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OM in the News: Caterpillar’s New Approach to the Supply Chain

October 27, 2010

In the past, equipment giant Caterpillar did not have to focus on collaborating with suppliers. Along with Komatsu, it was dominant in its field. But Caterpillar is starting to recognize  what Honda and Toyota have long known, namely that competition is based on the supply chain, not individual companies.The company’s attitude in the past was one of servant-master with suppliers, according to Businessweek (Oct.21,2010).

So Caterpillar decided to partner with supplier Tenneco to design  new emission cutting components, rather than set specs and pick the cheapest vendor, as it had done in the past. The joint effort cut costs on the part by 20%.  The firm’s CEO expects the Tenneco relation to be the new benchmark and will work more closely with 200 companies it believes are critical to its growth.

Caterpillar was not prepared for the global growth spurt of 2006-2008 and saw flat profits even with a 24% sales increase. This was because it paid more for raw materials and faster parts deliveries.

Discussion questions:

1. Compare Caterpillar to Boeing (see Ch. 2’s Global Company Profile) in terms of partnering.

2. How did Caterpillar move to change its corporate supply chain culture?

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