A&A Cat Logistics Tokyo, Japan Site Visit Report 12-2008

Caterpillar Logistics Expands its Japan Operations

Tokyo, Japan

December 15, 2008

Evan Armstrong

Key Personnel:

Criss J. Edwards - General Manager, Caterpillar Logistics Services, Inc., Japan

Dennis D. Winter - Logistics Consultant, Caterpillar Logistics Services, Inc., Japan

Overview

Caterpillar Logistics Services, Inc. (Cat Logistics) is a tier-one global supply chain manager. According to Armstrong & Associates estimates, its 2007 gross revenues were $3.15 billion and realized net revenues $2.12 billion. Cat Logistics has approximately 12,000 employees working on six continents, 23 countries, and in 110 facilities. Its warehousing footprint is over 27 million square feet and it fulfills approximately 160 million orders per year. In addition, Cat Logistics manages over $1.6 billion in purchased transportation per year.

Cat Logistics has core capabilities in value-added warehousing and distribution. These include: manufacturing support, vendor managed inventory (VMI), kitting, sequencing, light assembly, packaging, labeling and spare/service parts distribution. It couples these with international and domestic transportation management operations to provide an integrated end-to-end supply chain management offering. The majority of its customer relationships are in the Automotive and Industrial manufacturing industry verticals; however, Cat Logistics has also been diversifying into Mining, Oil & Gas, Aerospace & Defense, Technological, and Consumer Durables industries. Key logistics customers include: its parent Caterpillar, Bombardier, Daimler, Emerson, Ford Motor Company, Harley Davidson, Kia, Land Rover, Mazda, Mosaic, Newmont, Toshiba, and Volvo.

The Cat Logistics story in Japan started in 1994 when it set up operations in Tokyo to support Sun Microsystems computer parts distribution. In 1996 it also began parts distribution and finished vehicle preparation operations for Chrysler. Today, Cat Logistics provides services to its parent Caterpillar and to its major Japan 3PL customers: Mitsubishi Heavy Industries, Ford Automotive, and MG Land Rover. Approximately 380 Cat Logistics employees are in Japan; 300 of which are based at the new Sagamihara distribution center. Cat Logistics provides operations gateway services, parts sourcing and contract packaging services, domestic Japanese and international service parts distribution, and inbound manufacturing support services.

Cat Logistics Sagamihara Distribution Center

The new 50,000 square meter Sagamihara distribution center was opened in November 2007. Prior to its opening, their clients, Mitsubishi Heavy Industries (MHI) and Caterpillar Japan, performed their own distribution from two smaller facilities: a 9,480 square meter parts center warehouse for MHI and a 33,000 square meter parts center warehouse for Caterpillar Japan. Migrating to the new facility was an extensive project which started in 2004 when a feasibility study was performed. In August 2005, Cat Logistics made a proposal to MHI and Caterpillar to combine operations into a new, more efficient distribution operation. On June 9, 2006 logistics agreements were signed by Caterpillar and MHI and in December 2006, the old Caterpillar center on the current site was demolished and new building construction began.

Figure 1 - Cat Logistics Sagamihara Distribution Center

The Sagamihara distribution center (SDC) is a two-floor operation with room to expand to a third floor. The SDC comprises 35,000 square meters for Caterpillar supply chain management operations and approximately 16,000 square meters for MHI operations, of which the total facility has approximately 21,000 square meters reserved for parts and product storage. Approximately 380,000 stock keeping units (SKUs) of parts and products are kept in on-hand inventory.

On an average day 3,800 lines of parts and products are received, 110,000 pieces are packaged for shipping, and 10,300 lines of service parts and products are shipped. In terms of a standard order profile, approximately 80% of Caterpillar Japan domestic orders are for emergency/Just-In-Time (JIT) fulfillment. Cat Logistics has just one hour from order release to pick and pack emergency/JIT shipments and have them available for loading on an outbound truck. Similarly, approximately 75% of MHI orders are also emergency orders. Export orders must be processed the next day for emergency shipments, or within five days for items in stock. To run operations, Cat Logistics is using its SAP warehouse management system (WMS) integrated with radio frequency (RF) scanners.

Storage locations in the distribution center are dictated by the individual demand forecasts for each part or product. Very slow moving items are stored outside when possible, or on the second floor of the SDC. Approximately 20% of the total pick volume comes from these areas. The remaining 80% of the total picks come from the first floor and are most often made from a central three-level mezzanine which accounts for 64% of all picks.

On the first floor, Cat Logistics is also running a packaging operation for its clients. It occupies approximately 10% of the SDC and employs approximately 100 people.

Cat Logistics manages parts sourcing services for the Caterpillar network from Japan. Often the service parts and products will need to be packaged in standard quantities prior to shipping. Cat Logistics performs the packaging services utilizing two main packaging lines. Thirty percent of the volume is auto-bagged into plastic bags and the rest is manually processed. The parts are then consolidated into large open-top containers for domestic distribution, put into storage

Loading a Truck for Local Delivery

3-Level Central Mezzanine

Packaging Line Auto-bagging of Parts

or packaged for export. Value-added services include: wood crating for larger parts, specialty labeling for local markets and customers, and product rust proofing.

To support the packaging operation, Cat Logistics utilizes a proprietary packaging system (GPPS) which is integrated with the SAP WMS.

Key operational volumes and metrics are as follows:

Inbound truck traffic: Approximately 90 inbound supplier trucks are unloaded each day.
Outbound truck traffic: Approximately 50 outbound delivery trucks are dispatched each day to Mitsubishi and Caterpillar Japan dealer locations.
Container shipments: Approximately seven forty-foot ocean containers are shipped each day to global Cat Logistics network locations including: Morton, Illinois; Grimbergen, Belgium; Melbourne, Australia, and Singapore.
Outbound shipping performance: Cat Logistics has performed with more than 99% efficiency in on-time shipping across its clients.
Notable point: The Sagamihara distribution center is processing approximately the same amount of emergency/JIT shipments each day as the largest Caterpillar parts facility in Morton, Illinois. The emergency/JIT shipment processing time is one hour from order release to having the shipment available for loading on an outbound truck.

Summary

As a global provider of 3PL services, Cat Logistics has done a very good job in developing specific geographic 3PL strategies. In Japan it has performed very well in supporting the Caterpillar network, MHI and its other 3PL customers. It has succeeded in building a foundation for further Asia Pacific expansion.

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