Toro 2011 Annual Report Download - page 12

are striving to make improvements to our new product develop- throughout the product development process to optimize product
ment system as part of our continuing focus on Lean methods to quality and cost.
shorten development time, reduce costs, and improve quality. Our production levels and inventory management goals are
Our engineering expenses are primarily incurred in connection based on estimates of retail demand for our products, taking into
with the development of new products that may have additional account production capacity, timing of shipments, and field inven-
applications or represent extensions of existing product lines, tory levels. In fiscal 2011, we continued to roll-out a pull-based
improvements to existing products, and cost reduction efforts. Our production system at some of our manufacturing facilities to better
expenditures for engineering and research were $57.0 million align the production of our products to meet customer demand at
(3.0 percent of net sales) in fiscal 2011, $53.3 million (3.2 percent just the right time. Along with improved service levels for our par-
of net sales) in fiscal 2010, and $52.7 million (3.5 percent of net ticipating suppliers, distributors, and dealers, this system has
sales) in fiscal 2009. resulted in inventory reductions for us and throughout our distribu-
tion system.
Manufacturing and Production We periodically shut down production at our manufacturing facili-
In some areas of our business we serve as a fully integrated man- ties in order to allow for maintenance, rearrangement, capital
ufacturer, while in others we are primarily an assembler. We have equipment installation, and as needed to adjust for market
strategically identified specific core manufacturing competencies for demand. Capital expenditures for fiscal 2012 are planned to be
vertical integration and have chosen outside vendors to provide approximately $45 million as we expect to continue to invest in
other services. We design component parts in cooperation with our new product tooling and replacement production equipment.
vendors, contract with them for the development of tooling, and
then enter into agreements with these vendors to purchase compo- Raw Materials
nent parts manufactured using the tooling. In addition, our vendors During fiscal 2011, we experienced higher average commodity
regularly test new technologies to be applied to the design and costs compared to the average prices paid for commodities in fis-
production of component parts. Manufacturing operations include cal 2010, which hampered our gross margin rate in fiscal 2011 as
robotic and computer-automated equipment to speed production, compared to fiscal 2010. We anticipate the rising commodity prices
reduce costs, and improve the quality, fit, and finish of our prod- we experienced during fiscal 2011 will continue into fiscal 2012.
ucts. Operations are also designed to be flexible enough to accom- Historically, we have offset, and we currently expect to continue to
modate product design changes that are necessary to respond to mitigate, commodity cost increases in part by continuing efforts to
market demand. engage in proactive vendor negotiations, reviewing alternative
In order to utilize our manufacturing facilities and technology sourcing options, substituting materials, engaging in internal cost
more effectively, we pursue continuous improvements in our manu- reduction efforts, and increasing prices on some of our products,
facturing processes with the use of Lean methods that are all as appropriate.
intended to streamline work and eliminate waste. We also have Most of the components of our products are also affected by
flexible assembly lines that can handle a wide product mix and commodity cost pressures and are commercially available from a
deliver products to meet customer demand. Additionally, we spend number of sources. In fiscal 2011, we experienced no significant
considerable effort to reduce manufacturing costs through Lean work stoppages because of shortages of raw materials or com-
methods and process improvement, product and platform design, modities. The highest raw material and component costs are gen-
application of advanced technologies, enhanced environmental erally for steel, engines, hydraulic components, transmissions,
management systems, SKU consolidation, safety improvements, plastic resin, and electric motors, which we purchase from several
and improved supply-chain management. We also have agree- suppliers around the world.
ments with other third party manufacturers to manufacture products
Service and Warranty
on our behalf.
Our products are warranted to ensure customer confidence in
Our professional products are manufactured throughout the year.
design, workmanship, and overall quality. Warranty coverage is
Our residential lawn and garden products are also generally manu-
generally for specified periods of time and on select products’
factured throughout the year. However, our residential snow
hours of usage, and generally covers parts, labor, and other
removal products are generally manufactured in the summer and
expenses for non-maintenance repairs. Warranty coverage gener-
fall months but may be extended into the winter months depending
ally does not cover operator abuse or improper use. An authorized
upon demand. Our products are tested in conditions and locations
company distributor or dealer must perform warranty work. Distrib-
similar to those in which they are used. We use computer-aided
utors and dealers submit claims for warranty reimbursement and
design and manufacturing systems to shorten the time between
are credited for the cost of repairs, labor, and other expenses as
initial concept and final production. DFM/A principles are used
long as the repairs meet our prescribed standards. Warranty
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