Cat Logistics Retools its China Strategy to Support Caterpillar’s Rapid Growth
Shanghai, China
November 19, 2008

By
Evan Armstrong

Key Personnel:
Paul Joseph – President, Caterpillar Logistics Services, Inc., Asia Pacific Region
Steven Duan – Manager, Lingang China Logistics Center, Caterpillar Logistics Services, Inc.

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, Eaton, Emerson, Ford Motor Company, Harley Davidson, Kia, Land Rover, Mazda, Mosaic, Newmont, Toshiba, and Volvo.

To support operations, Cat Logistics primarily uses SAP’s enterprise resource planning (ERP) system when needed and either SAP’s warehouse management system, or Cat Logistics proprietary WMS. In many operations, the systems have been integrated to either Cat Logistics core transportation management system (TMS) from i2 Technologies, or Cat Logistics legacy TMS. Most of its warehousing operations utilize radio frequency (RF) devices integrated with WMS for paperless putaway and picking and overall inventory management.

Cat Logistics – Asia and China
In a recent visit to Shanghai, China, we had the opportunity to spend some time with Paul Joseph, Caterpillar Logistics Services, Inc. president of Asia Pacific operations. According to Joseph, Cat Logistics has three main business focuses within Asia:

1. Build distribution network to support its parent Caterpillar and develop 3PL business.

2. Help Caterpillar factories with manufacturing logistics and supply chain management.

3. Provide network transportation management services to Caterpillar on a global basis.

To meet Caterpillar’s rapid growth in Asia, Cat Logistics has doubled its Australian warehouse capacity and its Singapore and Lingang/Shanghai warehousing operations are running at near full capacity. The business strategy has been to address service parts logistics needs for Caterpillar and to focus on organic growth with existing 3PL customers.

Cat Logistics operations supporting Caterpillar’s manufacturing operations are adding people for inbound supply chain management, sequencing, and manufacturing support. According to Joseph, Cat Logistics currently supports 30 Caterpillar manufacturing operations.

Cat Logistics has been operating in China since 2003 when it set up a joint venture with Lei Shing Hong Limited. Headquartered in Shanghai, it currently has 60 employees which primarily are based at its distribution center in Lingang New City, Shanghai, China.

Cat Logistics Lingang Logistics Center
In January 2005, Cat Logistics began construction of its warehousing and distribution operation in Lingang. The 21,000 square meter facility was completed in February 2006 and began operations in March 2006. It has both bonded and non-bonded storage and initial operations include service parts distribution for four large Caterpillar distributors in China.

Figure 1 – Cat Logistics Lingang Logistics Center Location

The Park acts as Cat Logistics China Hub for import/export activities and also performs multiple value-added services including: painting, kitting, remanufacturing and subassembly. The warehouse has a full-time staff of 20 and the operation has a dedicated customs clearance team.

Caterpillar is the world’s largest manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. Its policy is to provide service parts for its machines and engines as long as there is demand for these parts. Because of this policy, Caterpillar has significant service parts needs. For Cat Logistics, this drives the on-hand parts inventory of approximately 45,000 stock keeping units (SKU’s) maintained in Lingang. To support operations, Cat Logistics is using a legacy WMS and uses paper tags for product putaway and picking.

In an average week, 10 ocean containers and 50 airfreight shipments of parts are received directly from suppliers and other Cat Logistics distribution centers. 80% of the parts come inbound from the U.S., 10% are from Singapore and the remaining 10% are supplied from other countries. Each inbound shipment is inspected to ensure the quantities received match the order quantities. After they are verified, the items are put away. Fifty-five percent of the parts are small and are stored in a central bin mezzanine area. The remainder is stored in various racking configurations or on the floor if they are oversized.

Approximately 1,100 parts order lines are filled each day for 50 outbound shipments to dealers.

The Shanghai government is spending approximately $12 billion to develop Lingang’s Yangshan deep water port into the largest port in the world with over 50 berths and an annual capacity of 25 million twenty-foot equivalent units (TEU’s). Cat Logistics distribution center is located adjacent to the Lingang Expressway, which leads from Yangshan Port to Shanghai’s central business district and merges with major roads to the rest of China. Additionally, Lingang is establishing a new rail terminal with intermodal capabilities.

Lingang Bin Locations

Large Cat Service Part

Cat Logistics Packaging Lines

Summary
As a global provider of 3PL services, Cat Logistics adjusts and adapts its regional geographic strategies to best support its largest customer–Caterpillar and other 3PL customers. With Asia’s rapid market growth, Caterpillar is Cat Logistics main focus; however, the network being built to support Caterpillar is anticipated to provide significant capabilities for future third-party logistics business.

 

Sources: A&A Primary Research, http://www.neovialogistics.com/

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