Caterpillar Moves to Revamp Supply-Chain

Caterpillar Inc., a venerable 75-year-old maker of vehicles and equipment used in farming, construction and mining, is trying to reconstruct the way it does business, via a Web-based makeover of its supply-chain and manufacturing operations.

At the Planet 2000 conference being sponsored here by Dallas-based software vendor i2 Technologies Inc., Caterpillar executives Tuesday outlined a wide-ranging e-business initiative that will ultimately let East Peoria, Ill.-based Caterpillar's customers order and configure heavy machinery and other products via the Web.

Another part of the plan includes the high-speed sharing of key sales and business data throughout Caterpillar and between its product design department and the suppliers that work with the company. As part of the supply-chain makeover, Caterpillar will also use i2's TradeMatrix software to create a private online marketplace that's supposed to tightly link its network of suppliers and dealers to form a real-time build-to-order assembly-line process.

Caterpillar, which had revenue of US$19.7 billion last year, hopes to squeeze out $100 million in costs during the first year the system is fully in place, by becoming more efficient. "By sharing information across the whole supply chain, we'll gain velocity," said Bill Smith, a manager in the company's corporate information services department.

Currently, the ordering process on Caterpillar's legacy systems requires too much human intervention and takes too long to efficiently offer a build-to-order model for most of the company's customers, Smith said. With a multitude of product options, he noted, there are thousands of different configurations that customers could potentially order.

However, Caterpillar didn't disclose a specific time frame for completing the supply-chain project. And Smith said the initiative will require a re-engineering of the company's internal business processes -- something that will be worked on during the next several years.

"The software is the easiest part," Smith said. The harder part will be managing the required business-process changes, he added. And for some of Caterpillar's product lines, he noted, implementing a build-to-order process simply may not make sense.

Some pieces are in place already. Earlier this year, for example, Caterpillar implemented the TradeMatrix software in its Performance Engine Products Division, a move that the company said led to a $32 million reduction in product inventory and a 38% cut in assembly-line processing times. Caterpillar's Building Construction Products Division has even sold a build-to-order vehicle over the Web, using decision-support software developed by i2.

However, Caterpillar's plans may not go down well with all of its 5,000 or so suppliers, said Joshua Greenbaum, an analyst at Enterprise Application Consulting in Berkeley, Calif. Caterpillar certainly could realize huge savings from the supply-chain project, Greenbaum said, but it remains to be seen whether the ambitious initiative can be fully executed.

Many of Caterpillar's suppliers also sell their products to the big automakers and are already stressing their internal information technology resources in order to get connected to public and private online marketplaces, Greenbaum noted. The new system planned by Caterpillar may meet resistance unless the company does something to "take away the technological burden" for its suppliers, he said.

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