The Comeback of Caterpillar – What are the dynamics of competition in the heavy construction equipment industry?

When the US construction industry grinded into an economic d haveturn, demand for true cat crossroads decreased. The study decrease in the US industry is the result of the completion of the interstates, monstrosity dams, and new(prenominal) construction buildings. Hydraulic excavators be real larger market. They accounted for 45 part of the sales. They are the fast merchandising equipment that can create disputation between the companies. Developing Nations played an important role in the competition, because the urgency for construction equipments increased to shape the new dams and especially to bring in roads.The development rates of underdeveloped nations were faster than the global demand so developing nations becomes the new market areas for competition. One of the biggest competitions takes place in the replacement single out sector. It is an of the essence(p) part of the industry. Replacement split made up together over a quarter of the total revenues of the total construction equipment industry. similarly the sales of replacement move are more profitable than the exclusively machines. Construction Companies competed to provide the best parts for the best needs. It is vital for companies to execute an economies of scale to survive in the competition. To hand economics of scale, companies try to set aside a large market grapple in order to head off the pitiful volume of global sales.Distribution and service interlock is the essential part of the industry because the inability to act upon the equipment is very expensive. To gain private-enterprise(a) advantage by selling parts, companies used a world wide of the mark ne bothrk of dealerships to sell their machines and provide support. Intense competition among the companies drove them to form alliances to share risks, to access new markets, use technology and share production. Oil prices are very important because decline in oil prices can deject the market and could affect the competition directly.Currency Fluctuations affects the industry as a whole. Rise in the value of dollar makes early(a) countries buying proponent decrease, which results as an import to the country The imports will be much cheaper than the internal products, therefore industry will shift to import from other countries. gruelling currency is the prime factor for companies such as Caterpillar to confirm trouble while competing for developing countries. Cyclical Nature of the construction equipment could make an industry wide follow upturn for both domestic and world(prenominal) markets.2. What were the sources of Caterpillars salient(ip) success up to the early 1980s?The major reason of the owing(p) success of Caterpillar up to the early 1980s was the post-war years. Those were the time to reconstruct the countries that were destroy in the wars. As a result Caterpillar products exploded during those times to rebuild Europe, build the US interstate highway formation, erect the colossus dams of the third world, and layout the major airports. Also Caterpillar Comp both followed some strategies during those times to diffe requireiate itself from its competitors by producing reliable, high bore products and providing a fast actors line of replacement parts. As a result Caterpillar became the leader of the heartrending construction equipment industry.On the other and Caterpillars distribution and dealinghip with their dealers contributed to the associations world wide success. The vision of Caterpillar for their deal network was very unique. Those dealers were self sustaining businesses who trust their own capital. They generally earn 100 percent of their revenues by selling and supporting Cat equipment. By doing those Caterpillar dealers remained in the hands of the same family and jockstraped the company to make huge success.3. What were the strategies introduced by Schaefer, Fites, and Barton to reduce the impact of orbitual downturns on Caterpillars results?George Schaefer* Global Outsourcing Caterpillar sought to purchase parts and components from low cost suppliers, who maintained high quality standards. beneath their new insurance shopping around the world, they moved to outsource 80 percent of its parts and components.* With the financial aid of its branding program Caterpillar sold outsourced machines under its own name. Branding program helped the company to keep production costs down while taking a superior marketing organization advantage.* As the demand for heavy equipment decreased Caterpillar needed to reevaluate its product mix and create a broader product line. Caterpillar started to sale lax construction equipment. Between 1984 and 1987, accordingly, Caterpillar doubled its product line from one hundred fifty to 300 models of equipment introducing many small machines that ranged from farm tractors to backhoe loaders. They too started to market illumine w viii vehicles to small scale owner ope rations and new contractors.* Schaefer promoted impolite communication strategy, which resulted the free flow of ideas between officers, managers, and production workers.* Also Schaefer launched the Employee mirth Process (ESP), which helped the company to organize in work teams, met weekly with focussing and offered suggestions that helped to solve many critical aspects of the manufacturing process. The program resulted in productivity gains, quality improvements, and increased employee satisfaction.* Schaefer as well launched a designingt modernization program with only if in time neckcloth method. This led the company to have computerized tools, and flexible manufacturing systems. They withal changed the traditional manufacturing process system called batch. Unlike in batch systems assembly lines provided complete model production and helped the company to achieve high level of work in progress.* Correcting the assembly mistakes Caterpillar reconfigured the layout of its manufacturing system into flexible work cells. Workers used computerized machine tools to perform several manufacturing steps.* As general Schaefer reemerged the company as a lean, technological, flexible, and competitive global company. He increased the company shares up to 7 percent, while increased the revenues by 66 percent,Donald Fites* Fites turned the company into a utilizing integrated approach based, Nipponese style company. He also treasured to bring Caterpillars constancy relations to the Japanese model, because Japanese unions are company based organizations.* He also looked deeply into the customer needs, because global pricing decisions center didnt have a broad knowledge about the local market conditions around the world. He delegated district offices authority to set prices which helped him to push responsibility down the bowed stringed instrument of command to the lowest possible level.* He applied the same prescript to Caterpillars entire mental synthesis, d eveloping a company wide reorganization plan under Schaefers direction. Caterpillars old organization structure was only suitable in US, but as the company expanded globally the limitations of such structure become apparent.* Fites broke the company into 17 semi-autonomous offices in order to operate necessarily and to gain the company flexibility. He then required individually division to have 15 percent rate of return, on the other hand he threatened to penalize any division that shake off behind. This helped the company to increase their profits and give them maximum flexibility.* In appurtenance to all those, Fites developed a new plan, which based all of its inducing compensation schemes on return on assets. As traditionally Caterpillar managers were paid in proportion to the size of the budget they controlled, or the payoff of employees they supervised. Also all funding, and R&D activities that controlled by each division helped the company to be more customer driven tha n at any other period in past.* New organization plan touched the companys distribution network as well. With the help of new divisions, dealers seeking help could contact them easily. The importance of this structure was the interaction between Caterpillars managers and dealers increased. It also enabled the company and dealers to have closer relationships to each other. According to Fites Caterpillars distribution system was the companys individual(a) greatest advantage over its competitors.* Another strategy for Caterpillar was to encourage its dealers against failure. Caterpillar assisted individual dealers who were subject to intense price competition. To help those dealers Caterpillar reduced prices even sometimes reduced the dealers costs, and sometimes they launched a promotion campaign. All those helped the company to sell more vehicles and create sustainability when other dealers went out of business during the recession.* Not only they helped their dealers but also they introduced Partners in Quality program to have quality discussions, which links personnel at Caterpillar plants and dealerships. This helped the company to have strong personal business ties with the dealers.* Fites invested to further the Caterpillars worldwide computer network. It helped Caterpillar to link together all factories, suppliers, sealers, distribution channels and customers. With the help of this system Caterpillar guaranteed 48 hours delivery of parts anywhere in the world. Caterpillar provided the most comprehensive and fastest part delivery system in the industry. Also electronic alert system developed under Fites. This system designed to monitor machines remotely refer parts, which needed to be replaced, and replace them onwards they failed. This helped the company to repair the machines before they broke down. They saved repair costs, it also provided to Caterpillar reduce their inventory costs.* Fites expanded the products of the company. Caterpillar entered a total of 38 mergers and joint gage agreements. Caterpillar sold engines separately and accounted for 35 percent of Caterpillars revenues. This is a very big market and Caterpillar engines powered one third of the big hand trucks in the United States.* Fites wanted to reject the collective bargaining agreement, because the poke costs are very high and they were cutting the companys global competitiveness. The labor prices were very high and Caterpillar was heavily depended on the export of domestically manufactured products. After he rejected the agreement union went to strike. yet Fites forecasted the strike and he built up enough inventory to egress customers for about six months.* Fites was a very successful CEO he trained managers and office workers to operate factory machinery, when the strike happened again he was prepared again. His ability to see the answer before the question get company lots of money.* At last he got what he wanted. He signed a contract with the unio n allowing Caterpillar to introduce two tier wage system and pay new employees 70 percent of the starting union scale. The contract also provided more flexible memorial format allowing management to keep employees on the job longer than eight hours. The contract also enabled company to hire temporary employees without the approval of the union.* Fites wanted to have good relationship with the union because incase of an economic downturn and an recession he wanted to have a smooth workforce.Glen Barton* He believed that the downturn of the US market could be eliminated by an upturn in the international market.* He increased sales of Caterpillars equipment to the developing nations such as Asia, Latin America, and Eastern Europe. By doing this he created new markets for the company.* He made non truck engines incase of a decline in the truck engines. Such variegation enabled the company to produce engines even the truck engine part offset.* Under the leadership of Barton, Caterpillar started to sell mobile power modules.* Caterpillar started to rent business equipment. Barton made efforts to make dealers diversify into rentals. As successful as it is the rental distribution segment of the fastest growing segment.* He also used joint ventures to expand into new markets, and he was very successful. He formed joint ventures with Daimler Chrysler and started to produce medium duty engines. He also started to manufacture fuel systems. Those fuel systems were designed to increase efficiency of diesel engines and thereby reduce diesel emissions.