Pressed for a comment on Digga’s acquisition of Kanga and unable to speak to someone within the company, I made the mistake of making some comments yesterday that could have been modified with better knowledge.Having been able to speak to Digga managing director Suzie Wright, it is important that I now modify my comments. As mentioned in the original article, the Digga factory is state of the art. This has a lot of benefits for Kanga manufacture, because Digga has implemented a lean manufacturing model that leverages an investment in equipment, systems and training to obtain efficiencies in manufacturing that reduce costs and lower the breakeven throughput volume. This is a good place to be in a weak economy.I had underestimated Digga’s current production capacity in part because Digga is only working a single shift but is capable of working two shifts, and partly because Digga’s drive to lean manufacturing has freed up space in the current factory. Plans to build a factory on currently vacant land have also been brought forward.As suggested, Digga’s manufacturing expertise is being used to look at how the existing Kanga products can be further improved to reduce production costs. Some economies will be gained purely because Digga is an integrated manufacturer and all work will take place in-house rather than much of it being subcontracted.No decisions about any major changes or upgrades to the Kanga products will be made until Digga’s research and development team has spoken to users to find out what the market is looking for, and that is as it should be.My concerns about whether the market would see a conflict of interest with an attachment manufacturer also being an equipment manufacturer have also been allayed by Suzie Wright.Part of that can be understood by looking at the Kanga direct distribution model and comparing it to the Digga dealer network model. The Kanga will become another product for Digga dealers to sell. In some instances those dealers would previously have had nothing to offer in the mini loader market, or had an imported product that has been impacted on by exchange rate changes, and could be up to 30% more expensive. The other part to understand about Digga is that it is not just an attachment manufacturer – it also produces specialised drive systems and OEM machinery components. A separate R&D company as a new arm (Digga Spares & Service) with onsite service vans around the country are other initiatives that Digga is implementing.Having the Kanga available to sell provides dealers with either a new product line to sell or a product that has an acceptable dealer margin and can still be price competitive in the market. That covers the short term, but Suzie mentioned that in the past Digga attachments had been competitive on the US market when the exchange rate was 98c. Digga has natural hedges built into its business as it is both a buyer and a seller in US dollars.While price is not irrelevant, Digga’s advantage in export markets is also based on a mix of excellent product quality and service, ongoing product development and competitive lead times, and is a good model for any Australian manufacturer looking to prove itself on the world stage. That suggests that, like Digga attachments, Kanga loaders can be competitive around the world regardless of exchange rate, provided that similar work is put into a lean manufacturing operation. It also suggests that if the product is right and the price is right, the Kanga can be successful regardless of whether its manufacturer is an attachment maker or not. Who knows, Digga may evolve to the point where it is not seen purely as an attachment manufacturer.Another thing Suzie assured me of – Digga’s purchase of Kanga is for the long haul. Although the move wasn’t on the radar two months ago, it does complement Digga’s areas of expertise and provides another growth path, and Suzie would not rule out similar moves in the future, if the right opportunities presented themselves.I’m happy to wear the egg on my face if it means that a good news story can be told.
