Any devoted demand-driven logistics practitioner might take issue with the catchy headline on a recent Bloomberg BusinessWeek article: "Low Inventory Angers John Deere Customers." The article quotes unhappy dealers who can’t get equipment from Deere as quickly as they want. One reports losing "half a dozen deals a month." Farmers aren’t happy, either.
The culprit, according to the article, is Deere running lean. As BW relates, Deere "had been focusing on becoming a build-to-order company," which bolstered profits because "keeping lower stock on hand reduces the amount of materials and working capital a company needs." Deere had a 12.3-percent inventory-to-sales ratio in the past 12 months, significantly lower than competitors CAT and New Holland, and a dozen other farm equipment makers.
That "intense focus" on managing inventory is causing a greater lag in order fulfillment now that farmers’ demand for new equipment has picked up, the article reports.
Fair enough. Nobody wants to tick off customers or lose sales. But a few questions come to mind.
With complex products such as farm equipment, more lead time is required to ramp production back up. There were few orders in 2009, and with manufacturers worried about survival (think GM), production naturally slowed down.
Few were optimistic about short-term economic prospects. Fewer still had the intestinal fortitude to counter-intuitively buy when everyone was selling, or build stock when everyone was digging deep, hoping to find the cash to cover inventory already on hand. The only one giving out cash was Uncle Sam (think GM again). Is bloating inventories, running out of cash, and emitting the smell of death a wise alternative to running a lean operation?
In good times or bad, under a lean manufacturing process or not, dealers are the demand signals that drive the manufacturing process. Dealers know this. Could they have stocked more inventory themselves to prepare for an uptick in demand? I am sure Deere would have loved to take orders during the lean months of 2009.
Could better communication in a lean manufacturing value chain that requires long lead times have helped? Did Deere dealers understand what the commitment to low inventory meant to them? Could dealers, along with Deere, have done some research to get closer to what farmers were really thinking? Could setting up a social network site to continuously take the pulse of that primary demand signal have helped? What about a network of devoted farmers giving a real-time sense of their buying attitudes?
Angry dealers and lost sales notwithstanding, a commitment to lower inventory was not the culprit here. In the global competitive environment Deere plays in, the alternative would have been worse.
I am going out to mow my grass. Whether lean or lawns, nothing runs like a Deere.