Essay on Caterpillar Supply Chain Management

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Supply chain management refers to the efficient coordination between the raw materials from the suppliers in the manufacturing process, the distribution network and the information systems in achieving satisfaction for the end consumer. Caterpillar Inc. is the world’s leading and largest manufacturer of machinery. Its activities are mainly categorized into two segments.

The first segment is the machinery and power systems that is concerned with activities such as mining, construction, diesel locomotives as well as gas turbines and engines. The other segment involves the financial products that include the CAT financial and Caterpillar holding insurance. This study however will be concentrated on the supply chain of Caterpillar’s electric diesel locomotives (Handfield, 2011).

The Supply Chain Network of the Company

The Caterpillar supply chain management team aims to provide customers with the equipment and machinery they need at the right time and in the right place. In order to do this, the company has a spectrum of activities that include stock optimization, efficient maintenance of the locomotives, state of the art repair and operations (MRO) processes and raw materials management strategies.

This results into a need for a strong relationship with the suppliers who provide the relevant raw materials for the company’s manufacturing department such as metals, semi-conductors, wheels, paints, legal services and computer operations; the distributors who ensure that the diesel electric locomotives are available for the customers on time and who carry out any needed value addition to the products because they ensure that the end consumer not only gets the best quality products and services but also ensures that the customer’s demands are met promptly.

Another important aspect of the supply chain in the production of the electric diesel locomotives is the customer. The customer determines the type and quantity of the product to be produced as well as providing the necessary feedback to further enhance the services offered by the Caterpillar Company (Kelleher, 2014).

The Company’s Management of the Suppliers

In order to continue being a world class manufacturer, Caterpillar Company has invested in finding world class, diverse suppliers as well. The company maintains a reasonable supplier size of about 9,000 vendors who supply CAT with parts such as aluminum, truck parts and metals. In order to effectively manage the suppliers force, the company requires all its suppliers to comply with the stipulated code of conduct and this not only promotes fair competition but also maintains a good reputation for the company.

The company gets their suppliers by posting their order specifications on the supplier website and the supplier who has the specified product is then required to post his details and documentation in order to apply for the contract. A Caterpillar Global purchasing representative who is closest to the location the supplier is situated in verifies the potential supplier’s documents and after reviewing the terms, the qualified supplier is contacted and is presented with a company’s contract. If the supplier accepts the Company’s terms, a contract to supply is signed.

The company respects the negotiating power of their potential suppliers and engages their suppliers on the basis of their competitive prices. The supplier who has the best pricing, contextual quality products as well as low overheads is enlisted. The Company also has strategies that ensure that the interests of the company as well as those of the supplier are well taken care of.

These strategies include for example the use of up to date stock keeping technology and a highly effective supply chain monitoring that ensures that there is less inventory loss. The company is also set to increase the collaboration between its suppliers and the supply chain by engendering communication and trust with the suppliers in order to boost their profits .Out sourcing is also being continuously used by the company for the services it doesn’t specialize in and this has been a positive boost for the company’s outsourced suppliers (Singh, 2012).

Management of the Distributors

Caterpillar Company has a wide range of distributors globally in six continents with over 170 distributors that avail the products to the consumers in the respective nations, as well as carrying out the necessary value addition procedures on the products. The company uses a three level distribution channel whereby there the retailers are the intermediary between the consumers and the manufacturer.

Consumers make their orders to the respective retailers in their given country and then the retailer makes the order for the customer from the manufacturer. The company’s distribution system is comprehensive and aims at efficiently managing the flow of materials through transportation and satisfying all the storage requirements including warehousing and carrying out all value adding activities to the products to suit the customer’s needs.

This distribution system enables a faster transportation of products throughout the globe because the Caterpillar Company has maintained good relationships with the leading industry transport providers and hence customers and retailers incur less transport costs annually as well as achieving prompt delivery of customers’ orders.

By applying the JIT (just in time) system, the retailers are also able to secure the needed goods from the manufacturer in the right time at the right place. The Caterpillar Company on the other hand ensures that it has provided the needed products to the distributors on time so that they protect the distributors from losing customers to other competitors who are distributing similar products in a case of inadequacy or inability to supply on time.

Use of computerized stock holding by the distributors is also greatly encouraged by the company so that the movement of goods to the consumer is efficient because use of this technology not only ensures that the orders are satisfied on time but also the stock is readily available for customers (EBR, 2014).

Reaction to Customers’ Demands and Satisfaction

In order to adequately respond to consumers’ demands, the Caterpillar Company has a strong communication and ordering system that aims to notify customers on available products and the status of their orders through tracking as well as efficient valuation of the customers’ orders. The Company also has great responsiveness to client’s demands by ensuring that orders are fulfilled within the possible shortest time.

The company also carries out effective market as well as technical research before establishing a product so that the needs and specifications of the clients are met effectively. The company is also open to all kinds of feedback from the consumers including criticism. This helps the CAT Company improve their products further as well as meet the demands of the consumer because they are able to better understand the current trends and preferences of the consumer.

The company’s strong online presence and great customer service relations with their telephone lines being open 24 hours every day for customers and retailers with queries, complaints or suggestions. The Caterpillar Company offers retailers with terms that are favorable and allow the same retailers to extend incentives such discounts and warranties to the end consumer and this goes a long way in enhancing the confidence consumers have in the brand Caterpillar. The fact that it is simple to make orders for the locomotive engines and the Company’s commitment to providing a specialized type of experience for both retailers and customers have also gone to increase the client’s satisfaction.

Type of Production Used

The Company uses a combination of both pull and push production. Push production is made to satisfy the existing customer’s demand for the locomotive products based on previous quantities required by the consumers and when design modifications are not frequent .The goods will therefore be produced in anticipation of consumers’ orders and goes a long way in helping the company deal with a demand that is fluctuating.

On the other hand, the Caterpillar Company will manufacture goods through the pull production system to satisfy a consumer’s need when the consumer needs it. The product is therefore only manufactured after a client makes an order for it especially when carrying out heavy research and development programs that include surveys, brainstorming meetings or through centralized focus sessions. The use of combined production methods helps the Caterpillar Company to attain high levels of consumer satisfaction because the brand is able to meet the continuously changing demands of the market as well as incurring lesser costs due to lower levels of inventory stocked(Hunt,2014).


Caterpillar’s supply chain is no doubt a force to reckon with and is an exhibit of how effective management of the supply chain should be carried out. The company’s chain has been invaluable in understanding how the supply chain works as well as unearthing the various loopholes in the supply chain process.


Energy Business Review (EBR) (2014). Caterpillar supply chain services.
Handfield, R (2011).What is the supply chain management.
Hunt, J (2014). Push system vs. pull system inventory control.
Kelleher,J (2014).From dumb iron to big data: Caterpillar’s dealer sales push.
Singh, S (2012).Caterpillar enlists suppliers in targeting 25% profit margin.