John Deere Supply Chain Risk Management GSCMI 2017

John Deere Supply Chain Risk Management GSCMI 2017 Spring Conference – Purdue Krannert School of Management

John Deere Today • Founded in 1837 (180 years) • Over 100 Locations • Operations in 35 Countries • ~60, 000 Employees Globally • 2016 Sales $26. 6 B

Our Strategy GLOBAL GROWTH OPERATIONS Agricultural Equipment 3 | John Deere Today Construction Equipment

Our Strategy COMPLEMENTARY OPERATIONS Turf Equipment 4 | John Deere Today Forestry Equipment

Our Strategy SUPPORTING OPERATIONS Financial Services Worldwide Parts Services 5 | John Deere Today Power Systems Intelligent Solutions Group

Supply Chain Resiliency at John Deere 6 • Our Risk Management Journey • Deere Supply Chain Risk Management Process • Supplier Financial Risk • Managing Critical Events • Strategic Risk Management • Deep Supplier Understanding John Deere Today

Supply Chain Resilence Evolution of Supply Chain Risk Management Total quality Management Defined performance goals and Tracking ATD Goal 2500 Suppliers Risk & Performance Monitoring Reactive Processes Risk Contingency Planning Pro-active Processes 1990 1999 2010 2011 2014 Deere Quality Manual Achieving Excellence Program Supply Base Optimization Supply Chain Risk Tool Strategic Risk Management

Deere Supply Chain Risk Management Today • Proactive Strategy and Risk Management Processes • Robust Event Management Tools • Efficiently execute Contingencies and Recover Supply

Deere Supply Chain Risk Management (SCRM) Supplier Performance Risk Supplier Financial Risk Compliance Risk Strategic Risk Management 9 John Deere Today

Deere Supply Chain Risk Management (SCRM) Supplier Performance Risk Supplier Financial Risk Compliance Risk Strategic Risk Management 10 John Deere Today • Delivery • Quality • Trends

Deere Supply Chain Risk Management (SCRM) Supplier Performance Risk • Core Health Supplier Financial Risk • Resilience • Default Probability Compliance Risk Strategic Risk Management 11 John Deere Today • Trends

Deere Supply Chain Risk Management (SCRM) Supplier Performance Risk Supplier Financial Risk Compliance Risk Strategic Risk Management 12 John Deere Today • Code of Conduct • Environmental • Restricted Materials • Adverse Media

Deere Supply Chain Risk Management (SCRM) Supplier Performance Risk • Reactive Processes Supplier Financial Risk Compliance Risk Strategic Risk Management 13 John Deere Today • Measure of what has already occurred… • Input for Strategy Improvement

Deere Supply Chain Risk Management (SCRM) What do we mean by Strategic Risk Management? Supplier Performance Risk Ø Moving from Reactive to Proactive Processes Supplier Financial Risk Ø What can we do today that will improve our position tomorrow? Ø Requires a much deeper understanding of our Suppliers Compliance Risk Ø Includes both Risk Mitigation and Contingency Planning Strategic Risk Management 14 John Deere Today

Deere Supply Chain Risk Management (SCRM) Ø What can we do today that will improve our position tomorrow? • Supplier Performance Risk High Dependency • Intellectual Property (IP) • John Deere • Single Source • Ag or Construction Industries • Geo-political concerns • Other Industries • Logistics • Union Agreement tracking • Currency Risk • Compliance Risk Succession Planning • Regional Holidays & customs • Raw material disruption • Emerging Risks……… Supplier Financial Risk Strategic Risk Management 16 John Deere Today

High Dependency Suppliers Deere % of Supplier's Business Risk Suppliers What action can we take today that will improve our position later if the supplier fails? 0% <2 0% -3 20 0% -4 30 0% -5 40 0% -6 50 0% -7 60 0% -8 70 Financial Risk Rating Suppliers > 50% Dependent 0% -9 80 0% >9 • Review current Performance and Risk trends • Develop Contingency or Mitigation plans • Identify alternate suppliers • Gauge complexity to resource • Part and print information • Tooling and testing requirements • Review supplier’s strategy to diversify High Low Medium

Risk in Strategy Development Process Strategy Risk Supplier Risk Mitigation UR • Reduce overall risk within strategy suppliers Medium Low Supplier Optimization High Risk Future Low Risk • Align supply base capacity with Deere needs High Medium Risk State Unrated URHigh Medium Supplier Performance • Focus on top tier supplier performance goals 18 Low High Risk Medium Risk Low Risk Unrated

Ag Industry Downturn • Measure impact of the downturn for each supplier • Acknowledge suppliers are reviewing schedule revisions • Confirm appropriate action taken to adjust their business 19 John Deere Today

Supplier Financial Risk

Financial Risk Process Financial Risk Action Plan • 3 rd Party Financial Assessment • Public and Private Companies • Core Health: How is the supplier performing from an operational perspective? • Resilience: Can the supplier meet their short and long term obligations? • Trends, Default Probabilities, Peer Benchmarks, Financial Dialogue

Developing Employees to Manage Financial Risk JD Learning Financial High Risk Action Plan Guidance Building Highly Effective Action Plans Question: How can I verify that I developed a comprehensive Financial Action Plan for high risk suppliers? Answer: The ESFR Co. P has developed criteria to evaluate the robustness of action plans. . Important Elements to Verify: - The Commodity Manager provides approval. - The DA action plan “spot the dot” matrix is complete. - Short term and Long term (>1 yr) actions are documented. - The DA action plan is up to date, less than 90 days old. - The DA includes an action for regular supplier communication. - The DA identifies what the supplier is doing to address the high risk. - The DA identifies what we are doing to address the high risk.

Managing Critical Events

Event Risk Process Global tracking of events with potential to impact our operations. • Natural disasters • Labor relations • Transportation • Facility fires • Geopolitical risks • Trade barriers • Duties and tariffs

Event Risk Process - Hurricane Patricia, October 2015 • Review of severity • Define regions impacted • Identify suppliers and logistics concerns • Supplier communication • Mitigation and recovery

Event Risk Process - Hurricane Patricia, October 2015 • 157 Suppliers identified in Hurricane Patricia‘s path • Demand review and mitigation in advance of the storm • Immediate support and recovery post storm impact

Deep Supplier Understanding

Deep Supplier Understanding • Assessment of Capability • Performance measurement and feedback • Frequent Communication • Annual Surveys • Flexibility to support changing business needs 28 John Deere Today

In Summary

In Summary… • Supply Chain Resiliency is a journey at Deere • We continuously evaluate our supply base capability • Deep understanding of our supply base • Risk is a key part of our Supply Strategy • We train and equip our employees with tools to support success • Events will occur that impact supply continuity • • We plan today for what could happen tomorrow • Robust and efficient event management tools Flexing our processes to meet changing business needs. 30 John Deere Today