JCB

Source: Manufacturing Digital

Date :04/01/2008 15:58:03

Military orders have boosted JCB’s growth and brand awareness in the USA as its core civil markets struggle through the credit squeeze

Written by John O'Hanlon and Produced by Michael Alexander-Jones

Christmas, and the President of JCB Inc. Graeme Macdonald is looking forward to spending the holiday with his family in the UK. He can look back over a fantastic year for the company in the Americas, and in particular the North American operation, which has contributed to a record year for the family owned global manufacturer of backhoe loaders, telescopic transporters and other construction equipment.

But it hasn’t been easy. Construction, and consequently construction equipment, has been hit by the credit squeeze following last summer’s sub-prime crisis, and all the manufacturers have had to cope with that. But JCB is less exposed than its competitors. It is a fast-growing newcomer, with at present around four percent of the North American construction equipment market, a market dominated by Caterpillar and John Deere.

Uncertain markets

Starting from a relatively low market share gives JCB huge opportunities to grow, no matter what the market conditions are, explains Macdonald. “A key focus for our North American management team this year has been to grow and re-engage our dealer network. We are not aiming to copy John Deere or Caterpillar – for example John Deere recently said it wants to reduce the number of dealers it has and maybe have one per State.

That is not our business model: our success in other parts of the world has always been predicated on partnering with dealerships that are small, local family businesses which grow with the success of JCB. We are a family business too, and that is very much the business model we are rolling out in North America. It has been very successful over the last year, and as other manufacturers have been consolidating we have been out there appointing new dealers especially in those parts of the country that aren’t covered yet.”

In any case, the current downturn is temporary: new housing is in demand and the opportunity for JCB is enormous, says Graeme. Rental accounts for 40 percent of the total market, and that sector is undergoing a lot of uncertainty just now, he adds, as the biggest player United Rentals contemplates its future following the failed bid from Cerberus.

When the rental business settles down and Americans can get mortgages again, the brakes will be off but even in the present climate JCB has had some notable successes both in its core business, with market share increasing to 12.5 percent for the telescopic handlers made at the company’s headquarters in Savannah GA from around eight percent a year ago, and in new contracts for the US army.

The military machine

Last year JCB unveiled its High Mobility Engineer Excavator (HMEE), the result of a four-year program of design, development and testing. Purpose-built exclusively for the US Army, the JCB HMEE will deploy for service in Iraq and Afghanistan, in the first quarter of 2008 where it will fulfill a host of strategic engineering functions.

“This was the biggest contract in the company’s history, for 800 units over the next five years – and that’s just for the US Army: we are also talking to other parts of the US military to supply the machine, as well as other foreign governments. The future potential business is extraordinary. There are many non-military applications such as disaster relief operations and functions in the energy industry that have been getting global attention.”

Winning this contract has helped improve brand awareness throughout the country. The HMEE is an impressive machine capable of road cruising at 60 MPH – it can join a road convoy without requiring a transporter. This sort of capability has brought it wider coverage than just the trade press, for example it recently featured in the Wall Street Journal. This sort of publicity soon becomes self-generating, Macdonald agrees, and he feels that at last the JCB brand is on the verge of becoming as familiar as Case, Komatsu – or indeed Caterpillar.

Being a family business is another factor helping JCB to make inroads into the American market. “We are not held to ransom by the stock market by quarterly results, we can make quick decisions and act with the agility of a much smaller business than in fact we are; just a few people can make significant decisions very quickly and that nimbleness allows us to respond much more quickly to the marketplace than the corporates can, whether it’s product development, distribution strategy or pricing.”

This helped win the HMEE contract, JCB’s first ever military tender in the US, against competitors who had long supplied the armed forces: the ability to respond fast to the Army’s changing specifications and design requirements impressed them more than any other single factor, he says. JCB has set up a Government and Defense business unit to leverage this success.

Never content

It is also worth noting that if, as confidently expected, there’s a large global demand for the HMEE or variants of it these will all be built at the Savannah plant under an agreement that formed part of the original contract. This will safeguard American jobs. Continuing to build these machines in the USA still makes economic sense.

The plant is one of the most efficient in America, being run strictly on principles of lean manufacturing, continuous improvement and total quality, a variant to the Toyota Production Method (TPM). “The cost of labor is a small part of manufacturing cost these days. We are very much committed to our lean journey and to making efficiencies in the whole supply chain. We are not where we want to be, because lean is a never-ending journey. Our company motto is “Never Content!”

To build the HMEE, with its much larger components, JCB purchased a large multi-functional CNC machining center at its 500,000 square foot plant but didn’t require much more capital investment to achieve its extraordinary goal of tripling production over the course of 2007. Graeme Macdonald explains how: “We had to take a hard look at our manufacturing strategy at Savannah.

The market was down and we had some exposure there, but on the other hand the weakness of the dollar presented an opportunity for us as a US-based manufacturer. At the start of this year, the export content of our output was under 15 percent. At this moment it is 50 percent. We are exporting to Latin America, South Africa, South East Asia and any market that trades in US dollars.

People break records

The facility was opened in 2000 and had plenty of space for expansion. The principal challenge when ramping up production to current levels has been recruitment and training to ensure there were enough qualified and well trained personnel. There has been a twelve percent increase in staffing over the course of 2007, but this has not been easy to achieve.

Savannah has relatively low levels of unemployment and there is competition for good engineers from other local industries such as Gulfstream, which have also been growing at record levels. “It’s not just a question of paying more, though that helps,” says Graeme. “It’s being seen as the employer of choice, with a better package of benefits and also providing a more attractive working environment than the others. I think we have shown we are in fact the employer of choice.” As a contributing member of both the Savannah and Georgia State chambers of commerce, he should know.

In a skills shortfall, training takes on special significance, and JCB partners local educational establishments like the Savannah Technical College and the Georgia Institute of Technology, which have world class technical and sales training facilities Graeme assures me.

JCB seems to be growing like an internet company in a traditional engineering sector. Its success is based on a proven product and it has the space it needs in a market hungry for innovation. “We started just under two years ago on a five year plan to double the size of the business, and that forced us to recalibrate what we are doing. This year will be another record year for JCB, surpassing last year’s record of $3.5 billion (globally) by at least 25 percent. It is stretching us in a lot of ways – good ways because it’s always valuable to challenge the way you do business.”