Unhappy JD fan

I guess AGCO isn't the only equipment company making people unhappy!

Low Inventory Angers John Deere Customers

Some farmers bolt as recovery catches the equipment maker short

 

By Shruti Singh

Bloomberg Businessweek

April 22, 2010

 

• "I suspect we can lose at least half a dozen deals a month"

 

Jay Armstrong just broke a 50-year family tradition at his Kansas farm: He bought his first major piece of equipment that's not a John Deere brand. The Italian-made corn harvesting combine attachment Armstrong ordered from Dragotec USA will arrive in May. The same $59,000 part from Deere (DE) wouldn't have been delivered until August. "I used to be blind to all colors but [Deere's] green and yellow," he says. "My color blindness is now gone."

 

In recent years, Deere has been focusing on becoming a build-to-order company. That bolstered prices and profit because keeping smaller stockpiles on hand reduces the amount of materials and working capital a company needs. But production cuts and the tightest inventories in the industry have led to a shortage of Deere equipment as the farm economy is strengthening. And that's pushing customers such as Armstrong toward competitors.

 

Deere shrank its inventory 28% in the 12 months ended on Jan. 31. As a percentage of sales in the most recent reported 12 months, Deere's inventory was just 12.3%, the lowest among 15 farm and construction equipment makers, including Agco (AGCO) and Caterpillar (CAT). Fewer products have big implications for the company's dealers. "It means I am losing market share," says Larry Southard, co-owner of a central Iowa dealership that gets 90% of its sales from Deere gear. He figures his dealership's sales would be up to 20% higher this year if it had enough inventory to meet customer demand and products were shipped more quickly. "I suspect we can lose at least half a dozen deals a month," Southard says.

 

One reason: A farmer who recently has ordered a tractor for crops such as corn and soybeans, which are harvested starting in September, may not be able to get the equipment until December or January, he says.

 

Ken Golden, a spokesman for Moline (Ill.)-based Deere, says the manufacturer's "intense focus" on managing inventory has improved its financial performance and has allowed it to design better products for customers. Deere's sharp-penciled ways certainly helped temper the hit to its profits during the recession, when sales declined for some equipment makers. Deere's 52% decline in trailing 12-month profit was smaller than Agco's 65% drop and Caterpillar's 75% plunge. "Deere is likely a little ahead [in managing its stocks]," says UBS (UBS) analyst Henry Kirn, because it has "focused on taking inventories out of the channel and becoming leaner over time."

 

Deere Chief Financial Officer James M. Field said on a Feb. 18 conference call that the company had been too pessimistic about the effect of the global recession on North American farmers. In November, Deere predicted its net sales would decline about 1% in the year ahead after dropping 19% in the 12 months ended Oct. 31. Deere expected production tonnage to decrease 3%. In February the company revised its outlook upward, forecasting sales to increase up to 8% in 2010 as gains in farm cash receipts rise far more than expected.

 

Deere's Golden says the company is boosting production to match the improved orders. Still, Kansas farmer Armstrong says bad feelings may linger as a result of the company's inventory squeeze. "Deere's business plan of trying to control the supply vs. selling a product and providing a service is going to come back and haunt them," he says.

 

The bottom line: Inventory management is crucial in a slump. But maximizing profit without forgoing future sales is difficult as business strengthens.

 

doesn't the dealership have a say in what and how many parts they can keep on hand? i agree that it's hard to stock what they might need, but they know what equipment they have out and they should stock parts to them. if they have the part there, they make the sale, like me, if i ask and they don't have it, i go elsewhere, i need that part now not 1-2-3 weeks down the road! if we don't get the part, we may have harvest losses due to weather, harvest is what buys their equipment!

Well whether we like it or not, it DOES come down to the almight dollar! If the company isn't making a profit why be in buisness? They have to cut corners where they can. We as consumers have GOT to be able to look ahead and be flexiable to see what we may need in the future. If you are thinking of buying a tractor in the near future you better start early! We can't wait and say I'm buying a tractor today. We have to say I'm buying a tractor in this fiscal year, go order it well in advance and take delivery when we wanted it to be here. Times are changing gentlemen and we need to change with them or be left behind!

Actually the Dragotech corn head is selling well because it works well. I don't know about relative pricing, but I saw it in use several places last fall on red combines. Might be there's some technical innovation. I'll have to ask my tenant who ran one.

He says the front gathering chain sprockets aren't hidden by the snouts and so the chaines are more aggressive at gathering corn. The spring loaded stripper plates self adjust to the corn stalk size and so keep the ears and shelled corn in the head better. Drago claims less shelling, amounting to 2 or 3 bushels to the acre increased yield. A heavy and expensive head. The heaviest corn head on the market and Drago only makes corn heads.

So there just might be technical reasons for buying Drago rather than Deer or CIH. My tenant ran a 12 row head on a big leased CIH combine, did my 28 acres in less than 3 hours last fall.

Gerald J.

Shameless the companys will let dealers stock any parts that we want.  Wholegood equipment is a little different, retail items come first and then stock units are produced in the order that they are taken but they do not always plan enough build slots for all stock units because typically there are more units ordered than history shows selling.