Visibility through CAT’s eyes

Visibility through CAT’s eyes

Visibility through CAT’s eyes

 
Heavy equipment maker sharpens view on cargo in transit.
By Chris Gillis
Is it actually possible to lose sight of a 15-foot-tall, 60-ton bulldozer?
It happens to big equipment shippers in their supply chains more often than most would admit, and until several years ago, Caterpillar, a manufacturer of some of the world’s largest earth moving equipment, was no exception. The Peoria, Ill.-based company often lost visibility of oversized shipments in its supply chain, frustrating equipment dealers and end customers, as well as the company’s own logistics staff.
                    
   
“Our customers were basically saying, ‘why is it that I can order a pair of tennis shoes for my grandmother and ship them around the world and basically go on line and track them and know exactly where they are at any given time? But no one can tell me where my multimillion-pound piece of equipment is,’” said Tom France, Cat’s director of transportation and supply chain solutions in Morton, Ill. “One thing that should stand out anywhere in the world is some big piece of yellow product.”
Equally troubling for Caterpillar was when it did receive status messages about its shipments en route, they were usually wrong, requiring substantial manual intervention on behalf of the logistics staff to get the right answers.
“When you’re trying to manage a multibillion-dollar business through e-mails, faxes, and phone calls, it’s not really a scalable logistics platform,” said Doug Gray, general manager of international transportation operations for Cat.
As a global shipper, Caterpillar is undeniably large. The $42 billion company in 2010 had an estimated 100,000 employees located in nearly 500 locations across 100 countries. Even during the depths of the economic recession, Caterpillar’s equipment remained highly sought after by overseas mining and construction outfits, particularly in the developing world. U.S. exports of Cat equipment accounted for $13.4 billion in revenues last year, compared to $10.4 billion in 2009.
In its 2011 third quarter earnings, ended Sept. 30, the company reported 44 percent growth in income of $1.14 billion. At the end of the quarter, the company also had a customer order book valued at $24.4 billion, with total sales for the year expected to reach $58 billion. The growth of Caterpillar’s international business is forecast to continue through the decade, potentially doubling in size by 2020.
While Caterpillar doesn’t publically share its shipping volumes, industry estimates indicate the company currently moves upwards of 150,000 TEUs of containerized part shipments and conducts about 50,000 roll-on/roll-off carrier moves of finished product a year to more than 120 ports worldwide. Caterpillar’s annual freight expense exceeds $1.5 billion, making it one of the largest American
shippers.
Due to the need to move such a vast variety of equipment and parts to some of the remotest areas on the planet, Caterpillar also has one of the most complex supply chains.
“If you compare us to the auto industry, for example, we have about 4,500 order-to-delivery pairs — that’s one destination to another,” said France, who worked many years at Ford and a stint with Vastera in Detroit before joining Cat six years ago. “The auto industry typically has around 1,500 to 2,000 order-to-delivery pairs.”
Without the ability to efficiently monitor this immense supply chain flow, Caterpillar’s global operations, along with its strong brand recognition among customers, would eventually suffer. The company realized this and started taking action in 2008 to correct it.
“We had to get visibility,” France said. “You can’t make network decisions if you don’t have it.
“It’s kind of like if you have a crack in your dam,” he explained. “The only way you’re going to be able to find it is by looking at the water level. Visibility similarly lowers the water level and lets you see the problems. For us, it allowed us to see all the handoffs in the supply chain, where things may dwell too long.”
   
In-Transit. On any given day, Caterpillar has more than $500 million of product and parts globally in transit.
“When we started this process, we found things were sitting in ports for long periods of time because we were not matching our flows to ship sailing schedules,” France said, noting four years ago, some shipments dwelled in ports as long as 60 days. “What was really killing us was the variability and that’s the real enemy of the supply chain.”
             
       
   The mix and match of parts and equipment to build up an outbound shipment risked unseen delays at rail and truck hubs on route to the outbound ports, resulting in missed sailings. “People could see the equipment sitting there, but no one would do anything about it,” France said.
Internally at Cat, the situation wasn’t much better. The company had a legacy system that only provided point visibility on certain status elements. It didn’t offer end-to-end visibility across the supply chain, such as when the cargo left the factory, showed up at the rail or truck hub, arrived at the port, and loaded on the vessel.
“We were just guessing or reacting to anecdotal information,” France said. “We found many issues were not related to transportation and we could not put the proper focus where it belonged.
“Some trade lanes were much worse than we ever believed and some were actually better than the noise we were reacting to,” he said.
Gray said the Cat system at the time was essentially updated by the freight forwarders when they made bookings with the ocean carrier and the cargo left the factory. In some instances, forwarders would upload important transit details after the shipments arrived at destination. “That’s the level of visibility that we had to offer our dealers,” he said.
“So what we needed was a system that we could proactively monitor and for us to take control of our supply chain,” France said.
Similarly, for inbound containers of parts, Caterpillar struggled to provide its assembly plants with precise status details.
“You can get visibility to a container but then when you’re sitting in one of our 30 factories in the U.S. , you want to know where a specific part is and that maybe among 20 other factories’ parts in that same ocean container,” Gray said. “There just wasn’t visibility to that level of detail.”

Finding A System. Instead of developing ocean shipment visibility internally, Caterpillar decided to look outside its walls for information systems applications available on the market.
“Obviously Caterpillar has a very bright technology department, but if you develop it yourself you’re not in the cloud. In other words, you don’t have the ability to get in the network with other connections,” France said.
After exploring the IT market, Caterpillar settled on running a pilot with GT Nexus, a software-as-a-service provider which offers electronic-data-interchange connectivity between carriers and shippers.
Many liner carriers and 3PLs are active on GT Nexus supporting multiple shippers. “We’ve integrated and on-boarded hundreds of surface (truckload, less-than-truckload, and rail) carriers across multiple continents as well,” said Greg Johnsen, executive vice president and co-founder of GT Nexus. “Our network includes over 15,000 organizations today and several hundred complex inter-company business networks which all run on the same cloud platform.”
“I look at it as moving into a house that’s already wired. GT Nexus already has the network. All we needed to say to the carriers is send the Cat visibility messages,” Gray said. “To integrate a carrier into an EDI platform could take three to six months. By already having up to 25 carriers on the network, we saved a huge amount of time and effort by going to GT Nexus.”
The GT Nexus pilot included EDI integration with Caterpillar’s core container carriers for inbound parts shipments. “In a short period of time, we could get visibility to where those Cat containers were,” Gray said. A second pilot included the integration with Caterpillar’s largest ro/ro carrier, Wallenius Wilhelmsen Lines, for finished products.
The pilots provided almost instant results for Cat’s supply chain visibility. “The reputation with any company is slow to change,” France said. “With Caterpillar, this exercise didn’t take too long. It probably took about six months to get us up and running on the pilot.”
Caterpillar had buy-in from senior management and the IT department to pursue the use of the GT Nexus network. “While you may feel like you know what the answer is, you still have to bring the people along to do this in a collaborative manner,” France said.
“For us, it was about building credibility fast, so getting visibility was good to begin with and that’s what we did with the pilots,” he said. “When you have that credibility, people get excited and want more. So you can add onto it from there.
             
                       
Gray
   “We also had excellent support from our IT department on this project,” France said. “Like us, they saw the value in speed to execution and the power of the platform we collectively chose. We could not have executed as fast as we did without their support and leadership on this project.”
Yet, efficiently connecting the supply chain visibility piece with Caterpillar’s order management system took nearly two years to complete. “As we look at new businesses to acquire, that’s where we spend most of our time and expense,” Gray said.
“We insisted in the beginning on everything being standard,” he added. “That meant getting us from legacy point-to-point custom filing processes to standard EDI sets because that makes it scalable.”
For GT Nexus, when a large customer like Cat joins the network then that company’s community of service providers and trading partners joins the platform too.
“This expands the network for everyone, making the platform more valuable to all,” Johnsen said. “Traditional ERP systems, which focus on the single company, and are deployed within a single company, don’t have this value dimension. There is no network effect with ERP.”
   
Significant Progress. Since then, Caterpillar has made significant progress with its supply chain visibility. “We’ve driven a lot of success with this platform,” France said. “We have reduced our in-transit inventory by 15 percent over the last two and a half years on the prime product side.”
The company has stood up “control towers” in strategic locations throughout the world to feed its parts shipment details to GT Nexus and thus the carriers in its network. These towers, which are operated by Caterpillar’s forwarders, are located in Chicago, Sao Paulo, Antwerp and Singapore. They are also responsible for Importer Security Filings from origin with U.S. Customs and Border Protection, and detecting any non-compliance with shipments.
This action has allowed Caterpillar to increase its collaboration with its carriers to help “flush out issues at origin,” allowing the company to focus on moving the right parts at the right time, said Joshua Bloomfield, the company’s manager of global materials management. “For inbound to the U.S. today, nothing should sit more than a week getting on a ship and no more than two days waiting to get on a train once it’s arrived in North America.”
                    
   
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   Similar improvements have been made on Caterpillar’s outbound finished product business where the typical trade lane manager may handle from 300 to 400 shipments a month.
Through GT Nexus, Caterpillar now communicates via EDI to nearly 20 of its roughly 75 breakbulk carriers worldwide. These 20 operators handle 85 percent of Caterpillar’s breakbulk transport requests. “Only about 15 percent of this freight goes on bulk carriers not on EDI,” said Kris Mettelmann, global prime product distribution team lead. “While it’s not ideal, we get status information about these shipments from our forwarders.”
Johnsen said GT Nexus would like to include more ro/ro carriers in its system. “Cat has certainly helped us to build that part of the network out,” he said. “Automotive and heavy industry are key vertical sectors for us and so accelerating not just the connectivity to specialized carriers but making those connections more robust is a priority for us.”
Gray explained that the container carriers are further along when it comes to EDI messaging due to more regulatory requirements imposed on this industry since the Sept. 11, 2001 terrorist attacks, such as advance manifest filing and ISF for inbound containerized freight. “They need to know where their containers are at all times and with the ro/ro carriers that hasn’t been the case,” he said.
It used to take Caterpillar, for instance, about 6.5 hours to complete a booking with a container carrier and now through GT Nexus the process takes 16 minutes or less, and “It’s all visible to us,” Gray said.
With shipments transported by air carrier, Caterpillar relies on its six freight forwarders to supply the EDI status messages. “We started 12 months working with our forwarders on inbound-to-manufacturing flows,” Gray said. “So we have visibility events from our forwarders and tied them to the part-level details. We’re now working on this for our service parts business.”
      
Resiliency. Caterpillar’s sharper visibility tools have already paid off through several significant natural disasters that set back the supply chains of many global companies.
The tendency for most companies in these situations is to scurry to keep their factories running, often resulting in double-ordering of inventory and compounding freight transportation costs, whether it’s needed or not, France explained.
Visibility, no matter the event, allows shippers to quickly understand what goods may be trapped, monitor them, and work around obstacles when necessary.
When a devastating earthquake struck Japan in March, triggering a massive tsunami in the northern part of the country, France, Gray and another logistics executive were in Singapore. Through their laptops, they put out orders for what needed to be done. Caterpillar has two plants in Japan.
“We not only identified where each of our containers were but what their status — whether parts or prime product — was and whether they were shipped,” France said. “Come to find out, all our products had either been shipped or the ones that had not been shipped were undamaged, and ready to go. All we needed to do was get them shipped or diverted to a different port to move them on a timely basis.”
The biggest concern at the time for Cat was whether its Japan factories had enough fuel after the earthquake. While they did, the company was prepared to fly fuel shipments into the country.
A similar experience occurred in April 2010 when a large cloud of volcanic ash from Iceland covered much of western and northern Europe, disrupting air transportation for almost a week. Cat’s supply chain visibility tools, although still in the developmental stages, responded.
First, the company quickly determined which parts in the sudden flight backlog needed to fly first and which ones could be eased out as soon as the ash cloud cleared. Then it booked the earliest available air cargo capacity out of Europe.
“We were the first ones to lock down 747 charters,” France said. “While others were sitting at their whiteboards, we knew even before the ash cloud lifted what we needed to do. We protected our supply chain. We weren’t fumbling around.”
Recent labor unrest in various parts of the world has also tested Caterpillar’s supply chain resilience. “Disruption management is becoming the order to the day,” France said.
Gray said effective disaster management affirms the importance of efficient IT connections with the transportation supplier network. In the case of an Oct. 25 Italian port strike, Caterpillar received an alert from a liner carrier that morning and it immediately assessed the parts shipments ready to leave its Italian factory and whether others were stuck en route or in the port.

Ongoing Endeavor. Supply chain analysts generally believe Cat has taken the right approach with its IT pursuit, but the company’s visibility objective will remain ongoing as long as it keeps expanding.
    “GT Nexus will give you a running start, but it won’t allow you to finish the race,” said Will McNeil, senior research analyst at Boston-based Gartner. “Some carriers aren’t on it and every time Cat adds a partner there is a change to make since they have to convince that carrier to use GT Nexus.
“Cat’s job will never be done because they’re always securing new markets,” he said.
McNeil, also warned that Caterpillar should not ignore data integrity no matter how much of its logistics processes become automated. “Data quality should always be monitored,” he said.
Gray estimates that Cat’s visibility work on finished product and inbound parts-to-manufacturing shipping are each about 60 to 65 percent complete.
In 2012, Caterpillar will implement its current visibility tools in plants across Europe and Asia, while making it apart of any newly acquired firms’ operations. “This adds a new level of complexity,” Gray said.
In addition, the company will use GT Nexus to drive shipment planning, carrier selection, bookings, bill of lading instructions, freight payment audits and carrier service analytics via its service contracts. Going forward, ocean carriers in the trades where Cat does most of its business will have to use the GT Nexus platform or risk losing the shipper’s business.
“We’ve got plans to roll out shipping instructions on our finished goods and containerized shipments so that rather than getting events saying this is where a product is we’ll now have operational visibility as well as shipment visibility,” Gray said. “Then we connect the whole supply chain together.”
“Our goal is to build a sustainable operating platform,” said Frank Sokol, manager of international transportation operations at Caterpillar. “When less people have to intervene in the transportation process, they can then focus more on actual process improvements.”
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