance
– Improved order to delivery cycle
– Improved product quality
– Improved employee ergonomics and safety
– Manufacturing & marketing flexibility
– Improved speed to market
– Improved profitability
– Growth
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Asset Management
Dramatic Reduction in Asset Intensity
• Avoided ~ $5.5 billion in working capital in 2011 vs. 1997
• Receivable level in 2011 consistent with 1997, with almost 3x the sales
Quarterly Receivables & Inventory as a % of Previous 12 Months Sales
Trade Receivables and Net Sales
60%
$35,000
55%
$30,000
Prior Year
50%
$25,000
Current Year
$ Millions
45%
40%
35%
$20,000
$15,000
$10,000
30%
$5,000
25%
$0
20%
2000 2001
2002
2003
*Through 1st quarter 2012
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2004
2005
2006
2007
2008
2009
2010
2011
2012*
Trade Receivables
1997
Net Sales
2011
Productivity Improvement
~6% CAGR over 30 Years
– Deere’s net sales and revenues per employee have increased at a CAGR of
~ 6% over last 30 years
Net Sales and Revenues per Employee
$600
Adoption of SVA Model
$500
$400
$300
$200
$100
$0
1981
1983
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1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
Exceptional Operating Performance
Operating Return on Operating Assets
Exceptional Operating Performance - Equipment Operations
− 29.8% OROA in 2011, a record high for the company
35%
30%
2011
2010
2007
25%
2006
20%
10%
2004
28%
2005
20%
2009, adjusted
15%
2008
2009
12% OROA (SVA Neutral)
12%
2003
2002
5%
2001
0%
80%
Low
100%
Normal
% of Normal Volume
120%
High
*Excludes fiscal 2009 expenses related to goodwill impairment and voluntary employee-separation, for reconciliation to GAAP see “2009 OROA
Reconciliation to GAAP” slide in Appendix.
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SVA Journey
Equipment Operations
Disciplined SVA Growth - Equipment Operations
− SVA Journey, 1991 - 2011
2,800
Adoption of SVA Model
2,400
2,000
SVA ($ millions)
1,600
1,200
800
400
0
-400
-800
-1,200
-1,600
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Note: For reconciliation of SVA to GAAP, please see “Equipment Ops SVA Reconciliation to GAAP” slide in Appendix
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Exceptional Operating Performance
Cash Flow
Exceptional Operating Performance - Equipment Operations
− SVA Model: Higher Net Cash Flow, More Consistently
3,500
Adoption of SVA Model
3,000
Sale of Trade Receivables to
Credit
$ Millions
2,500
2,000
1,500
1,000
500
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
 Over $7 billion in Pension/OPEB contributions, 2001-2011
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Quality Journey –
Returns & Allowances
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Growing a Great Business…
– Megatrends
– Customer Intimacy
– Positioned for Growth
Megatrends: Macroeconomic
While developed economies have
always accounted for a larger
share of GDP . . .
CAGR,
1970-2008
46.6 Percent
Real GDP1
$ Trillions
3.8
12.0
28.1
5.2
22.9
1970
1990
10.0
Developing
1
Real GDP1
$ Trillions
3.0
6.1
1.9x
34.6
11.3
1.3
their growth will slow
significantly, relative to that
of developing economies
...
2008
3.3
65.5
46.6
12.0
22.5
34.6
43.0
2008
2020
115.3
53.3
2.6x
62.0
2039
Developed
Real GDP (expenditure method) base year 2005
Developed countries include OECD. Developing countries include all developing markets (Regions as defined by Global Insight)
Source: Global Insight World Market Monitor
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4.9
1.9
Megatrends: Agricultural Productivity
Global food consumption
Billions, MT
12.4
4.7
$2.50 per day
• Biofuels demand on grain
7.8
6.2
– Driven by:
• Population growth
• Income growth
– 3.1bn people below
and oilseed crops
1.6
– Projected gross output
increase
• 2.4% p.a. last 10 years
• 3.4 % p.a. next 10 years
Today
Gap1
2020E
Gap2
1. Real GDP (expenditure method) base year 2005
2. 2020 and 2050 gaps estimated based on FAO Outlook (Nov 2008) and UN projections respectively
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2050E
Source: IFPRI and FAO projections; UN;
Global Insights; team analysis
Megatrends: Infrastructure
Construction spending 2020 absolute
2,101
China
1,439
U.S.
Construction spending 2008-2020 change
1,340
China
387
U.S
362
India
607
India
Japan
579
Russia
109
Australia
108
97
Spain
409
U.K.
359
Indonesa
France
353
Brazil
74
Russia
289
Saudi Arabia
61
Italy
288
Spain
58
Turkey
56
Germany
273
Billions of 2008 $s
Source: IHS Global Insight, March 2009
– Top 10 countries account for 68% of total
– U.S. & BRIC represent 47%
– China & U.S. alone account for 36% of total 2020 spending
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Infrastructure
Non-residential
Residential
All Construction
– Top 10 account for 78% of 2008-2020 growth
– China & U.S. represent 51% of total growth
– 7 of top 10 are emerging countries
Growth Requirement
Customer Intimacy
Knowing
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Understanding
Listening
Meeting Customer Expectations
Around the Globe…
Pune, India
5036C
– $6500 Price Point
– Only 2 configurations
– 2000 hours annual usage
– No computer technology
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Waterloo, IA
8345R
– $295,000 Price Point
– Numerous configurations
– 850 hours annual usage
– 2M lines of computer code
…with Standardized Processes
and World-Class Facilities
Pune, India
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Waterloo, IA
Manufacturing Competitiveness
Deploying Capabilities Globally
Advanced Manufacturing
Objectives:
– Optimize use of
people, property
and equipment
– Leverage processes
and tools globally
Virtual
Product
– Achieve: Safety,
Quality, Delivery
and Cost goals
– Optimal Manufacturing
footprint and network
Virtual
Process
Virtual
Facility
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Operating
Performance
John Deere Strategy
Keys to Success
• Customer Focus
• Process Discipline
• John Deere Quality and Production
System
• Performance Management System
Growth
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