Tackling supply chain hiccups is like playing “whack-a-mole” because of the scope and frequency of the problems, Deere & Co said, as it revealed that missing parts were leaving its factories with fleets of uncompleted equipment.
A shortage of semiconductors, a particular headache for farm machinery makers last year, is “an issue and will probably continue to be an issue as we work through the year,” Brent Norwood, the Deere director of investor relations.
However, he added that the group, the maker of John Deere equipment, was also “seeing challenges with castings and wire harnesses and hydraulics and pumps and tyres.
“It really just depends on the day in terms of what’s causing challenges for us.
“We have seen a supply base that got, I would say, progressively worse over the course of 2021,” he told investors.
“And then really since the fourth quarter of ’21, we characterise the supply base as just kind of persistent challenges.”
‘Whack-a-mole’
Indeed, “with respect to the supply chain, we are seeing issues be fairly broad-based,” Mr Norwood told investors.
“Our supply management team would describe it as whack-a-mole,” he said, referring to the arcade game in which players to hammer at toy moles emerging from holes in a random sequence.
The “delays and delinquencies” in the supply chain had landed Deere’s factories with a “backlog” of machines left unfinished thanks to a lack of parts, he said, blaming the setback for slowing group sales growth in the quarter to May 1 to a level well below market expectations.
The sales miss sparked a 14.1% plunge in Deere shares on Friday, the biggest one-day slump in the group’s shares since 2008, and wiping nearly $16bn from its stockmarket value.
Delayed gratification?
However, Mr Norwood said that the Deere did have “confidence that we will get the parts that we need to complete those machines that are currently in inventory”.
These items would ship mainly in the group’s current, third quarter, with some nearer the end of its financial year, which closes in October.
“Of the growth that we see in the back half [of the financial year], one-quarter of it is effectively represented by those machines waiting on parts,” said Josh Jepsen, Deere’s deputy financial officer.
