Toro 2010 Annual Report Download - page 12

then enter into agreements with these vendors to purchase compo- of our vertical integration capabilities, as well as a new manufac-
nent parts manufactured using the tooling. In addition, our vendors turing facility in Eastern Europe.
regularly test new technologies to be applied to the design and
Raw Materials
production of component parts. Manufacturing operations include
During fiscal 2010, we experienced higher average commodity
robotic and computer-automated equipment to speed production,
costs compared to the average prices paid for commodities in fis-
reduce costs, and improve the quality, fit, and finish of products.
cal 2009, particularly in the second half of fiscal 2010, which ham-
Operations are also designed to be flexible enough to accommo-
pered our gross margin growth rate in fiscal 2010 as compared to
date product design changes that are necessary to respond to
fiscal 2009. We anticipate the rising commodity prices we experi-
market demand.
enced during the second half of fiscal 2010 will continue into fiscal
In order to utilize our manufacturing facilities and technology
2011. Historically, we have offset, and we currently expect to con-
more effectively, we pursue continuous improvements in our manu-
tinue to mitigate, commodity cost increases in part by continuing
facturing processes with the use of Lean methods that are
efforts to engage in proactive vendor negotiations, reviewing alter-
intended to streamline work and eliminate waste. We also have
native sourcing options, substituting materials, engaging in internal
flexible assembly lines that can handle a wide product mix and
cost reduction efforts, and increasing prices on some of our prod-
deliver products to meet customer demand. Additionally, we spend
ucts, all as appropriate.
considerable effort to reduce manufacturing costs through Lean
Most of the components of our products are also affected by
methods and process improvement, product and platform design,
commodity cost pressures and are commercially available from a
application of advanced technologies, enhanced environmental
number of sources. In fiscal 2010, we experienced no significant
management systems, SKU consolidation, safety improvements,
work stoppages as a result of shortages of raw materials or com-
and improved supply-chain management. We also manufacture
modities. The highest raw material and component costs are gen-
products sold under a private label agreement to a third party on a
erally for steel, engines, hydraulic components, transmissions,
competitive basis, and we have agreements with other third party
plastic resin, and electric motors, which are purchased from sev-
manufacturers to manufacture products on our behalf.
eral suppliers around the world.
Our professional products are manufactured throughout the year.
Our residential lawn and garden products are also generally manu-
Service and Warranty
factured throughout the year. However, our residential snow
Our products are warranted to ensure customer confidence in
removal products are generally manufactured in the summer and
design, workmanship, and overall quality. Warranty coverage is for
fall months but may be extended into the winter months depending
specified periods of time and on select products hours of usage,
upon demand. Our products are tested in conditions and locations
and generally covers parts, labor, and other expenses for
similar to those in which they are used. We use computer-aided
non-maintenance repairs. Warranty coverage generally does not
design and manufacturing systems to shorten the time between
cover operator abuse or improper use. An authorized distributor or
initial concept and final production. DFM/A principles are used
dealer must perform warranty work. Distributors and dealers submit
throughout the product development process to optimize product
claims for warranty reimbursement and are credited for the cost of
quality and cost.
repairs, labor, and other expenses as long as the repairs meet our
Our production levels and inventory management goals are
prescribed standards. Warranty expense is accrued at the time of
based on estimates of retail demand for our products, taking into
sale based on the type and estimated number of products under
account production capacity, timing of shipments, and field inven-
warranty, historical average costs incurred to service warranty
tory levels. In fiscal 2010, we continued to roll-out a pull-based
claims, the trend in the historical ratio of claims to sales, the histor-
production system at some of our manufacturing facilities to better
ical length of time between the sale and resulting warranty claim,
align the production of our products to meet customer demand at
and other minor factors. Special warranty reserves are also
just the right time. Along with improved service levels for our par-
accrued for major rework campaigns. Service support outside of
ticipating suppliers, distributors, and dealers, this system has
the warranty period is provided by authorized distributors and deal-
resulted in inventory reductions for us and throughout our distribu-
ers at the customer’s expense. We also sell extended warranty
tion system.
coverage on select products for a prescribed period after the fac-
We periodically shut down production at our manufacturing facili-
tory warranty period expires.
ties in order to allow for maintenance, rearrangement, capital
equipment installation, and as needed to adjust for market Product Liability
demand. Capital expenditures for fiscal 2011 are planned to be
We have rigorous product safety standards and continually work to
approximately $60 million as we expect to continue to invest in
improve the safety and reliability of our products. We monitor for
new product tooling, replacement production equipment, expansion
accidents and possible claims and establish liability estimates with
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