In 2011, we purchased $21 billion of materials, products, and services from more than 30,000 suppliers in 65 countries. The suppliers here tonight represent a small fraction of that supply base but your numbers easily dwarf the size of John Deere's early supply base.
From the records of the former John Deere Plow Works from 1849-1854, we were able to glean the names of 12 suppliers. Those suppliers and the products they provided – coal, charcoal, lumber, iron, lard oil, and of course, steel – give us a snapshot of the early days of John Deere.
As the company grew, so did the number of suppliers and the variety of products they provided. A raw-materials records book dating to the time of the Civil War lists 35 suppliers, including nine steel suppliers. It also documents the addition of new materials like coach varnish and cultivator teeth. It gives us another snapshot of a growing and evolving company.
Even in the early days of his company, John Deere recognized the value of quality and strategic sourcing. When he began making plows, high-quality domestic steel wasn’t readily available. So he imported steel from England. Once U.S. steel makers were able to supply high-quality material to his satisfaction, he switched to domestic vendors.
Few, if any, of those early-generation suppliers are still in business. However, every supplier here tonight has its own history with John Deere. Some of your stories are relatively new; others have relationships with us that run deep and have grown over many years.
Here are a few examples that are representative of our supply chain.
- Let's start with Sears Manufacturing, located here in Davenport. Today Sears supplies hi-tech specialized seats for our agricultural and construction equipment. But in the early 1940s, when our relationship began, Sears provided canvas conveyer belts for combines and shade umbrellas for row crop tractors, such as the one shown in this photo. Hint: Remember this photo for later.
- Gross-Perthun, one of our partner-level suppliers here tonight, provides paint and coatings to our factories throughout Europe. It's something Gross-Perthun has done for generations. The company has been a supplier to our Mannheim, Germany, factory since 1918 – long before we even owned it.
- Wallenius Wilhelmsen is one of our partner-level logistics suppliers. John Deere equipment has been shipped by Wallenius and its legacy companies for more than six decades. Over that time, Wallenius has shipped some 700,000 pieces of our equipment to points around the world.
- Finally, there's the Donaldson Corporation. We couldn't pinpoint the year it began supplying filtration equipment for our products. But we know our relationship goes back to at least the 1930s. That's when this Donaldson employee was photographed changing a filter on a Model D John Deere tractor.
In short, suppliers have played a vital role throughout John Deere's history – and that role is expected to increase even further in the future.
That leads me to my second topic – what's going on in our company today.
I won't go into a lot of detail about our recent financial performance since you're probably familiar with it. After all, you've helped us achieve it.
The fact is, John Deere has been operating at a high level for some time. We have achieved profit records in six of the last eight years – and broke through the old mark by almost $1 billion in 2011.
What's more, the powerful global economic forces that have lifted our performance – and elevated our prospects – are showing continued strength.
Last year, the world's population passed the 7 billion mark…on its way to more than 9 billion by 2050. We're gaining around 9,000 new mouths to feed every hour – over 25,000 during the time we're together tonight.
In order to provide enough food, fiber and fuel for this growing number of people, agricultural output must double – and do so in a sustainable manner.
At the same time, a socio-economic shift of seismic proportions is under way in the world's emerging markets. People are leaving the farms and migrating to the cities as never before.
In 1950, 30 percent of the world's population was urban-based. That percentage raced past 50 percent a few years ago and is expected to reach 70 percent by 2050.
In raw numbers, this means the urban population will double in size over the first half of the present century – and be roughly eight times higher in 2050 than 1950.
This urban influx leads to something of a virtuous circle for heavy machinery companies such as John Deere and for those with a stake in our success.
More people in town translates into fewer people on the farm and a greater need for farm mechanization. More people in the cities also leads to a growing middle class – a diet-upgrading, meat-eating middle class that triggers a huge demand for feed grains.
As if that isn't enough, this urban migration also increases the need for roads and bridges and other forms of infrastructure. So it supports demand for construction equipment, too.
All in all, the urban phenomenon unleashes a wave of productivity that is stimulating to the global economy, to the need for advanced machinery, and, more broadly, for goods and services in general.
Could these tailwinds by stilled by a major contraction in the global economy? Perhaps, but it's more likely this would have more impact on the velocity of the winds than their direction. So, in such a case, the changes we're describing would simply unfold over a longer period of time.
Powerful tailwinds are one thing; setting an aggressive course to capture them is quite another.
With that in mind, in late 2010, John Deere introduced an ambitious plan to help meet society's growing need for food, shelter and infrastructure.
The John Deere Strategy – which we shared with you at last year's conference and in other communications – raises the bar on growth, profitability and asset efficiency. It places even more emphasis on global expansion.
The strategy's goals include $50 billion in sales and 12 percent operating margins, measured at mid-cycle, or normal, sales volumes.
By hitting these marks, and making some further adjustments in asset intensity, the company will double sales relative to the 2010 base year and deliver an even bigger increase in profits. Under our plan, sales outside the U.S. and Canada would rise even faster over the planning period – they could triple – and make up about half of the company total by 2018.
Achieving these goals is not a given, by any means. Reaching them requires John Deere, and our suppliers in many cases, to do several things exceedingly well.
These include developing a more thorough understanding of customers, finding ways to introduce innovative products at lower price points, establishing a first-rate distribution and after-market support system in all markets served, and ensuring we can attract and develop the right kind of talent throughout the world.
Our goals require substantial investments in additional capacity, too, which is why we're investing on a global basis at an unprecedented rate.
In just over a year's time, Deere has announced plans to establish seven factories in markets critical to our future growth – three in China – for engines, harvesters, and construction equipment; two in Brazil, both for construction equipment; and one each in India and Russia, for farm machinery.
Capital spending across the company has tripled in the last 10 years and was up over 30 percent in 2011. In the Construction & Forestry division, the business I am privileged to lead, capital spending will be about twice as high this year as in 2011…and about four times more than it was for most of the last decade.
Remember, too, that when we talk about increasing our global presence, the United States is a big part of the conversation.
John Deere's domestic manufacturing operations are efficient, profitable, and growing – and we’re committed to keeping them that way. Thus we are continuing a pattern of making substantial investments in our U.S. facilities and are even adding to our employee base here.
That brings me to my third topic – the future and what it means, in particular, for our suppliers.
Every one of you has an opportunity to partner with John Deere on our growth journey.
Indeed, the future holds great promise for suppliers who have capacity, capability, and creativity. Important, too, will be a presence in countries where Deere is building new factories and introducing new product lines. Many of you are doing exactly that, expanding to support localization.
Presence, however, does not necessarily equate with competitiveness.
John Deere knows that to be successful you've got to understand the requirements of your customers wherever they may be. And you must be able to meet their needs in a capable, responsive manner.
Scale is important but depending on your business it doesn't necessarily have to be global scale. There's plenty of opportunity for those who serve John Deere on a more local or regional basis.
As I mentioned, our U.S. manufacturing base remains critically important. Last year, the U.S. accounted for just over half of John Deere’s sales – around $15 billion – most of which was provided by our U.S.-based facilities.
That figure tends to understate the role of our domestic operations since they also account for several billion dollars of exports, which aren't technically counted as U.S. sales. Exports from the U.S. have grown by more than 50 percent in the last couple of years.
While the future is bright for suppliers that can support our growth aims, all of us realize that the right to grow isn't really a right at all. It's something that has to be earned every day by giving customers more value than our competitors.
You're off to a great start as partners in Achieving Excellence. But we all know how important it is to remain globally competitive in quality, delivery, and total-cost solutions.
As our JD Crop winners have shown, we must continue to take waste out of our supply chain by working together. Each and every one of you can be a leader in the kind of structured cost reduction that helps all of us stay on a competitive track.
Innovation is yet another key to being a successful organization. Long before anyone ever heard of R&D budgets, our founder was looking for better ways of building his plows and other implements. He was well-known for saying if we don't improve our products, someone else will.
Today innovation is considered one of John Deere's core values, along with integrity, quality and commitment. And R&D budgets are a big deal. To keep ahead of the competition, we spend over $1 billion a year – around 4 percent of sales -- to develop products that set the standard for productivity and value.
It's clear as we expand into new markets, we cannot conduct business as usual. We can't simply take existing products and de-spec or retrofit them for new customers. That's why your ideas and your innovative solutions are so needed, and so welcome, especially when they come early in the design process.
There's no question, then, that integrated innovation with suppliers is critical to meeting our growth ambitions.
Seven suppliers with us tonight are receiving supplier innovation awards. All have a common theme – innovative ideas that resulted in products or services that meet customer needs while also reducing costs.
That's a win for our suppliers, a win for John Deere, and a win for our customers. Ideas like these allow us to partner for growth and achieve the high aspirations we've set for ourselves.
We feel that our strategy and aspirations bring opportunity – the opportunity to help people live better lives while supporting our own growth and financial performance. We are encouraging you, our foremost suppliers, and all members of our supply base, to enthusiastically embrace this opportunity along with us.
To reach our goals, to realize our aspirations, we must think differently. We must move aggressively. And we must constantly be on the lookout for ways to work smarter and be more efficient.
These are formidable objectives, to be sure. But remember we've got a pretty good record – 175 years' worth -- of working together and overcoming whatever challenges that come our way.
By almost any measure, John Deere seems poised for growth and future success.
Building on our record performance in 2011 and other recent years, the company remains well-positioned to capitalize on the economic tailwinds that hold such promise for our future.
That's a chief reason we remain so confident about the company's prospects and our ability to deliver significant value to our stakeholders in the years ahead.
- For 175 years, John Deere has been setting standards of achievement – and we've done so with the help of a capable, committed supply base from the very beginning.
- For 175 years, we have worked together to contribute to a higher quality of life for the world's people.
- For 175 years, we have been building for the future -- a future that in our view burns bright with promise and opportunity.
That's why we firmly believe that whether you are an employee, customer, dealer, neighbor, investor, or supplier, there has never been a more exciting time to be associated with John Deere!
Thank you, ladies and gentlemen, for being here tonight and for working so hard in the name of our mutual success.