Improve the lead time for the medium wheel loader using core configuration and delayed product differentiation

Abstract

This thesis proposes a supply chain model to improve the lead time for Caterpillar Medium Wheel Loaders in the North America market. The Medium Wheel Loaders division is undergoing many commercial value chain challenges: long lead time to dealers, high demand variability and high degree of configuration complexity. The long lead time may cause Caterpillar and its dealership network to build inventory, leading to high holding costs and inventory management issues. In addition, its customers may turn to competitors to meet their demand causing Caterpillar to lose sales. This project analyses structurally significant features needed to build the core machines at the factory and the parts required for the late stage differentiation at the distribution centers. In addition, it proposes the supply chains models using core configuration and delayed product differentiation concept and optimized inventory in the chain. Finally, the project determines whether the new supply chain brings value not only to Caterpillar but also to the dealers. The project focused on the 950GC machines sold on the North America market. A preliminary study shows that from a pool of a few hundred sold in North America, over hundred different configurations were used, for an average of less than 3 machines sold per configuration. A further analysis of the machines configurations demonstrates that following the core strategy, the machines configurations could be reduced from a few hundred to 8 core configurations. Our models indicate that Caterpillar experiences an increase of inventory while the dealers see their inventory goes down. As a result, Caterpillar incurs more inventory cost with the core strategy while the dealers see their profit increases. But with a better service level and shorter lead time, Caterpillar may increase its market shares.