Overarching topics

Customer satisfaction, innovations and supplier management are important overarching topics. Because of the materiality of DEUTZ AG as the executive parent company, there is currently no system that monitors overarching topics in the Group as a whole. Our reporting therefore focuses on DEUTZ AG.

CUSTOMER SATISFACTION

Customer satisfaction is a high priority for DEUTZ. Everything we do is focused on our customers and their needs. We measure customer satisfaction based on the success of current customer projects, and we have set up a system to monitor the sales projects in each region. The status of these projects is regularly reported to the Board of Management in a sales review with senior local managers. Customer feedback on the progress of projects forms an essential part of the report. The aim of monitoring is to identify potential obstacles, and if the same obstacles are encountered repeatedly, we can put measures in place to improve customer satisfaction. This procedure was introduced at the end of 2018. In 2019, we will include the customer projects in the targets for the sales units, thus making them measurable.

We have continued with and expanded the existing activities aimed at increasing customer satisfaction and the quality improvement projects initiated in 2017 as part of our zero-defect strategy. DEUTZ AG’s quality offensive also encompasses the introduction of Lean Six Sigma as a management system. Six Sigma projects focus particularly on improving delivery reliability and increasing the speed at which customer enquiries are processed. The relevant projects were implemented last year.

In addition to quality improvements, we believe that DEUTZ’s innovative modular approach will also play a part in increasing customer satisfaction. The development of efficient and sustainable drive systems is giving our customers a reliable basis for planning. Under the advanced drive systems strategy, DEUTZ is able to supply modular drive concepts that can be customised for different fuel types, power requirements and emissions standards. This means predictable capital expenditure risks and shorter implementation times for customers when they switch or upgrade their technology. We also work closely with our customers on the development of new drive technologies, including as part of the E-DEUTZ project, which was launched at the Intermat trade fair in April 2018 in Paris. It was the first time that DEUTZ had presented its expertise in electric drive systems on the public stage. DEUTZ customers and other interested parties then got to see the results of the Company’s electric drive developments at first hand. At the ELECTRIP event, which was held after the trade fair, all key stakeholders were able to experience for themselves the performance of DEUTZ’s electric drive systems on water and on land.

Innovations

Our aim is to position DEUTZ as a leading manufacturer of innovative drive systems. Innovations at DEUTZ AG are primarily in one of the four following areas:

1) Alternative fuels: As well as looking at liquefied petroleum gas (LPG), we are focusing on natural gas, hydrogen and fuels generated from renewable sources.

2) Hybrid and all-electric drive systems: All-electric drives and the combination of internal combustion engines and electric motors (hybridisation) are key pillars of our development work.

3) Digitalisation: There is a particular focus on innovative digital solutions that offer our customers new services (connectivity, smart services for engines).

4) Market monitoring and refinement of existing products and technologies: Our production engine technology is analysed and optimised on an ongoing basis. The objective is to generate a high level of customer satisfaction across all applications.

Centralised research and development

At DEUTZ AG, most innovations originate from the central R&D department in Cologne-Porz. Our DEUTZ Corporation and Torqeedo subsidiaries are involved at an early stage in product planning so that they can actively contribute their market-specific requirements to the development and innovation process. DEUTZ Corporation focuses in particular on US emissions legislation (EPA, CARB). Torqeedo is most closely involved in the innovation process when it comes to hybridisation and electrification.

Within DEUTZ AG, the product management department is responsible for monitoring the market and for the product requirements that result from this. Members of the Board of Management are among those that attend its quarterly ‘Product Boards’, at which market trends and preliminary development work are discussed and other development activities are initiated and prioritised. New products are developed and made production ready with the aid of the well-established product development process (PEP). Technologies and concepts are evaluated under our preliminary development process and brought to project readiness. We carry out internal and external development work in order to achieve the Company’s targets. In the case of external development work, we collaborate closely with development partners that include suppliers, universities and research institutes.

Innovation centre opens in Cologne

In November 2018, we opened a new innovation centre. Located at the Cologne-Porz site, it provides DEUTZ employees with space to work on ideas, develop them into prototypes, and shape them into a project, product or investment opportunity.

The focus of the visionary facility is on joint project work, networking and brainstorming. A range of formats such as mentoring sessions, pitch training and creative workshops will support employees in defining and implementing their ideas. The DEUTZ Accelerator innovation concept will provide additional support with developing their idea and designing a business model. The latest technology in the shape of a Windows Surface Hub, 3D printers and augmented reality is also available for this.

In 2018, the Fraunhofer Institute for Production Technology (IPT) commended DEUTZ AG for its exemplary use of agile development methods within the innovation process. Five companies from a field of 159 received IPT’s Successful Practices title and we were among them.

Torqeedo drives forward E-DEUTZ strategy

Torqeedo, the company that we acquired in 2017, serves as the nucleus for the E-DEUTZ strategy, under which we are developing hybrid and all-electric drives for off-highway applications. Torqeedo’s expertise in electric-powered drive systems is providing a huge boost to innovation at DEUTZ. Torqeedo also brings new products to market that consolidate and extend its competitive edge in the market for electric drives for boats.

The DEUTZ AG senior management team is closely involved in innovation activities via the ‘Product Boards’. At these meetings, which are attended by representatives from product management, sales and service, the Board of Management discusses the status of preliminary development and approves suitable projects for the next stage of development. Subsidised projects are discussed by a committee below the level of the senior management team.

A wide range of innovations launched

Last year, we presented a number of pioneering new developments that stemmed from our innovation activities. At the ELECTRIP event held for DEUTZ customers, we showcased our E-DEUTZ strategy by demonstrating fully functioning prototypes of customer vehicles fitted with hybrid and all-electric drives. Participants were able to test drive the vehicles to get an idea of their functionality and usability.

We are also committed to investing in the digitalisation of our service products, including the DEUTZ Connect app, a tool for remote engine diagnostics. A wide range of market and machine data is collected and analysed for this purpose. This allows us to continually increase the benefits for customers and offer made-to-measure solutions. Moreover, our new web shop has brought the DEUTZ service network online.

In product development, we are committed to applying agile methods on a more widespread basis. Our positive experiences in the field of software development, for example, are now being brought to bear in other development disciplines.

Further patents and awards received

We use patents, patent applications and utility models to safeguard our expertise against unauthorised use by third parties. In 2018, DEUTZ AG submitted twelve new patent applications, ten of which were in Germany. DEUTZ AG now holds a total of 117 patents registered in Germany and 165 registered elsewhere.

In recent years, Torqeedo has won multiple accolades for its innovative products and environmental credentials. At the 2018 European Commercial Marine Awards, for example, it was recognised in the Maritime Sustainability category for its contribution to the ECOCat, a 120-passenger electro-solar ferry that has been built for use in Spain and will be powered exclusively by solar energy. The propulsion system is based on Torqeedo’s Deep Blue electric motors and high-capacity batteries.

This year, we have summarised the information on ideas management at DEUTZ AG in the ‘Treatment of employees’ section. Further information on research and development can be found in the combined management report.

Supplier management

DEUTZ places great value on supplier management, as our suppliers’ performance directly influences the course of our business. DEUTZ AG’s overarching supplier management system 1) is designed to continually improve quality, lead times, commercial conditions and general communication with our suppliers. There is a clear focus on supplier development. As part of this quality improvement process, target defect rates are defined for each product group, communicated to the suppliers and regularly monitored, and we initiate appropriate remedial measures where necessary. Our overarching objective is to have zero defects. All new original equipment suppliers need to be approved by DEUTZ AG based on self-declarations, feasibility studies, and supplementary documents and criteria. This process usually includes a site audit. The DEUTZ Group uses only certified original equipment suppliers (certified to ISO 9001:2015 as a minimum).

Close monitoring of suppliers

DEUTZ AG manages its suppliers using a ‘supplier cockpit’. We use this to monitor suppliers’ performance from purchasing, delivery and quality perspectives and, in the case of development partners, with regard to their research and development capabilities and their ability to innovate. Before being included in the cockpit, suppliers must first be categorised accordingly. Their results for the individual KPIs and how these change over time are used to initiate remedial measures and improve performance.

On a monthly basis, the senior management team at DEUTZ AG is provided with information about the procurement budget and other KPIs in the balanced scorecard. This monthly procurement management report contains key figures for the Board of Management, including key financials and KPIs related to quality. The Board of Management confirmed the underlying targets.

In 2018, DEUTZ AG again carried out numerous activities to ensure compliance with the international regulations pertaining to REACH, RoHS and conflict minerals. The steering committee met at least every two weeks to adopt measures in response to changes in international regulations and to initiate process improvements.

Plans in place for supplier code of conduct

Compliance with environmental, social and sustainability standards throughout the supply chain is a key concern for DEUTZ AG. So in 2018, we decided to develop a code of conduct for suppliers that would specify minimum standards for environmental protection, labour, safety and integrity and thereby clearly formulate what DEUTZ AG expects of its suppliers. In 2019, DEUTZ AG will communicate this code of conduct to all global and local suppliers and run a sustainability campaign to make them more aware of DEUTZ AG’s expectations and requirements.

From 2019, to ensure that the suppliers are taking account of these standards and requirements in their processes, key elements of the code of conduct are being included in the supplier self-declarations and supplier audits. The results will be documented in the digital supplier records. Once suppliers have been made aware of the code of conduct, they are required to provide confirmation of their compliance.

In the case of suppliers from particularly critical countries, the focus will be put on qualification measures that will help these suppliers to comply with the standards. If the standards are breached, the suppliers will be requested to make improvements as a first step. If they do not comply with this demand within a reasonable period of time, the supplier relationship may be terminated.

Regular monitoring of KPIs

DEUTZ met its 2018 targets for delivery quality from its external suppliers for both initial samples and full production. Particularly positive is the historically low defect rate in ppm (parts per million). The results show that the continuous improvement process (CIP) and the measures we have taken are effective.

1) The statements relate to direct suppliers that have a contractual relationship with DEUTZ.