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Caterpillar stays competitive through better business planning

caterpillarFollowing five years of downturn in the industrial manufacturing industry, business is picking back up for Caterpillar. Yet increased complexity along the supply chain has led to a need for better planning processes, prompting Caterpillar to partner with o9 Solutions. We sat down with Caterpillar’s Senior Procurement Manager, Andrew Lee, to see how o9’s Integrated Business Planning solution helps Caterpillar stay competitive in a more dynamic manufacturing environment.

Q: What are the current manufacturing trends that Caterpillar embraces, and how are they impacting your business?

At Caterpillar, we’re especially interested in the move toward product-as-a-service. We want to diversify our offerings from exclusively selling machines to selling total solutions. If you’re building a new runway at an airport, we want to provide and manage the whole fleet of machines. Not only does this enable us to more effectively manage operating hours, IoT components give us more insight into the effectiveness of our machines and help us predict machine failures.

This change is especially important because of the cyclical nature of our business. As you may know, we saw a big rebound last year as business picked up in the fracking, oil refinery, construction, and mining industries. Unlike the last downturns in 2009 and 2010, where businesses recovered in six months, a lot of our suppliers didn’t see the rebound we did. This time it feels more like a permanent change, so S&OP processes are more important than ever.

Q: I would think that would lead to an increase in supply chain complexity as well.

That’s right – because of the uncertainty within the market, it’s hard for us to communicate the right signals to our suppliers. Often when we enter a downturn, people along the supply chain will try to zero out the safety stock to appease managers who expect to see inventory turn, but that only creates a bigger hill to climb once business picks up again.

On top of that, our customers expect us to offer thousands and thousands of product configurations. Generally, we’re actually very good at predicting forecasts, but when it comes down to planning for specific configurations—whether to use a wide or narrow track, or what volume to include for a boom and stick—we have more trouble building accurate plans.

Q: What drew you to seek out a new business planning approach?

Since 2010, we’ve been looking for a more effective business planning approach, but it wasn’t until 2015 that we got in touch with o9. Sanjiv [Sidhu, o9 Founder and Chairman,] and my director Pat Murzyn, immediately hit it off, and we used our first ten weeks to come up with an operational proof-of-concept.

Initially, we didn’t want to spend too many IT resources on a solution we weren’t very familiar with, so we didn’t even connect the platform to our database. Despite the manual processes that this required, o9 quickly demonstrated the superiority of their product.

Q: What set o9’s solution apart from other Integrated Business Planning solutions on the market?

First and foremost, o9’s solution was competitively priced. o9’s team also has a lot of business knowledge, putting them well ahead of other vendors we’ve worked with. We often need to teach “Supply Chain 101” to consultants from firms like Deloitte, Accenture, and McKinsey, but o9 could come in and immediately add business value.

Another major factor that attracted us to o9 was the solution’s flexibility and compatibility with systems we already used. From the start, the o9 platform had to interact with seven other systems that we were using on our supply chain, and it plugged in seamlessly. Last year, we tried to find a new solution to help manage the various product configurations we offer. We gave this challenge to o9, and it took them just ten weeks to design a tool that helped us rationalize inventory on our existing platform.

Q: How has the solution helped with cross-organizational communication?

Before, if production didn’t have a part needed to make a machine, they would blame inventory for not having it on hand. When it took us days or weeks to collect the data, people would panic and make decisions based on their emotions. o9 gives us a platform from which we can instantly access all the data, making it much easier to analyze problems rather than randomly assigning blame. o9 enables us to find the root cause of a problem that we can then take steps to solve.

This also means that we’ve shortened the time from when we hear about a problem and when we’re able to address it. Even if we don’t respond correctly 100% of the time, we are able to keep a history of responses that can be analyzed and self-corrected using machine learning. Eventually, our goal is to use this added analysis to enable more predictive insights.

Q: What impact has the solution had on Caterpillar’s ability to plan effectively for the future?

The solution has had a huge impact on our order fulfillment rate by ensuring we have visibility into the supply of our machine components. A machine can’t be shipped if it’s missing even the smallest nut or bolt, and it’s a testament to the system that our order fulfill rate is in the 99.5% level. I would say this efficiency has reduced our inventory costs by 10-15% this year, and that’s in North America alone. Once we’ve implemented the solution on our global systems, we will probably see another 10% or 20% drop in cost. I also expect our scrap costs to drop by 20% or 30% minimum.

Q: How has the solution helped you automate or maintain your optimal customer service levels?

The biggest benefit we have seen for customer service has been faster, more consistent response times. Even with the current upturn, we deliver most of our products within eight weeks on average. Compared to competitors in the mining industry who take over 18 months to deliver a new mining truck, we can produce and ship a fully configured machine within ten weeks.

These response times are even more important in the age of increased customer expectations, but we want to take this one step further and offer dynamic pricing based the configuration the end user wants. If a customer has a specific machine configuration and we have a nearly identical machine sitting fifty miles away, we should be able to offer that machine to the customer in two weeks with a 5% discount. This is the next frontier we want to tackle with o9.

o9 Solutions’ Integrated Business Planning solution, Built on Microsoft Cloud technology, is available now on Microsoft AppSource  Learn more about o9’s powerful, agile, and expandable solution by trying the demo today.