How AGCO Built Its Business Case for Global Supply Chain Risk Management

supply chain

This post is based on content from the Spend Matters paper, A Case Study in Global Supply Chain Risk Management: How AGCO Implemented an SCRM Solution to Save Millions. We invite all of our readers to download this analysis and our PRO subscribers to speak with our team about how to build their business case for supply chain risk management program investment.

AGCO is a Duluth, Georgia-based, multi-business unit global manufacturer of agricultural machinery. The company traces its roots back 100 years but was formed 25 years ago and has operations in primarily North America, Western Europe, Brazil, China and India.

AGCO has addressable procurement spend around $7 billion, out of which $5 billion is in direct materials and $1 billion is pure indirect spend, with parts and third parties making up the remainder. AGCO's procurement organization comprises about 250 people, touches 25 direct commodities and works with around 6,000 suppliers, out of which around 250 make up 90% of spend.

The procurement function was fragmented and spread across the many business units, which led to business challenges when external events – such as earthquakes – disrupted the supply base.

These events sent buyers scrambling for available capacity without any sense of teamwork or collaboration. In some cases, they were outbidding one another for the same suppliers. When a competitor proved that a center-led supply chain risk management (SCRM) approach was more effective at securing supplier capacity, this drove AGCO to adopt its own strategy, as well as an organizational change to a matrix layout.

Key business objectives were identified:

  • Eliminate internal risks
  • Focus on top 250 suppliers
  • Consider supplier, location and country risks
  • Automate data capture to minimize manual efforts

Outcomes or business benefits were defined as:

  • Better sourcing decisions through risk adjusted total cost of ownership (TCO)
  • Sub-tier supply chain risk identification through multi-tier supply chain visibility
  • Alignment of category management strategy with supply chain risk exposure. 
The SCRM effort at AGCO was not a quick fix or narrow point initiative but was rolled into a holistic approach that combined:
    • Internal organization change to a matrix structure with category owners that also have regional or even cross-enterprise roles in addition to their responsibilities at the business unit level
    • Implementing the position of a risk manager
    • Supply base analysis with development of suitable risk mitigation strategies
    • Supporting software tools to enable automated visibility and risk analysis

Training was a key component in all of the above to drive the transformational aspect of changing the way the company engages with its risk exposure.

Organizations that want an inside track on building or accelerating a business case for investment in SCRM are likely to find the Spend Matters paper,A Case Study in Global Supply Chain Risk Management: How AGCO Implemented an SCRM Solution to Save Millions, useful in their efforts.

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