Case Study Description of Caterpillar Inc.: Aftermarket Parts Freight Optimization
A key contributor to the business reputation and success of Caterpillar Inc. (Caterpillar) was the company's reliable aftermarket service. Caterpillar's Asia Distribution Centre in Singapore processed urgent spare parts orders received from dealers located in 10 Southeast Asian countries. In 2017, the operations team was working to develop a rigorous analytical method for making daily decisions about how to ship the spare parts. Shipments were consolidated by country destination and needed to optimize the interests of three stakeholders: (1) Caterpillar, which wanted to minimize freight costs; (2) dealers, who wanted to receive the spare parts in the shortest time possible; and (3) freight forwarders, who wanted to be rewarded for their on-time delivery performance. Singfat Chu is affiliated with National University of Singapore.
Swot Analysis of "Caterpillar Inc.: Aftermarket Parts Freight Optimization" written by Singfat Chu, Ramya Subramanian includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Caterpillar Spare facing as an external strategic factors. Some of the topics covered in Caterpillar Inc.: Aftermarket Parts Freight Optimization case study are - Strategic Management Strategies, Supply chain and Leadership & Managing People.
Some of the macro environment factors that can be used to understand the Caterpillar Inc.: Aftermarket Parts Freight Optimization casestudy better are - – increasing inequality as vast percentage of new income is going to the top 1%, increasing transportation and logistics costs, digital marketing is dominated by two big players Facebook and Google, competitive advantages are harder to sustain because of technology dispersion, increasing household debt because of falling income levels, challanges to central banks by blockchain based private currencies, technology disruption,
there is increasing trade war between United States & China, geopolitical disruptions, etc
Introduction to SWOT Analysis of Caterpillar Inc.: Aftermarket Parts Freight Optimization
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Caterpillar Inc.: Aftermarket Parts Freight Optimization case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Caterpillar Spare, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Caterpillar Spare operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Caterpillar Inc.: Aftermarket Parts Freight Optimization can be done for the following purposes –
1. Strategic planning using facts provided in Caterpillar Inc.: Aftermarket Parts Freight Optimization case study
2. Improving business portfolio management of Caterpillar Spare
3. Assessing feasibility of the new initiative in Leadership & Managing People field.
4. Making a Leadership & Managing People topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Caterpillar Spare
Strengths Caterpillar Inc.: Aftermarket Parts Freight Optimization | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Caterpillar Spare in Caterpillar Inc.: Aftermarket Parts Freight Optimization Harvard Business Review case study are -
Successful track record of launching new products
– Caterpillar Spare has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Caterpillar Spare has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Analytics focus
– Caterpillar Spare is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Singfat Chu, Ramya Subramanian can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Training and development
– Caterpillar Spare has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Caterpillar Inc.: Aftermarket Parts Freight Optimization Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Low bargaining power of suppliers
– Suppliers of Caterpillar Spare in the sector have low bargaining power. Caterpillar Inc.: Aftermarket Parts Freight Optimization has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Caterpillar Spare to manage not only supply disruptions but also source products at highly competitive prices.
Effective Research and Development (R&D)
– Caterpillar Spare has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Caterpillar Inc.: Aftermarket Parts Freight Optimization - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
High brand equity
– Caterpillar Spare has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Caterpillar Spare to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Learning organization
- Caterpillar Spare is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Caterpillar Spare is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Caterpillar Inc.: Aftermarket Parts Freight Optimization Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Diverse revenue streams
– Caterpillar Spare is present in almost all the verticals within the industry. This has provided firm in Caterpillar Inc.: Aftermarket Parts Freight Optimization case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Highly skilled collaborators
– Caterpillar Spare has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Caterpillar Inc.: Aftermarket Parts Freight Optimization HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Cross disciplinary teams
– Horizontal connected teams at the Caterpillar Spare are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Innovation driven organization
– Caterpillar Spare is one of the most innovative firm in sector. Manager in Caterpillar Inc.: Aftermarket Parts Freight Optimization Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
High switching costs
– The high switching costs that Caterpillar Spare has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Weaknesses Caterpillar Inc.: Aftermarket Parts Freight Optimization | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Caterpillar Inc.: Aftermarket Parts Freight Optimization are -
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Caterpillar Inc.: Aftermarket Parts Freight Optimization, is just above the industry average. Caterpillar Spare needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Lack of clear differentiation of Caterpillar Spare products
– To increase the profitability and margins on the products, Caterpillar Spare needs to provide more differentiated products than what it is currently offering in the marketplace.
Interest costs
– Compare to the competition, Caterpillar Spare has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
High bargaining power of channel partners
– Because of the regulatory requirements, Singfat Chu, Ramya Subramanian suggests that, Caterpillar Spare is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
High operating costs
– Compare to the competitors, firm in the HBR case study Caterpillar Inc.: Aftermarket Parts Freight Optimization has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Caterpillar Spare 's lucrative customers.
Capital Spending Reduction
– Even during the low interest decade, Caterpillar Spare has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Workers concerns about automation
– As automation is fast increasing in the segment, Caterpillar Spare needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Caterpillar Inc.: Aftermarket Parts Freight Optimization, in the dynamic environment Caterpillar Spare has struggled to respond to the nimble upstart competition. Caterpillar Spare has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Caterpillar Inc.: Aftermarket Parts Freight Optimization, it seems that the employees of Caterpillar Spare don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Low market penetration in new markets
– Outside its home market of Caterpillar Spare, firm in the HBR case study Caterpillar Inc.: Aftermarket Parts Freight Optimization needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Slow decision making process
– As mentioned earlier in the report, Caterpillar Spare has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Caterpillar Spare even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Opportunities Caterpillar Inc.: Aftermarket Parts Freight Optimization | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Caterpillar Inc.: Aftermarket Parts Freight Optimization are -
Better consumer reach
– The expansion of the 5G network will help Caterpillar Spare to increase its market reach. Caterpillar Spare will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Caterpillar Spare can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Creating value in data economy
– The success of analytics program of Caterpillar Spare has opened avenues for new revenue streams for the organization in the industry. This can help Caterpillar Spare to build a more holistic ecosystem as suggested in the Caterpillar Inc.: Aftermarket Parts Freight Optimization case study. Caterpillar Spare can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Loyalty marketing
– Caterpillar Spare has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Caterpillar Spare is facing challenges because of the dominance of functional experts in the organization. Caterpillar Inc.: Aftermarket Parts Freight Optimization case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Caterpillar Spare to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Low interest rates
– Even though inflation is raising its head in most developed economies, Caterpillar Spare can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Developing new processes and practices
– Caterpillar Spare can develop new processes and procedures in Leadership & Managing People industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Caterpillar Spare can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Manufacturing automation
– Caterpillar Spare can use the latest technology developments to improve its manufacturing and designing process in Leadership & Managing People segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Buying journey improvements
– Caterpillar Spare can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Caterpillar Inc.: Aftermarket Parts Freight Optimization suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Caterpillar Spare can use these opportunities to build new business models that can help the communities that Caterpillar Spare operates in. Secondly it can use opportunities from government spending in Leadership & Managing People sector.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Caterpillar Spare can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Caterpillar Inc.: Aftermarket Parts Freight Optimization, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Threats Caterpillar Inc.: Aftermarket Parts Freight Optimization External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Caterpillar Inc.: Aftermarket Parts Freight Optimization are -
Increasing wage structure of Caterpillar Spare
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Caterpillar Spare.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Caterpillar Spare can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Caterpillar Inc.: Aftermarket Parts Freight Optimization .
Shortening product life cycle
– it is one of the major threat that Caterpillar Spare is facing in Leadership & Managing People sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Environmental challenges
– Caterpillar Spare needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Caterpillar Spare can take advantage of this fund but it will also bring new competitors in the Leadership & Managing People industry.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Caterpillar Spare needs to understand the core reasons impacting the Leadership & Managing People industry. This will help it in building a better workplace.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Caterpillar Spare with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Consumer confidence and its impact on Caterpillar Spare demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Caterpillar Spare in the Leadership & Managing People sector and impact the bottomline of the organization.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Caterpillar Inc.: Aftermarket Parts Freight Optimization, Caterpillar Spare may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Leadership & Managing People .
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Caterpillar Spare will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Stagnating economy with rate increase
– Caterpillar Spare can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Regulatory challenges
– Caterpillar Spare needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Leadership & Managing People industry regulations.
Weighted SWOT Analysis of Caterpillar Inc.: Aftermarket Parts Freight Optimization Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Caterpillar Inc.: Aftermarket Parts Freight Optimization needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Caterpillar Inc.: Aftermarket Parts Freight Optimization is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Caterpillar Inc.: Aftermarket Parts Freight Optimization is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Caterpillar Inc.: Aftermarket Parts Freight Optimization is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Caterpillar Spare needs to make to build a sustainable competitive advantage.