Squeezed CNH ag supply chain looks for creative industry ideas fix

Two years of record tractor and harvester sales in Australia, compounded by big world-wide demand, plus COVID-19 production and freight delays, and even drought in Taiwan, have left major stresses in the machinery pipeline.

Australian tractor orders from US manufacturers can now take a year or more to arrive instead of the three or four month wait which was typical two years ago.

Some of the frustrating delays in the supply chain have been caused by components sourced from third party operators around the globe for use in gear built by the big northern hemisphere farm machinery makers.

A chronic global shortage of automotive industry semiconductors has been just one notable contributor to many unpredictable factors causing the squeeze on new gear deliveries.

A typical mid power range tractor contains more than 1000 semiconductor microchips in the electronic circuitry controlling its engine performance, GPS navigation, lighting systems and more.

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"But any number of factors are responsible for the supply chain issues," said CNH's Asia Pacific president of the Case IH and New Holland agricultural and construction equipment brands, Chun Woytera.

Aside from COVID-related labour shortages and port disruptions, "almost everything" had caused supply disruptions at various times in recent years - from semiconductors to castings, tyres, bearings, seals or various mechanical and cabin parts.

"Every week it's a bit like `whack a mole'," Ms Woytera said.

"You name it, there's probably been a supply issue popping up somewhere."

The global semiconductor shortage itself has been triggered by several factors, including water restrictions in Taiwan, which makes about half the world's supplies of these silicon-based electrical circuits.

The worst drought in decades cut Taiwanese output because the manufacturing process uses a lot of water to keep the components clean, while at the same time demand for electrical goods, including home office equipment, has boomed during the pandemic.

"The semiconductor microchip shortage remains an issue we expect to keep impacting production into next year, but we've managed to handle it pretty well for six quarters and we'll continue doing that," Ms Woytera said.

"As a company, and as an industry, we have to look at what lessons and better processes we can gain from this disruption.

"We've certainly refined our ability to innovate and deliver equipment under difficult conditions and we've still achieved record sales, market share growth and profits to shareholders despite the challenges."

As the world's second largest farm machinery manufacturer, CNH had been able to maximise its global reach, creatively mitigating the problems to get finished goods to dealers, but she said the machinery sector had to look collectively at how it could be less exposed to such big supply constraints.

Visiting Australia from her Bangkok regional headquarters for the first time since taking the top job eight months ago, Ms Woytera acknowledged CNH's component re-think may include looking within Australia for more cost effective solutions.

However, she did not identify specific components or products on her radar.

"Our approach is looking at what we can do to build a more self-reliant supply chain - where should we be turning to, and what needs to be supplied," she said.

"We are considering all possibilities, including what the surest and most efficient and most cost effective answer to specific supply concerns here.

"We look at patterns emerging in local markets."

While much of CNH's New Holland and Case IH machinery is imported, the company makes some seeding and tillage gear in Australia at the Horwood Bagshaw plant in Mannum South Australia and at Cowra's K-Line Ag in NSW.

"As the only ag major with Australian production operations, we are very conscious of the local supply chain situation, and its complexity," Ms Woytera said.

"The big question is what does the Australian market want most, and can that be helped by changing what we do?"

Regardless of whether CNH does tap more local supply sources to help availability, it expected import headwinds to continue this year.

Australia and NZ managing director, Brandon Stannett, said aside from a longer waiting list because of a strong pipeline of orders around the world, any machine built in a US factory today was taking three to four weeks longer than normal to arrive in Australia.

Delays occurred at every point from the factory to export points in North America; shipping departure delays and delays enroute to Australia; at unloading and quarantine stages in Sydney, and finally, getting timely freight to the dealer.

However, sometimes lucky customers could be matched with pre-ordered gear already in Australia, or booked to arrive within a few months.

Interestingly, the company has also resumed machinery and parts deliveries to farmers in war-wracked Ukraine.

"This support has been of critical importance during the spring planting season and for construction professionals," said Ms Woytera, who started her career with Case IH as an agricultural and biosystems engineer 25 years ago.

CNH has a parts manufacturing division in Ukraine, which continues to operate.

A product assembly business in Russia and Russian machinery imports have been "paused as part of the stand being taken by the global community", although existing Case IH and New Holland stocks within Russia were still being distributed.

CNH also donated $US500,000 for emergency relief to Ukraine after Russia's invasion of its western neighbour in March.

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