"The Building Blocks of Service Excellence"

Michael Schmidt and Steven Aschkenase

Supply Chain Management Review

July/August 2004, pp. 34-40

Over the last 15 years, Caterpillar has greatly improved its supply chain efficiency and responsiveness for service parts. They have done this without any negative impact on service quality. In the 1990's the company focused on "staving off competition and managing product support like a business."

Since the year 2000, Caterpillar has focused its service parts improvements on two initiatives-reintegrating its Cat Logistics business and developing a Six Sigma program across all parts of the corporation. Some of the Six Sigma results have included improved forecasting (adjusted for seasonal fluctuations), optimization of inventory levels for a complex mix of fast- and slow-moving parts, and adoption of the Lean approach for distribution (through accelerated receiving, speeding up the pick process, and kit-to-order).

Over the past four years, productivity for operations has increased by over 50%. Fulfillment errors have decreased by 64%. Annual warehousing costs for service parts have been reduced by $400 million. Total service parts inventory has been cut by 33%.

The author recommends seven areas that are generally good places to start to address aftermarket supply chain challenges:

1. Staff key positions with the right people
2. Cleanup your inventory data
3. Manage inventory with statistics, not rule of thumb
4. Apply lean methodology to distribution
5. Adhere to basic principles for supplier management
6. Focus your collaboration efforts
7. Establish a scalable and flexible IT infrastructure

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