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Caterpillar Logistics Services, Inc. Cat Logistics

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1 Caterpillar Logistics Services, Inc. Cat Logistics
08/27/09 TJ Sherman Atlanta DC Facility Manager

2 Overview Cat Logistics heritage Caterpillar culture
Cat Logistics overview Cat Distribution Services Manufacturing Logistics Transportation External Client Business Atlanta DC Overview Data Files Review of Concepts

3 Cat Logistics Heritage

4 Logistics – Part of Caterpillar’s Heritage
Producing and supporting high-value, durable goods working in time-sensitive, critical environments around the world Caterpillar manufactures more than 500 products to serve construction, mining, forestry and power generation applications More than 170 manufacturing facilities and thousands of suppliers around the world Distributes products in more than 190 countries World-class logistics increases customer loyalty and improves shareholder value

5 The Differentiator What sets Caterpillar apart? Superior customer service through 180 Dealers 1,890 Dealer branch stores 1,467 Dealer rental outlets Enabled by… world class parts distribution Cat Logistics distributes more than 750,000 unique Caterpillar part numbers, with worldwide parts availability of 99.7% Caterpillar’s ability to get the right part in the right place at the right time separates us from the competition With Cat products in use all around the world, without Cat Logistics, Caterpillar would not be able to deliver on its promise – make customer’s progress possible. When you buy yellow iron, you get the entire company and Cat product support behind it. One of the oldest parts in the Caterpillar parts network is spacer - a cylinder 1 inch in diameter, approx 1 inch long. It is for a series 50 tractor originally introduced in A number of these tractors are operating around the world and we still sell 37 spacers a year, so keep them in the stock. Cat parts inventory in every facility is stratified by the level of demand - fast movers, medium movers, slow movers – with fast movers readily accessible (physically close) for storing and picking. Not every part is stocked everywhere in our system (we have 20+ different nodes in the Cat parts network), and it would not be efficient to stock slow movers in every node. Instead, they are stocked in one or few places around the world. The visibility of our very integrated & global system will allow us to retrieve a part when & where needed. The dealers all around the world share our passion, enhance our competitive edge and ensure our customers in practically every country get maximum business value from our products and services. Virtually all of our dealerships are independently run, locally owned businesses. This is why so many dealers have strong relationships with their customers, many spanning two generations or more. Caterpillar parts support to dealers and customers is available 24 / 7 / 365

6 Caterpillar Culture

7 Our Values in Action Documents high ethical standards our company has upheld for more than 80 years First published in 1974 Global company with global standards and expectations Living Our Values in Action is an individual choice Of course, the driving force behind our success is our people. They are passionate about their work, talented and committed to excellence, and their work is driven by Our Values in Action – Integrity, Excellence, Teamwork and Commitment. Our values define our culture and will drive our success in the future. You can see our values in action throughout our work environments, all of which are committed to embracing diversity, encouraging teamwork and sparking imagination. Team Caterpillar does not end with our own employees, but it extends to our world-wide dealer network. These people share our passion, enhance our competitive edge and ensure that customers in practically every country get a maximum business value from our products and services. Caterpillar people come from many places. Our backgrounds and experiences are different. So are the businesses we work for within Caterpillar—each with its own unique culture and character. And we are clearly a better company because of this diversity. But what brings us together? The Code of Conduct is the most important document we produce at Caterpillar. Its purpose is not to provide a set of rules that covers every situation or challenge we may face, but to serve as a daily guide for putting our values in action. It explains what integrity, excellence, teamwork, and commitment mean to us and how we use these values to make sound, ethical decisions in the best interests of all Caterpillar stakeholders. Integrity – Integrity is the foundation of all we do. – It is a constant. Those with whom we work, live and serve can rely on us. We align our actions with our words and deliver what we promise. We build and strengthen our reputation through trust. We do not improperly influence others or let them improperly influence us. We are respectful and behave in an open and honest manner. In short, the reputation of the enterprise reflects the ethical performance of the people who work here. Excellence – We set and achieve ambitious goals. – The quality of our products and services reflects the power and heritage of Caterpillar -- the pride we take in what we do and what we make possible. We are passionate about people, process, product, and service excellence. We are determined to serve our customers through innovation, continuous improvement, an intense focus on customer needs, and a dedication to meet those needs with a sense of urgency. For us, Excellence is not only a value; it is a discipline and a means for making the world a better place. Teamwork – We help each other succeed. – We are a team, sharing our unique talents to help those with whom we work, live and serve. The diverse thinking and decision making of our people strengthens our team. We respect and value people with different opinions, experiences and backgrounds. We strive to understand the big picture, then do our part. We know that by working together, we can produce better results than any of us can achieve alone. Commitment – We embrace our responsibilities. – Individually and collectively we make meaningful commitments – first to each other, and then to those with whom we work, live and serve. We understand and focus on the needs of our customers. We are global citizens and responsible members of our communities who are dedicated to safety, care for our environment, and manage our business ethically. We know it is both our duty and our honor to carry the Caterpillar heritage forward. Each of us who becomes aware of a circumstance or action that violates, or appears to violate, the Code of Conduct, enterprise policy or applicable law, should contact his or her supervisor or local management as soon as possible. Each of us has a further personal right and responsibility to report any circumstance or action that violates, or appears to violate, the Code of Conduct, enterprise policy or applicable law. We must use these reporting rights responsibly and must report issues only where we reasonably believe there has been a violation, and not where the report is intended to be harassing, is based on personal opinion only, or is otherwise trivial. If you are not able to get an answer to a question, or resolve an issue, under the Code of Conduct by working with your supervisor or local management, you can contact the Office of Business Practices. More info available on https://codeofconduct.cat.com

8 Our Values in Action and Leadership
Through living Our Values in Action, Caterpillar Production System (CPS) will be an enabler for Caterpillar to achieve its Vision 2020 and business strategy Leadership imperatives Leaders building leaders Making great leaders Employee Opinion Survey (EOS) and action planning with values LEAD customer focus BUILD high expectations SET results DELIVER inspire and engage DEVELOP With Vision 2020, Caterpillar has provided clarity to the future state of our business. It outlines that three of our top priorities as a company are Safety, Quality, and Velocity. The Caterpillar Production System was created to reinforce these priorities. It will help Team Caterpillar set the “gold standard” for our industry as we produce the highest quality products, as efficiently and as safely as possible. Achieving our strategic goal of market leadership — #1 for every product group, on every continent — will require significant, sustainable changes in our processes, management, and our culture. (Jim Owens) Our Values in action are not about the organization, its about the people that make up the organization. Growth comes not only from emerging markets, but also by investing in R&D as well as from creating the most efficient internal processes. With the help of 6 Sigma Caterpillar has been able to leverage the power of our entire value chain to achieve superior customer satisfaction and continued industry leadership. 6 Sigma has become part of Caterpillar's DNA. You will find it in everything we do – in developing new products, generating growth and managing costs. 6 Sigma is foundational to the Caterpillar Production System (CPS) – a process created to transform our manufacturing systems to be the best in safety and quality. It also reduces the time it takes for the customer to receive a Cat product after placing the order. The world is growing and CPS is radically improving our ability to profitably grow with it. Integrity Excellence Teamwork Commitment

9 CPS and Three Systems The Caterpillar Production System is the common Order-to-Delivery process being implemented enterprise-wide to achieve our Safety, Quality and Velocity goals for 2010 and beyond The Caterpillar Production System (CPS) encompasses three sub-systems essential to continuous improvement – the operating, cultural and management systems. The operating system defines the physical layout of the facility, the movement of materials within and between facilities, and other tangible components of the value stream. The focus is eliminating waste associated with waiting, overproduction, rejects, unnecessary motion and other factors. The cultural system is the human element of the value stream. The goal is to create an environment in which people freely share ideas that enhance the process. This requires the management system, which is about coaching rather than directing, recognizing and rewarding continuous improvement, and communicating very clearly about what the customer expects and what’s required to meet those expectations. In the past, these sub-systems have often functioned independently of each other. As we work smarter and eliminate waste, the sub-systems will overlap, ultimately uniting in one sustainable system – CPS.

10 CPS and Eight Wastes The ultimate goal of CPS is the elimination of waste. Waste is any activity that consumes resources, but creates no value for the customer Caterpillar’s goal is to be recognized as the industry’s “gold standard” in Safety, Quality and Velocity. To reach that goal and sustain our standing, we must eliminate waste in our processes from order to delivery. Waste is any activity that consumes resources but creates no value for the customer. Accordingly, the ultimate goal of CPS is the elimination of eight types of waste.

11 Cat Logistics

12 Caterpillar’s Supply Chain
Supplier Manufacturing Distribution Dealer / Retail Consumer Supply Chain is the flow of materials, information, and finances as they move in a process from the origin point to the end consumer Logistics involves all of the planning, execution & control required to successfully deliver the product to the end consumer The goal is to optimize this flow to achieve low cost and high customer service It is critical to understand “supply chain” and “logistics” concepts. In essence, this is Caterpillar’s supply chain where Cat Logistics performs inbound (parts flow from supplier into manufacturing facility) as well as outbound logistics (manufactured product going to dealers). For Caterpillar we manage both – parts and products – flows. For companies that have chosen to outsource some portions of their supply chains, Cat Logistics typically manages parts (in few instances small product) flow from supplier to the distribution / retail network. At all points of the supply chain, Cat Logistics adds value to our customers by applying CPS principles – reducing waste, increasing velocity, etc. The goal is to optimize the supply chain with the least amount of cost and the highest customer service.

13 Supply Chain Excellence
Cat Distribution Services Manufacturing Logistics PIRACICABA JOHANNESBURG MELBOURNE SINGAPORE GRIMBERGEN MORTON MOSCOW SHANGHAI Transportation External Client Business Three principal areas of Cat Logistics business: Caterpillar support - Cat Distribution Services - Cat finished products and parts distribution network, 3300 employees Caterpillar support - Manufacturing Logistics - Caterpillar’s and two external companies’ parts entering manufacturing facilities (inbound logistics) operations, 2600 employees Caterpillar and external client support - Transportation facilitating ocean, rail and truck transportation of finished product and parts, 250 employees External client business – providing logistics services to 60+ clients around the world, 4400 employees Other – support functions e.g., facility planning, program management, 1550 employees Cat Logistics provides logistics services, including distribution operations, transportation and inventory management, and information technology for Caterpillar’s worldwide Parts Distribution and Manufacturing facilities. In addition, we have an external client business providing logistics services to more than 60 different companies. The external client business is profitable and produces stable earnings and positive cash flow for the company, while providing a market-based test of the competitiveness of our logistics services. Demand for our services has grown significantly during the robust economy of the past few years. Strong demand for Cat parts has resulted in a significant modernization effort for our global distribution system. While some of that work will be delayed given the current economic climate, we will continue having a very large and important distribution business to operate. Demand for transportation and manufacturing logistics support has also been strong, and we have several important projects to deliver on in those areas in 2009 and beyond. We operate more than 100 distribution centers with over 12,000 employees around the world. We are in the process of concluding a very successful year in 2008 due to the dedication, pride, and “Can Do” attitude of our entire Cat Logistics team.

14 Caterpillar Distribution Services
80+ year history of providing Caterpillar machine & engine owners efficient and effective global logistics support through Cat parts distribution network 22 facilities in 9 countries Serving Cat dealers world wide Modernized Cat Parts Network (MCPN): Americas, EAME and AP Multi-functional facilities Located closer to dealers and suppliers Service Parts Management (SPM) software / processes Strategically placed inventory 24 x 7 x 365 operations PIRACICABA JOHANNESBURG MELBOURNE SINGAPORE GRIMBERGEN MORTON MOSCOW SHANGHAI Implementation is underway for the multi-year to Modernize the Caterpillar Parts Network (MCPN): Higher quality through efficient systems and common processes. Increased capacity due to an increase in the amount of available space and an improvement in the utilization of the space. Increased Velocity / Quicker Order-to-Delivery with additional geographically aligned entry points. Overall Goal of increasing Service Fill to Dealers and Customers in order to fill orders complete when and where required.

15 Manufacturing Logistics
Parts entering manufacturing facilities (inbound logistics) Inbound Logistics Centers (ILCs): Only hand-weight items (<35lbs or <16kgs / part) Warehousing, inventory management, sequencing, assembly processing, kitting and sub-assembly 2 ILCs supporting 130 facilities (Belgium and Illinois) Logistics Service Centers (LSCs): Consolidating demand, planning, ordering, staging & sequencing and storing Quick (overnight) delivery to geographically proximal manufacturing plant(s) / Points of Use (POU) 19 LSCs supporting 21 manufacturing facilities A well-defined “pull” system has been put in place to deliver materials to the manufacturing facilities. They involve several steps: Inbound Logistics Center (ILC) – Hand weight items like nuts, bolts, washers, as well as miscellaneous items like product or parts packaging necessary for successful operation. Logistics Service Centers (LSC) – Hand weight items as in ILCs as well as heavier items Note: in some cases Suppliers may also deliver directly to LSCs; Suppliers and ILCs may deliver to Manufacturing plants, as in the case of large heavy units like engines Manufacturing Plant Suppliers Logistics Service Center (LSC) Regional Inbound Logistics Center (ILC)

16 Transportation Transportation of finished products and parts across all modes – truck, rail, ocean and air Caterpillar and external clients One of the largest freight movers in the world: Transportation spend managed – $1.8 billion Carriers providing service – 600 Country to country lanes managed – 900 Track and trace tool enhancing visibility Sustainable development strategy Product Distribution Centers (PDCs): Supporting Caterpillar’s finished goods multi-lane distribution strategy of product configuration simplification and increased availability Strategically located PDCs (Australia, Belgium and UAE) Product examples – wheel loaders, excavators, track- type tractors, wheel loaders and skid steers Modeling, implementation and operations Caterpillar is working to improve product availability to end customers while reducing dealer inventory through the Finished Goods Multi-Lane Distribution Strategy (Lane Strategy). The Lane Strategy will drive simplification in how Caterpillar distributes prime product to meet customer and market requirements. The Lane Strategy will allow customers to choose product from four distinct distribution “lanes:” Lane 1 – very high levels of sustained service and very quick availability with limited configuration choices (“as is” with the lead time reduced to 10 days) Lane 2 – medium levels of service and more configuration choices (fit to order, with work tools, buckets configuration options) Lane 3 – longer wait times for the product but high levels of configurability (going back to the manufacturing plant) Lane 4 – custom, engineered-to-order product with availability based on engineering design time plus procurement time (going back to the manufacturing plant with a special order) Less complexity in the supply chain will lead to better quality Cat products. This will be achieved by grouping individual product attachments into bundled offerings called packages. A few popular configurations of selected products will be held in inventory, owned by Caterpillar, at Product Distribution Centers (PDCs) strategically placed around the world to provide fast response for Lane 1. A few PDCs are currently open with others planned over the next few years. PDCs have flexible locations. Quality and simplification initiatives as the packaging of attachments allows us to build more products the same, much like we experience in the auto industry.

17 The External Logistics Business

18 Leveraging our Core Competency
In 1987, Cat Logistics was formed as a wholly-owned subsidiary to offer logistics services to external clients Providing logistics solutions to clients with needs similar to Caterpillar’s—time-sensitive, service-critical, unpredictable demand—leverages our capabilities and represents a significant growth opportunity Today, Cat Logistics is one of the fastest growing divisions within Caterpillar 15% CAGR 2002 – 2008 3X growth projected from 2000 – 2010 More than 80% of our growth is with current clients Logistics knowledge gained by serving 60+ clients has allowed us to constantly improve the logistics solutions and competitive advantage for all our clients CAGR = Compounded Annual Growth Rate = the year-over-year growth rate of Cat Logistics revenues over a specified period of time. How did Cat Logistics come about? Caterpillar Inc. has been doing logistics (managing it’s parts and products flow through the supply chain) for over 80 years. With time logistics has become one of Caterpillar’s core competencies. Due to the company’s strong reputation of getting the right part at the right place at the right time, in the mid 80s Land Rover approached Caterpillar to do a benchmarking study. What Land Rover found out was – they couldn’t do it better than Caterpillar. This is when external logistics business started with Land Rover becoming our first external customer. To make that possible, Caterpillar Logistics Services, Inc, a wholly owned subsidiary of Caterpillar, was established in 1987 and many other external logistics agreements followed.

19 Significant Growth & Long Term Relationships
A U T O M O T I V E I N D U S T R I A L This slide represents a sample of our 60+ clients, which come from five diverse industries operating all around the world. Our first client, Land Rover, as well as Emerson, for instance, has been with us for more than 20 years. The fact that 80% of new business comes from existing clients speaks to the longevity of the relationships between Cat Logistics and our customers. On average, it takes about 1.5 years to sign a Logistics Services Agreement (LSA) and years to build trust. These companies in essence have given us control over their supply chain. If Cat Logistics fails to successfully deliver the right part at the right place at the right time, it will have an adverse impact on our client’s business. Synergies: Annual cost savings applying external logistics practices to the internal businesses External Logistics enabled Ford-SAP-Cat alliance to develop SPM … at ¼ of the total cost Capabilities being built within Transportation, Manufacturing Logistics, and SPM will enable future growth MAINTENANCE, REPAIR & OPERATIONS (MRO) (Mining, Oil & Gas) O T H E R S E R V I C E P A R T S (Aerospace & Defense, Technology, and Consumer Durables)

20 Provide Our Competitive Advantage
80 years of global product support heritage Globally integrated aftermarket approach with sound, proven business practices Empathy – we live what our customers live We are the only major 3PL that has origins in manufacturing and prime product support Solution leader = Co-developer of state-of-the-art flexible supply chain IT system built by market-leader SAP Talented people and proven processes Subject matter expertise and years of experience in the many facets of supply chain management Service Parts Management Cat Logistics plays a very critical role in upholding the Caterpillar brand. We have done logistics for Caterpillar Inc for more than 80 years. You buy Cat, you get the Company – that’s the kind of reputation we have in the marketplace. We are a customer of Caterpillar and can relate to the needs and wants of our own customers. There is a huge untapped market out there – Cat Logistics has enormous growth potential. Cat Logistics is a solution leader in that it co-developed a state of the art supply chain IT system partnering with Ford Motor Company and market leader SAP.

21 Cat Logistics Global Network
World-wide Cat Logistics locations supporting Caterpillar as well as other external customers.

22 Cat Logistics Today Europe, Africa, Middle East & CIS Americas
6 Continents 23 Countries 20 Languages 130 Facilities & Offices Shipping to 190+ Countries 12,000+ Employees 29M+ Sq. Ft. 160M+ Orders/Yr 21B lbs. Of Freight/Yr $1.8B Transportation Purchased/Yr 18M SKU’s Serviced/Yr Asia-Pacific 76 7,000 Locations Employees Cat Logistics in numbers: 12,000 employees: (1) ~12% of Caterpillar Inc. workforce, the largest division in Caterpillar, (2) 62% with less than 5 years of experience, (3) 25% Agency employees, (4) Average age 38 years, (5) 44% are under 34, (6) 26% have less than 1 year, and 62% have less than 5 years of service 29M+ sq. ft.: 210 AT&T Baseball Parks in San Francisco or 540 football (European) fields 16B lbs freight / year: 24,600 Fully loaded Boeing 747’s 20M Stock Keeping Units (SKUs): 2,000 times average Home Depot store (the world's largest home improvement specialty retailer with stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, 10 Canadian provinces, Mexico and China) Number of facilities includes: Americas = 18 CDS, 43 external client, 14 MLS, 1 office EAME = 7 CDS, 29 external client, 6 MLS AP = 4 CDS, 8 external client, 0 MLS Legend: CDS = Caterpillar Distribution Services (Cat), MLS = Manufacturing Logistics Services (Cat) Source – Logistics Development FIC database 12 800 Locations Employees 42 4,600 Locations Employees

23 Atlanta DC Overview Facility Overview (opened in 2001) Volume Overview
320,000 sq. ft. 185,000 stocked parts / 222,000 locations 110 employees, 3 shift operation Volume Overview 7,000 outbound lines/day (down 30% from peak) 75% stock orders processed on 3rd and 1st shift 25% emergency orders processed on 1st and 2nd shift 2,000 inbound lines/day 2-3 cross dock trucks/day Customers Facing facility for dealers in North Carolina, South Carolina, Georgia, Tennessee, Mississippi, Alabama, North/Central Florida Secondary facility in search tables for any other dealers 95% of outbound is shipped on daily trucks to facing dealers 5% of outbound is shipped parcel or LTL to non facing dealers There are three main areas of focus for Cat Logistics in order to achieve the corporate strategy Vision 2010 (Caterpillar to achieve $60B in revenue) and We are focused on the future with positive growth while controlling our costs and improving the value and quality to our customers. Cat Logistics has already had a lot of success in new industries (mining, oil and gas with companies like Newmont and Mosaic), developing new service offerings (maintenance, repairs and operations) and focusing on governance and execution processes (Logistics New Process Introduction as each facility approaches and goes through the start-up). Caterpillar strategy – rolled out enterprise wide in Every business unit developed their own strategy in alignment with the corporate. Over the years Caterpillar’s and Cat Logistics’ strategy has only had minor tweaks keeping the direction constant. To wrap up we’ve talked about Caterpillar and Cat Logistics – the history and heritage. We talked about the global logistics industry and our strategy for acting on the opportunities presented. Questions? From external perspective: Global supply chain competence World-class logistics performance Process improvement / CPS / 6 Sigma focus Business integrity and financial strength Client relationships make progress possible

24 Problem Statement Need to develop 5 year space solution for facility with implementable plan to achieve 90% maximum utilization. Plan for 10,000 additional parts to store each year across all concepts. Current utilization: In scope: Improved use of current concepts, new storage concepts, possible expansion Out of scope: Yard and bins (except to relocate crib area), process areas

25 Facility Process Areas

26 Facility Process Areas
Inbound Maint. Inbound Sort Office Vacuum Outbound Heavy

27 Facility Storage Areas
HRK FLR Roller (HRK) GLS ELN CTL FLR Crb LRK Bin Bin Expansion FLT GSK

28 Data Files

29 BIN Full quantity in one location Parts under 30 lbs
Current expansion plans to add 20,000 locations by November Future expansion into crib for another 20,000 locations

30 CRB High theft prone items

31 HRK Parts under 50 lbs, except for load and go on A elevations
Parts may have multiple locations, secondary locations have X at end of location in system

32 FLT

33 HRK/FLR

34 GSK/GLS/ELN/CTL


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