Managing Resources for Global Competition
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Aligning Resources to Market Opportunities
Caterpillar Incorporated is a multinational firm that designs, develops, engineers, manufactures, markets, and sells machinery, engines, financial products, and insurance to customers via a worldwide dealer network. It is the world's largest construction equipment manufacturer. Caterpillar is a publicly-traded company with over 500 manufacturing and servicing locations in approximately 180 countries (McDonald, 2018).
In assessing their internal capabilities and limitations concerning its current operations, including the organizational, infrastructural, global, and human aspects, I would review the following SWOT analysis of the company as a starting point of the study.
Expansion or Business Development Opportunities
“In pursuing our business strategy, we routinely evaluate targets and enter into agreements regarding possible acquisitions, divestitures, and joint ventures. We often compete with others for the same opportunities. To be successful, we conduct due diligence to identify valuation issues and potential loss contingencies, negotiate transaction terms, complete complex transactions and manage post-closing matters such as the integration of acquired businesses”(Annual Reports, 2018). This due diligence process in strategic planning helps Caterpillar manage risks involved in an expansion or acquisition and concerning the valuation calculations based on cash-flows.
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It is this ability that allows Caterpillar to focus on the operations that are profitable and invest the capital to where it will generate the highest ROI and market share growth. I see a significant opening for Caterpillar to increase its presence in the APAC area to take advantage of logistical cost-saving, sourcing, and proximity to innovation centers in Japan, China, and Korea. A factor rating of the three countries for expansion resulted in this summary of South Korea’s results, China scored, 56, and Japan scored 63 with the resulting factor rating matrix:
China was ruled out for expansion because of current trade pressures with the US, and Japan was skipped because of cost, Korea offers a more cost-efficient and secure investment, its proximity to China although presents aggregate opportunities for procurement and sourcing, reducing lead-time, total cost and at more sustainable level by reducing supply chain carbon footprint. Furthermore, Korea’s maritime capabilities make it an excellent nexus for as a transloading point with manufacturing, assembly, and parts distribution operations to serve Caterpillar’s global strategic plans, offering a differentiated assortment of products and services, competitive and sustainable.
To positively affect costs, lead times, and to maintain optimal stocks, this facility will leverage the firm’s global procurement footprint and lean supply to reduce or eliminate buffer stocks and lead-times. Caterpillar’s current supply chain operates with high visibility and a high level of collaboration with its vendors, dealerships, and service centers to manage demand efficiently. The Korea location will establish a customer pull strategy implementing a Kanban system to reduce inventory levels and matching the need determined by the customer instead of using standard MRP systems planning, which push production rather than allowing the customer’s demand to signal manufacturing and assembly.
Using JIT inventory management, this facility will reduce safety stocks to a minimum, but at optimal levels to meet customer demand. “The underlying JIT philosophy is to produce or supply whatever is needed, wherever needed, and whenever required, just in time with almost no inventories to be maintained” (Vrat, 2014).
“Our global operations are dependent upon products manufactured, purchased, and sold in the U.S. and internationally, including in countries with political and economic instability or uncertainty… Operating in different regions and countries expose us to a number of risks”(Annual Reports, 2018).
The transparency and visibility the Caterpillar has created in their supply chain allows them to establish JIT inventory practices and pull demand instead of holding inventory as in a push manufacturing scenario. Because of the shorter lead time, mass customization and make-to-order capabilities, it enables them to utilize their consolidated global operations closest to the country where the expansion occurs, reducing logistics costs with a faster delivery time with a smaller footprint, with stepwise increases mirroring actual and not the forecasted or predicted demand. This ability is only possible with an agile, lean organization that fosters partnership, collaboration, transparency, and open communication.
”Lean delivers strong bottom-line results and drives profitability through the ups and downs of business cycles… built on the foundation of 6 Sigma, to stay customer-focused, stop defects, improve processes, and eliminate waste”(Annual Reports, 2018).
Given the fact that Caterpillar began to transform into a Lean Six Sigma company in the early 2000s, this transformation has matured this into a cultural change that now permeates every business process in the firm. The typical conversion to a Lean Six Sigma company is around two years, and they have invested in Operational Excellence, which keeps them continuously improving strategically.
The global reach of Caterpillar manufacturing operations gives them the capability to source, procure, manufacture, distribute, and deliver to any location on the globe at considerably lower costs. They have a wide enough reach with their supply chain and the visibility to enable capacity anywhere needed closer to the market, faster, at a lower total cost due to sourcing efficiencies they already possess currently. The ability to add or subtract capacity to their global supply chain created a competitive advantage to respond faster with responses to risk (France, T., 2013).The cost-saving efficiencies created by this significant deployment of sensors and RFID tags throughout the supply chain, not only gave them visibility but saved money in lower levels of inventory stocks.
Revisiting the SWOT analysis of Caterpillar, the Threat quadrant listed:
- Trade wars, tariffs, quotas and trade agreements that may impact operations
- Uncertainty in economic outlook on a global scale, financial sensitivity
- Geopolitical tensions may create supply chain difficulties
- Price sensitivity on resources or shortages of raw materials
Due to the worldwide dependence that Caterpillar has on international sales and revenue, the Weakness quadrant of the SWOT analysis needs to be discussed due to the scope of Caterpillar’s global footprint:
- Lead-time of mass custom, specialized capital goods are longer than traditional mass production even with flexible automated manufacturing.
- Demand dependent on industries they serve, construction, mining and resource
- Susceptive to global supply chain risk, geopolitical tension, and public health risk
- Open to worldwide business and resource risks, financial shocks, and shortages in raw materials.
Managing the Quality Imperative for Global Competition
“Caterpillar made the paradigm transformation to becoming a lean Six Sigma organization in the early 2000s by selecting, training and then deploying, master, black and green belt Six Sigma levels cross-functionally, They began to employ proven project and change management processes to implement and create value by engaging in projects aligned with overall business strategies to leverage six sigma as an enabler” (Garcia, A., 2008).
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During this transformation, they began to work more closely (better VOC practices) with customers and suppliers to be more responsive to demand and design requirements, that change constantly, and taking a more proactive stance. Caterpillar's organizational structure and operational practices reduce financial risks with them adopting lean and agile practices and utilizing the visibility that exists in Caterpillar's connected supply chain, possessing in-house global logistics capability. This capability sets them apart from their competitors in that agility enables them to detect, manage, and respond to demand faster, at a lower cost and shorter lead-time. Agile operations like this can only be accomplished through real-time communication and collaboration to reduce ambiguity in the supply chain.
Caterpillar’s application of TQM practices, through Lean Six Sigma practices and Operational Excellence investments, keep the company moving in the direction of opportunity through responsiveness and establishing higher quality than the competition.
Caterpillar’s transformation is ongoing nearly twenty years later; during this time, they launched an initiative to implement an enterprise-wide system known as the Caterpillar Production System. Based on Taichi Ohno’s Toyota Production System employed at Toyota, “CPS is the common Order-to-Delivery process that was implemented, enterprise-wide to achieve people, quality, velocity, and cost goals…embracing lean manufacturing concepts such as reducing waste, Poka Yoke, standard work, visual factory, continuous improvement, quick change over, pull, among others. CPS was not only implemented in the factory operations but also other functions such as product design, purchasing, supply chain, and quality “ (Ranjanis, 2013).
Caterpillar’s quality management practices have embraced ISO standards and hold several different certifications. They possess the following ISO certifications:
- ISO 9001: 2015 QMS (quality management system)
- ISO14001: 2015 EMS (environmental management system)
- OSHA 18001:2007 (UK occupational health and safety management system)
- ISO 15001 (energy management system)
- ISO/IEC 27001: 2013 (information security management system)
- ISO 17025 (accredited testing and calibration competence)
Employing ISO standards on different levels, Caterpillar has the distinction of certified quality, safety, sustainability, information security management, energy-saving practices, validated testing, and calibration competence that displays its leadership in the practice of quality (Caterpillar.com, 2018).
TQM and ISO 9000 Benchmarks
The Caterpillar Production System (CPS) meshes Lean manufacturing practices, Six Sigma process, and design analysis, Operational Excellence strategy to sustain the TQM practices enterprise-wide at ISO standards. The CPS is the driving factor in Caterpillar’s operational management and strategic efforts by focusing on the following processes:
- Product Design
- Demand Management
- Quality Management
- Process Planning
- Supply Chain/Material Management
- Lean Systems
- Capability Building/Training
The result of the implementation of the CPS, a cultural change has occurred at Caterpillar Inc., making the firm more competitive, sustainable, safe, and known globally for quality. They have successfully meshed ISO standards and TQM practices to maintain a leadership position in quality, customer service with a differentiated product and service assortment (Quality Management, 2018). A large firm that does custom, at world-class levels that can respond to market or economic conditions quickly anywhere on the globe. Caterpillar uses internal and external benchmarking to compare its safety, quality, and sustainability practices to industry competitors and large multinational enterprises in every strategic business unit to sustain world-class operations.
- AnnualReports.com (2018) Caterpillar 2018 Annual Report, retrieved from http://www.annualreports.com/Company/caterpillar-inc
- Quality Management (2018) Caterpillar.com, retrieved from https://caterpillar-energy-solutions.de/home-en/brands-products/success-factors/quality-management/
- France, Tom, (2013) Visibility in the Cloud, retrieved from https://ieondemand.com/presentations/visibility-in-the-cloud-07-11-2013
- Garcia, Alfredo (2008) The Caterpillar 6 Sigma Journey, retrieved from http://asqraleigh.org/wp/wp-content/files/2008/05/qit2008_alfredogarcia.pdf
- Ranjanis (2013) Analyzing the Caterpillar Production System, retrieved from https://opsmgt.edublogs.org/2013/06/22/analyzing-the-caterpillar-production-system/
- Selko, A. (2013) How Caterpillar Succeeds, Leadership, Industry Week, retrieved from https://www.digitalcommerce360.com/2016/07/26/caterpillars-internet-connected-supply-chain-steadies-profits/
- Vrat, P. (2014) Material Management. An Integrated Systems Approach, Chapter Nine, Just-In-Time. MRP and Lean Supply Chains, Springer, India
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