Bob Tita writes in the WSJ that Caterpillar is announcing another round of plant closings and consolidations. These actions follow on the heels of similar announcements that have affected Caterpillar plants globally over the past several years. In an effort to get ahead of the market the company made several strategic mistakes in spending billions on resizing their supply chain to meet a market demand that did not take into account the multiple sector disruptive influences that could derail their well laid plans. The good news is that the company is making progress in righting itself and will be prepared to move forward.
In 2010, under a new CEO, Caterpillar Inc. embarked on an expansion binge by betting on the global commodities boom and invested billions of dollars into new factories to build more mining equipment. They boosted that it was a failsafe strategy with the world coming out of the recession and increased demand from both the developing markets and the energy sector. From 2010 to 2013. Caterpillar spent almost $10 billion on new plants and facilities and China was the beneficiary of most of the investment.
Caterpillar was determined not to repeat their earlier failures to penetrate the Chinese market when they were unable to meet demand because their supply chain developed bottlenecks and they could not meet production demands. They instituted an aggressive supplier strategy and prepared their suppliers to be able to produce immediately when they had in a need for a significant increase in inventories. And, the new plants and supply chain strategy paid off for the company through 2012.
But then it all came to a screeching halt as commodity prices fell, the invincible Chinese economy slowed down, oil prices fell as did the demand for all the related equipment. Downturns are common in Caterpillar’s world, but the years long slump has been catastrophic for this strong American company, that thru 2015 shed 30,000 jobs and as many as 20 plants were closed or consolidated.
The company told workers in Waco, Texas, last month that the Tool Works plant will close by the end of 2018, eliminating 200 jobs. That work will shift to a plant in Wamego, Kan., and to outside suppliers.
Caterpillar also said it would decide by the end of the year whether to close the plant in LaGrange, Ill., where about 600 people make diesel engines for railroad locomotives. The company said about 600 administrative and engineering employees would remain at LaGrange even if the engine manufacturing moves to a plant in Winston-Salem, N.C., or outside suppliers. The company said if it closes the plant, production would be moved by the end of the year.
The company aggressively expanded its factory footprint in the U.S. and overseas after the financial crisis in anticipation of a lasting swell in sales. But demand for mining and construction equipment entered a prolonged slump in 2012.
Since sales of Caterpillar equipment rebounded in past year, Chief Executive Jim Umpleby has been working to raise margins by continuing to trim production costs. Caterpillar stock rose 1.6% on Friday to $157.08 a share, up 70% from a year earlier.
Deerfield, Ill.-based Caterpillar has cut back its manufacturing presence in its home state in recent years as it shifts work to new plants in the South, many of which have capacity to spare.
Caterpillar also is closing an excavator assembly plant near Aurora and a components plant in Joliet. That factory work will move to other Caterpillar plants by the end of the year. Caterpillar also said in January that it will close technical center and demonstration site in Panama, eliminating about 80 positions there. The move is part of the company’s plan to eventually sell its Panama Pacifico campus and relocate remaining employees in Panama to leased office space in Panama City.
General Motors built the LaGrange plant in the 1930s to manufacture diesel-electric train locomotives for GM’s then-new Electro-Motive Division. Caterpillar acquired the business from private-equity firms in 2010 for $820 million.
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