Caterpillar Logistics, a True Global Supply Chain Manager

Morton, Illinois USA

January 11, 2005

By

Evan Armstrong

Key Personnel:

Mary Bell - Chairman & President

Michael Schmidt - Global Marketing Director

Mark Hynes - Vice President of Manufacturing Logistics & Transportation

Krish Srinivasan - Sr. Manager of Client Inventory Management Services

Craig Brabec - Manager of IT Strategy & Global Costing

Bill Meek - Competitive Analysis Coordinator

Chad McClaskey - Marketing/Media Relations Manager

Cat Logistics Overview

Caterpillar Logistics Services, Inc. (Cat Logistics) has leveraged its relationship with parent company Caterpillar Inc. in developing true global supply chain management capabilities.  Cat Logistics has grown to be the sixth largest North American based 3PL with $1.1 billion in net revenues in 2003.  It has been attracting significant external business; Caterpillar, Inc. now accounts for approximately 50% of the Cat Logistics revenues. Plans are to grow external business at a compound annual growth rate of 26% over the next five years.

Global logistics operations employ over 9,200 people;  the majority work at Cat Logistics 100 distribution centers.  This supply chain network has over 20 million square feet of capacity strategically located in 25 countries.  Cat Logistics fills more than 180 million order lines annually and ships over 16 billion pounds of commodities each year.  Cat Logistics annual purchased transportation bill exceeds $1 billion.

According to Chairman and President Mary Bell, Cat Logistics main growth over the next five years will come from expansion in the Asian Pacific, European, North and South American, Australian, and Russian markets.  It is currently developing a new logistics operation in Lingang Park (Shanghai), China.  "We grow by  applying combinations of value-added services in the development of a strategic partnership with customers".  Like many large 3PLs, Mary sees finding the right qualified people to fuel its growth as Cat Logistics biggest challenge. 

Cat Logistics targets global Fortune 500 companies in five key industry verticals: Automotive, Consumer Durables, Industrial, High Tech., and Aerospace & Defense.  Customers include: DaimlerChrysler, Ford, GM, Nissan, CNH, Donaldson, Kodak, Toshiba, Bombardier, and Honeywell.

Cat uses a hierarchical framework in managing its supply chain services offering.  At the top level,  Cat can help customers in developing an overall supply chain strategy. It can then perform supply chain design consulting and modeling and systems and technology support services.  The service structure ends with tactical supply chain execution services such as: order management, materials management, transportation management, distribution, and reverse logistics. Cat Logistics has become a leader in inventory and integrated supply chain management.

To support its global operations, Cat Logistics is developing an integrated supply chain systems "backbone".  In a joint venture with Ford and software giant SAP, Ford and Cat's intellectual property is being used to greatly enhance SAP's warehouse management and inventory management capabilities.  The co-developed system will be released as SAP SPM (Service Parts Management) version 5.0 in Q4 of 2005.  Cat Logistics will use SPM for forecasting, demand planning, inventory management, and warehouse management.  It will be integrated with i2's Transportation Manager for daily transportation planning and management.  Unlike many 3PLs who are using three or more systems for a core supply chain systems backbone, Cat will be able to support its medium to large 3PL customers with two tightly integrated systems.   

With top I.T., people, and inventory and supply chain management processes, we anticipate that Cat Logistics will meet its significant revenue targets and continue as a true "Tier One" global 3PL.

Tour: Cat Logistics Morton, IL Distribution Center

Cat Logistics Morton, IL distribution center is a 2.2 million square foot dedicated service parts facility servicing Caterpillar's dealer and regional D.C. network. Approximately 375,000 different parts are warehoused having a value of just under $2 billion.  With a warehouse staff of 900, approximately 35,000 order lines are filled each day, inbound receipts of 3,000 totes and 2,300 containers are processed, and a host of value added activities such as parts coating and painting, kitting, and pick/pack are performed.  Much of the picking is performed by automated picking machines.  The facility utilizes approximately 26 miles of mechanized conveyer systems for efficiently moving inbound and outbound units.    A consolidated packing area of 60 individual lines is used to pack out orders for shipping.

Caterpillar's dealers have complete inventory visibility and can order parts using Cat's ANTARES parts ordering/processing system.  Cat Logistics has saved Caterpillar millions of dollars by reducing its on hand inventory from 10.4 months in 1989 to 5.5 months today.  Even so, Cat Logistics is currently realizing a system order fill rate of 99.7%.

In this D.C. location, parts are stored in standardized containers for manual picking.

Above is a top view looking down at the consolidated packing area.

Cat Logistics utilizes 60 pack lines.

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