Caterpillar BCP Tour opens up executive eyes to "Big Iron" supply chains

Over the course three days last week, a group of executives from a variety of different companies came together to share ideas and thoughts on the future of supply chain. These discussions were also augmented by planned events to Caterpillar Building Construction Products and Lenovo’s enterprise team. In these visits, executives had an opportunity to see for themselves the evolution of supply chain at work, and share in touching and feeling the products, meet executives, and learn from one another.  In this blog, I’ll share our experiences from the visit to Caterpillar…

CAT Building Construction Products

On the first day, the team visited the CAT BCP facility in Clayton that produced the Wheel Loaders. In addition to visiting the plant, the team got to speak with the General Manager, Plant Manager, and Supply Chain Manager for the site. The team also had the opportunity to “play in the dirt” and try out several of the smaller machines in the testing area.

CAT executives noted that this site supplies loaders on a global basis, and that their production is geared to different levels of emissions standards. The production plan is heavily impacted by weather, including the amount of snow that arrives in the winter. The plant has to deal with extreme seasonality, with the majority of sales occurring in the Fall timeline. A large majority of the high dollar items are CAT supplied, and one of the most challenging items to manage is tires, which are on allocation. CAT also expresses the importance of long-term partnerships with suppliers, especially on critical items.

BCP is unique from the rest of CAT, largely because its products are generally much smaller and higher volume that other products. Competitors (Volvo and Komatsu) have tried to compete in the smaller machines and have failed. To deal with the higher competition and leaner supply chains, the division has adopted a different supply management approach, moving to suppliers that are more geographically local. It is not about getting higher volume for lower piece rates, but more about shareholder value by being lean and managing supply differently. BCP got to make their own supplier management and selection decisions, and drove the level of collaboration to a level where “we could work with our suppliers to make us successful!” BCP shares a lot of forecast information with suppliers, and also works to ensure that suppliers make money. One executive notes that “We were the absolute worst in terms of our demand signal, and we have got it much more consistent where they can plan a whole lot better, and this has made a huge difference.”

One of the primary takeaways from the tour was the sense of ownership embedded in all employees due to the local culture. Tour guides emphasized how long they had worked at CAT, and how every step of the way they were engaged in continuous improvement. Employee suggestions are taken very seriously, and tour guides showed examples on the plant floor of ergonomic improvements that had occurred as a result of employee input that drove productivity, lower cost, and faster throughput, not to mention improved safety and employee benefits.

The plant manager also emphasized the value of innovation and technology as a continuous force in the company. “The biggest value we bring is in the integration of technology. We can demonstrate that because of the way we marry our products with the controls and engine to axle performance, we can drive a level of fuel efficiency and performance that no one can match. no one can perform as well as we can. We take a lot of off-the-shelf components, but the value is what we have driven in integration. The uniqueness of the fabrication and how we put it together and how we know what the stresses are is what differentiates our product.”

Part of this occurred due to moving design engineers from the Cary Office to the field office. The idea was to bring engineers as close to the iron and dirt where production occurred as possible. Today, those engineers will desigin their parts and are accountable for the first “install” on the product! They have to take the wrench and do that – and suppliers are also paart of that activity. They can’t just work on their computers in design engineering software – but they have to go out and put the oil filter they designed on the machine! This has been so successful that suppliers have adopted this.

The number one metric at CAT is Parts Per Million. When quality issues shut down the line due to supplier problems, it is tremendously expensive. The facility has focused on a program known as “Built in Quality”, which is a way to look at data and measure defects in a way that drives elimination of problems. This includes defects that are:

FOUND – we knew we had to look for it.

NEW – found in a quality gate, but not on our list.

MISSED – the worst kind. Discovered after product has reached the customer.

This system drives root cause corrective action, which is focused on every day. It is a core part of the CAT culture that is prevalent throughout the plant.

The team also discussed that dealers of equipment are out “Process Partner”, but that predicting dealer order patterns is a big challenge. The team focuses on “base order management”, and as dealers place orders, we want them to place orders that can add to the “base order flow”. This can help drive a level load and still get the product to them when they need it. The plant manager would ideally like to get to a higher load then currently, which requies a takt time that has to match forward coverage. “But every time we change the build rate, we hve to re-do the standard work and with the amount of variation this creates a lot of waste in the system. We can’t flex to meet demand easily, so we try to schedule production to an annual demand rate. I would much rather take smaller chane in production and led field inventory fluctuate, as the variation in production drive a lot of costs.