Toro 2012 Annual Report Download - page 12
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Please find page 12 of the 2012 Toro annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.contracts for select transactions. For additional information regard- reduce costs, and improve the quality, fit, and finish of our prod-
ing our foreign currency exchange contracts, see Part II, Item 7A, ucts. Operations are also designed to be flexible enough to accom-
‘‘Quantitative and Qualitative Disclosures about Market Risk’’ of modate product design changes that are necessary to respond to
this report. For additional financial information regarding our inter- market demand.
national operations and each of our three reportable business seg- In order to utilize our manufacturing facilities and technology
ments, see Note 12 of the Notes to Consolidated Financial State- more effectively, we pursue continuous improvements in our manu-
ments, in the section entitled ‘‘Segment Data,’’ included in Part II, facturing processes with the use of Lean methods that are
Item 8, ‘‘Financial Statements and Supplementary Data’’ of this intended to streamline work and eliminate waste. We also have
report. flexible assembly lines that can handle a wide product mix and
deliver products to meet customer demand. Additionally, we spend
Engineering and Research considerable effort to reduce manufacturing costs through Lean
We are committed to an ongoing engineering program dedicated to methods and process improvement, product and platform design,
developing innovative new products and improvements in the qual- application of advanced technologies, enhanced environmental
ity and performance of existing products. However, a focus on management systems, SKU consolidation, safety improvements,
innovation also carries certain risks that new technology could be and improved supply-chain management. We also have agree-
slow to be accepted or not accepted by the marketplace. We ments with other third party manufacturers to manufacture products
attempt to mitigate these risks through our focus on and commit- on our behalf.
ment to understanding our customers’ needs and requirements. Our professional products are manufactured throughout the year.
We invest time upfront with customers, using ‘‘Voice of the Cus- Our residential lawn and garden products are also generally manu-
tomer’’ tools, to help us develop innovative products that are factured throughout the year. However, our residential snow
intended to meet or exceed customer expectations. We use removal products are generally manufactured in the summer and
Design for Manufacturing and Assembly (‘‘DFM/A’’) tools to ensure fall months but may be extended into the winter months depending
early manufacturing involvement in new product designs intended upon demand. Our products are tested in conditions and locations
to reduce production costs. DFM/A focuses on reducing the num- similar to those in which they are used. We use computer-aided
ber of parts required to assemble new products, as well as design- design and manufacturing systems to shorten the time between
ing products to move more efficiently through the manufacturing initial concept and final production. DFM/A principles are used
process. We strive to make improvements to our new product throughout the product development process to optimize product
development system as part of our continuing focus on Lean meth- quality and cost.
ods to shorten development time, reduce costs, and improve Our production levels and inventory management goals are
quality. based on estimates of retail demand for our products, taking into
Our engineering expenses are primarily incurred in connection account production capacity, timing of shipments, and field inven-
with the development of new products that may have additional tory levels. In fiscal 2012, our production system utilized Kanban,
applications or represent extensions of existing product lines, supplier pull, and build-to-order methodologies in our manufactur-
improvements to existing products, and cost reduction efforts. Our ing facilities as appropriate for the business units they support in
expenditures for engineering and research were $60.1 million order to better align the production of our products to meet cus-
(3.1 percent of net sales) in fiscal 2012, $57.0 million (3.0 percent tomer demand. This has resulted in improved service levels for our
of net sales) in fiscal 2011, and $53.3 million (3.2 percent of net participating suppliers, distributors, and dealers.
sales) in fiscal 2010. We periodically shut down production at our manufacturing facili-
ties in order to allow for maintenance, rearrangement, capital
Manufacturing and Production equipment installation, and as needed, to adjust for market
In some areas of our business we serve as a fully integrated man- demand. Capital expenditures for fiscal 2013 are planned to be
ufacturer, while in others we are primarily an assembler. We have approximately $60 million as we expect to continue to invest in
strategically identified specific core manufacturing competencies for new product tooling and replacement production equipment, as
vertical integration and have chosen outside vendors to provide well as expansion of facilities.
other services. We design component parts in cooperation with our
vendors, contract with them for the development of tooling, and Raw Materials
then enter into agreements with these vendors to purchase compo- During fiscal 2012, we experienced higher average commodity
nent parts manufactured using the tooling. In addition, our vendors costs compared to the average prices paid for commodities in fis-
regularly test new technologies to be applied in the design and cal 2011, which hampered our gross margin growth rate in fiscal
production of component parts. Manufacturing operations include 2012 as compared to fiscal 2011. We anticipate that some of the
robotic and computer-automated equipment to speed production, increased commodity prices we experienced during fiscal 2012 will
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