Supply chain snap shot: Caterpillar opening

Caterpillar has opened a 47,030 square metre spare parts hub in Dubai.
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Caterpillar has opened a 47,030m² spare parts hub in the Jafza area in Dubai: Stian Overdahl investigates.

In a recent profile of Caterpillar by Forbes in its list of ‘World’s Most Admired Companies’, a few statistics about Cat were reeled off: revenue growth of 17 per cent annually between 2002 and 2008; best performing stock in the Dow Jones Industrial average in 2010; and record revenues in 2012 of $65.9 billion.

But as all machinery manufacturers know, in the equipment world there is no time to rest on one’s laurels. A working machine needs constant support from distributors and manufacturers. The more units a company sells, the more capital it needs to invest in service networks, training, and spare parts availability, to keep customers happy and working, and to hold off competitors.

As the largest supplier of mining and construction equipment in the world, Caterpillar has a very simple value proposition, says Stuart Levinick, one of Caterpillar’s five group presidents: namely, to deliver the lowest cost of operation, and the highest return over the life of the machine.

New Facilities

Caterpillar’s new spare parts warehouse is based in Jebel Ali South, near to both the port and the new Dubai World Central airport (Al Maktoum International). With a covered spare parts area of 43,786m² that will hold 96,000 parts in 2013, as well as offices and technical support, the Middle East Parts Distribution Centre (MEDC) has 130 staff working in the warehouse and space for further expansion up to 20 per cent. The MEDC will service dealers that include Mohamed Abdulrahman Al-Bahar, Zahid Tractor, Mantrac, Allied Engineering and Tehama, all of whom were present at the opening last month. Welcoming the guests were Caterpilllar Group president Stu Levinick, and vice presidents Nick Lewis and Steve Larson, who were on hand to discuss why the firm needed a new parts facility in the Middle East.

Savings on money

The warehouse is one of only eight outside of North America, though two further facilities are under construction in Mexico, and Brisbane. The hub will help to relieve the pressure on the Grimbergen site in Belgium, which had taken on additional satellite storage capacity to cope. Savings on air-freight – which can be borne by dealers and customers – will add up to several millions of dollars per year.

Savings on time

Previously, parts not held in stock by dealers would have be air freighted from Caterpillar’s distribution centre in Grimbergen, in Belgium, which would take at least three days, and at a cost. “For dealers and customers, this really shifts Grimbergen’s capabilities and puts it right in their back yard,” explains Levinick.
when cat came to town

The newly-opened Dubai hub is the latest step in a process that began in 2007, when Caterpillar decided to increase its global spare parts footprint, beginning in North America where there were significant distribution bottle necks.

Steve Larson, president of Caterpillar Logistics, says that sophisticated modelling was responsible for decisions about where to build centres, influenced to a large extent by the location of field populations. Dubai’s logistics capability and infrastructure also played a role in luring the company to the Jebel Ali free zone.

“In 2008 we started to study this part of the world and the geography, so the origin of this facility goes back to 2008-9, when we first started to plan this transformation,” says Larson.

Automation

While labour costs may be lower in the Middle East, the facility’s set up and level of automation mimics other distribution centres, including Grimbergen. Steve Larson says the set-up replicates existing systems, and to a certain degree the layout, of pre-existing facilities – “more of a ‘McDonalds’ operation”.

The Future

Also attending the launch was Nigel Lewis, vice president of EAME Distribution Services Division of Caterpillar SARL. On the sales front, Lewis says that the company is anticipating growth of 40-50% in the spare parts business over the next three years in the Middle East and wider region. The increased demand for spare parts will come from a number of areas – improved machinery sales, a higher share of the aftermarket, including squeezing out ‘second-tier’ suppliers, and the shifting age profile of the Caterpillar machinery population.

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