Caterpillar’s Building Construction Products Division Improves and Stabilizes Product Availability

Abstract

In 2001, Caterpillar’s Building Construction Products Division (BCPD) began a project to reduce and stabilize order-to-delivery times (termed product availability within Caterpillar) while reducing cost and inventory. Using a six-sigma method and a multiechelon inventory optimization model, BCPD sets dynamic inventory policies for assembled machines stocked at the assembly plant and for subassemblies and components stocked at the assembly plant and at supplier locations. The project has improved product availability, reducing the mean time for orders with identified customers by 20 percent and reducing the standard deviation of product availability for all orders by 50 percent. BCPD’s initial implementation and resulting improved product availability enabled BCPD to win more orders (a two percent increase in revenues) and reduce total chain inventory by 16 percent, and it has motivated other Caterpillar manufacturing and assembly facilities to replicate this project across their supply chains.