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In the past, Caterpillar's profitability suffered, but today it is very successful. A big part of this turnaround can be attributed to effective management of its inventory. [...]

At one time during a 7-year period, Caterpillar's sales increased by 100%, while its inventory increased by only 50%. To achieve this dramatic reduction in the amount of resources tied up in inventory, while continuing to meet customers' needs, Caterpillar used a two-pronged approach. First, it completed a factory modernization program, which dramatically increased its production efficiency. The program reduced by 60% the amount of inventory the company processed at any one time.

It also reduced by an incredible 75% the time it takes to manufacture a part. Second, Caterpillar dramatically improved its parts distribution system. It ships more than 100,000 items daily from its 23 distribution centers strategically located around the world [...]. The company can virtually guarantee that it can get any part to anywhere in the world within 24 hours.

These changes led to record exports, profits, and revenues for Caterpillar. It would have seemed that things couldn't have been better. But industry analysts, as well as the company's managers, thought otherwise. In order to maintain Caterpillar's position as the industry leader, management began another major overhaul of inventory production and inventory management processes. The goal: to cut the number of repairs in half, increase productivity by 20%, and increase inventory turnover by 40%.

Kimmel, "Financial Accounting", 8e, Chapter 6

  • a camel is a horse designed by committee
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