Mature Product Markets Drove Caterpillars Restructuring during the 1990s - Term Paper Example

Running Head: Caterpillar Restructuring Caterpillar Restructuring Academia Academia Research "Mature productmarkets drove Caterpillar's restructuring during the 1990s." The statement is clearly identifying the stage of the product cycle where the product reaches maturity stage, it appears after growth stage and followed by decline, which is the end of the product's value in the market, the company was facing numerous problems right from 1960's and not only because of products but also by the labor. The company is manufacturing seven types of products, but has a list of four hundred products as the seven are the main product types, initially it was formed as a heavy equipment industry and providing services such as construction and agricultural products, including tractors, engineering vehicles, bulldozers, loaders, but it has also diversified now keeping in view its potential and also started making the shoes and boots. The company is having the revenue of US $ 36.339 Billion in the year 2005 and is currently employing 77000 employees approximately. The company was founded in 1925 as a result of a merger with Holt Manufacturing Co. and it started struggling and established it self because of the lack of competition, they were the pioneers in manufacturing the construction equipments of that time which were also used in the world war I and II effectively, the company sooner captured the market by providing products that were useful for construction which was taking place at its maximum as that era is highly admired for the construction in US, the company kept on moving and did manage to have contracts with leading construction companies, the company was running fine in 50s and 60s and 70s due to wars started by the US and also the world wars, but after some period when the stagnant construction took place, it was assured that the products were having a fall from growth towards the maturity, this situation was in bad need of being controlled, otherwise the competition was also increasing and thus there was a need of a new strategy. Medvedev said in 1987, "Before the war the most widely used tractor was a wheeled 15-horsepower model with iron wheels without tires"(290). The company identified a number of problems in their products, and also this brought them to loss, also there were problems faced in the exports of the tools manufactured by the company. "Construction equipment industry net exports were $7.2 billion at their peak in 1980 and Caterpillar was the world's dominant manufacturer, exporting almost half of its 1981 U.S. production. This U.S. dominance was sharply eroded by the strength of the dollar in 1982-1984 as net exports dropped steadily to $2.2 billion in 1986. Japanese construction equipment manufacturers invaded the U.S. market in this period, pricing 50% below Caterpillar, Komatsu in particular gained 18% of the U.S. market and was able to establish a significant dealer network" (Wigmore, 143/44: 1997). This is showing how well the competition was growing and Caterpillar failed to identify the problem prevailing in 80s, the sales was only 15% from Caterpillar and 85% from Komatsu, and also the problems appeared in the company's operations as a result of the stock problem. "Caterpillar's stock dropped from a high of $73 in 1981 to a low of $30 in 1984. Capital expenditures were cut from $836 million to $229 million, and capital expenditures net of depreciation were negative from 1983 on. Plants were closed in Mentor (Ohio), San Landro (California), Burlington and Davenport (Iowa), Milwaukee (Wisconsin), Dallas (Oregon), Newcastle (England), and Glasgow (Scotland). Employees dropped from 89,300 in 1979 to 54,000 in 1987. Costs were cut 22% through salary reductions, layoffs and early retirements, plant consolidations, and manufacturing efficiencies. Heavy price pressure was put on suppliers, worldwide sourcing was instituted, and 25% of production was moved abroad"(Wigmore, 172: 1997). The company was desperately looking to bring back its products from maturity to growth stage back which is of course another criticism on product life cycle that products can be brought back from one stage to the previous one through strategy implementation, firstly they identified that the problems were caused because of the labor which was inefficient according to the company but in actual it was not the labor's fault as the company was it self surrounded by so many controversies right after the world war II, "There were four manufacturers of the type of tractor used for construction work: Allis-Chalmers Manufacturing Company, Caterpillar Tractor Company, Cleveland Tractor Company, and International Harvester Company. In 1939 these four firms had produced approximately 20,000 tractors, but many of these were low-powered machines for which military demand was small. The crane and shovel industry had produced an average of 3,000 units annually in peacetime. During 1942 Engineer procurement alone was to amount to approximately the $250,000,000 annual business the construction machinery industry had averaged just prior to the war"(Coll B, Keith, Rosenthal, 180: 1958). The company faced massive labor union strikes between 80s and 90s, particularly in the 90's strike it is said that the company had great loss not only in the sales of the products but also in the maintenance of the plants in various states, it is also said that the Caterpillar Tractor Company was shutdown by 20,000 workers. In the light of all prevailing problems such as the product quality, the labor strikes and also the growing competition which is translated by Canals in the year 2000 as "Indeed, Komatsu had succeeded in manufacturing smaller, simpler, and cheaper earth-moving equipment than Caterpillar. However, Komatsu had also devised an alternative to one of Caterpillar's major strengths: the exclusive dealers network, which enabled the US company to control certain national markets and, also, offer a high-quality maintenance service". which means that the service was one of the company's strengths and Komatsu replaced it by providing simpler machines that perished the need of the service section of Caterpillar, it was because of these facts that company took an initiative of going to use a six sigma approach, which focuses on finding out the defects in the current products, delivers world class performance and also gives value to the end customer, it was that time when the company realized that the technology had started taking part in the development of the world and they were left far behind and their principles of 30s and 40s would not be working for them any more, the company viewed each section carefully, the defects they found were in their products that were lacking in modernization, also their services and labor laws, they immediately reacted on it and they found that every product was requiring change, they brought the products cheaper without compromising on quality, it is quite surprising that how could be the latest technology cheaper than the old one A good example is that of computers, they were expensive but as the time passed and the development increased they became cheaper and that is how it worked for Caterpillar, they replaced the old heavy machines with less power with small machines with high power, this time they also started making service improvements so that the value to the end customer objective could be achieved, one of the good things about the company is that they sooner identified the nature of the product and the nature of the market, the nature of the product was that no body would buy such industrial products until and unless convinced on person to person basis and nature of market refers to the fact that market was condense and the number of buyers was very less as such products are used in industrial zones only, so what they did was that they relied on personal selling which worked for them in every way, also long time after the finalization of sales the company use to maintain a healthy relationship with the buyers such as by sending the engineers regularly time after time for the inspection of the machines and that free of cost, so it was a kind of augmented product that was given to the customers by the company, just to keep them informed about the company's presence, it was an area where companies like Komatsu failed as they had only mission to keep the product cheaper whether the customer likes it or not, Caterpillar again captured the market after some time, the labor had also stopped complaining about the operations of the company due to the formation of certain laws and also the company had viewed the labor section and realized that the labor needs were not fulfilled, they also made numerous improvements in the labor activities such as the compensation plans and the pay policies, however the primary concerns were always to the manufacturing side where the company achieved a lot more than expected. The products that Caterpillar was offering had a high demand back in 30s and 40s but than there was a long period of struggle and survival, the company has faced real bad times that very few companies face and still it got out of the trouble after such a long period, this really is a praising fact the company has, the high demands of the products were not fulfilled only by Caterpillar but there were few other companies as well, and all of them were even unable to fulfill the demands of the military and agriculture and construction sector, as the supply was far more less than the demand, but the time changed and sooner the company faced difficulty after the war when the competition was growing up and the company struggled for a long period, when the company got it self established again it focused on few more related things, they improved their service sections and also this time they brought on a new change that is providing the tailor made products that is you would get the product on producing the demand and also specifically, but the company still makes all the products and there is no conflict arising right now between demand and supply which is implying that the conditions are good for the company specially after they made big amendments in their production. "In 2005, Caterpillar donated millions of dollars to environmental groups in South America and Asia to protect and preserve forests and river systems. In 2004, the company came out with ACERT diesel engines that exceed federal guidelines for emission standards"(Wikipedia) which means that the company is also socially responsive. Work Cited & other Sources Bertsch G.K, "Controlling East-West Trade Technology Transfer", Durham, NC: Duke University Press, 1988. Canals J, "Managing Corporate Growth", Oxford: Oxford University press, 2000. Caterpillar, . Coll B.D, Jean K, Herbert R, "The corps of Engineers: Troops and Equipment" Washington, DC: Military Office, 1958. Gallenson W, "The American Labor Movement 1955-1995", Westport, CT: Greenwood press, 1996. Gellerman S.W, "How People Work", Westport, CT: Quorum, 1998. Medvedev Z, "Soviet Agriculture", New York: Norton, 1987. Wigmore B.A, "Securities Markets in the 1980s", New York: Oxford U.S, 1997. Wikipedia, . Read More