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 4 | Building a Great Business 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) 5 | Building a Great Business 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. 6 | Building a Great Business 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 11 | Building a Great Business John Deere Strategy Sprint North Operating Performance Disciplined Growth Growth 12 | Building a Great Business 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) 13 | Building a Great Business 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) 14 | Building a Great Business 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) 15 | Building a Great Business $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 17 | Building a Great Business 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 18 | Building a Great Business 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 21 | Building a Great Business 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 22 | Building a Great Business 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 – – – – 23 | Building a Great Business 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 – – – – 24 | Building a Great Business 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 25 | Building a Great Business 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 26 | Building a Great Business 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 27 | Building a Great Business Drivetrain Operations Redevelopment: Reduce Manufacturing Space by 50% Yesterday – 4M sq. ft. under roof Today Cast Iron Assembly 28 | Building a Great Business 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 29 | Building a Great Business 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 30 | Building a Great Business 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 31 | Building a Great Business 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 $0 1981 1983 32 | Building a Great Business 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Exceptional Operating Performance Operating Return on Operating Assets Exceptional Operating Performance - Equipment Operations − 29.8% OROA in 2011, a record high for the company 35% 30% 2011 2010 2007 25% 2006 20% 10% 2004 28% 2005 20% 2009, adjusted 15% 2008 2009 12% OROA (SVA Neutral) 12% 2003 2002 5% 2001 0% 80% Low 100% Normal % of Normal Volume 120% High *Excludes fiscal 2009 expenses related to goodwill impairment and voluntary employee-separation, for reconciliation to GAAP see “2009 OROA Reconciliation to GAAP” slide in Appendix. 33 | Building a Great Business SVA Journey Equipment Operations Disciplined SVA Growth - Equipment Operations − SVA Journey, 1991 - 2011 2,800 Adoption of SVA Model 2,400 2,000 SVA ($ 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 34 | Building a Great Business 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 35 | Building a Great Business Quality Journey – Returns & Allowances 36 | Building a Great Business 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 38 | Building a Great Business 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 39 | Building a Great Business 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 40 | Building a Great Business 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 41 | Building a Great Business Understanding Listening Meeting Customer Expectations Around the Globe… Pune, India 5036C – $6500 Price Point – Only 2 configurations – 2000 hours annual usage – No computer technology 42 | Building a Great Business 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 43 | Building a Great Business 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 44 | Building a Great Business Operating Performance John Deere Strategy Keys to Success • Customer Focus • Process Discipline • John Deere Quality and Production System • Performance Management System Growth 45 | Building a Great Business