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Building In Response to Demand

By APICS CEO Abe Eshkenazi CSCP, CPA, CAE | 0 | 0 | April 13, 2012

One week, we hear demand is up, and the economy finally is improving. The next week, it's gloom and doom for manufacturing. That has been the pattern for some time, but recently, we finally appear to be in the midst of actual recovery. Manufacturing demand is up almost everywhere, and many are thriving. Yet, as often is the case, some sectors and some organizations are recovering__and in some cases, booming__faster than others.

Take Caterpillar as an example. As John D. Stoll writes for Reuters, "the world's largest maker of construction machinery reduced its workforce by 33,000 people worldwide in 2009, closed plants, and posted lower profits." While Caterpillar once misjudged the scope of the recession, shrinking to ensure long-term survival, the company now "is emerging as the poster child for America's manufacturing renaissance."

Things have changed quickly. "In 24 months, 15 Caterpillar facilities have been built or updated in the United States, tens of thousands of workers have been added to the payroll, and $2 billion is committed for capital investments on its home soil this year," Stoll writes. A record backlog of some $30 billion in orders, three times higher than 2009's figures, also is boosting the company's optimism. Stoll cites a rise in domestic demand for heavy equipment, as builders seek to replace aging machinery while the improving economy makes credit easier to obtain.

"We haven't seen Caterpillar doing this much building in the United States since probably the 1960s," says Peter Holt, owner of San Antonio, Texas-based Holt Caterpillar, the largest Caterpillar dealership in the country. But Holt, whose family was instrumental in founding Caterpillar, is wary about the company growing too fast in spite of the potential danger of another recession. He says while Caterpillar always has attempted to forecast demand and build accordingly, the equipment maker has "never been any good at it because there is no consistency in the world economy."

Effective and accurate S&OP


Holt is not alone in his assessment of the difficulty of predicting demand and how to build and develop preemptively. Professionals in organizations spanning numerous industries struggle with anticipating demand and managing capacity, production, inventory, and backlog. This is the basis of sales and operations planning (S&OP), which develops the tactical steps necessary to accomplish organizations' strategic objectives.

One way for supply chain and operations management professionals to become more adept at S&OP is by attending the Best of the Best S&OP Conference, presented by APICS and the Institute for Business Forecasting. Held this year in London and Chicago, the conference enables attendees to implement S&OP at their organizations, while expanding ability in S&OP areas including conflict resolution, risk management, and lean forecasting. Florian Doulliet, demand planning manager for southern Europe at SC Johnson Sarl, will present a session that focuses on Holt's sentiment that forecasts are always wrong. He will explain how his company faces similar challenges to Caterpillar, and how they improved their demand planning and forecasting processes to drive supply chain excellence.

The London event takes place May 10_11. If you are able to attend, I encourage you to register today.

On a related note, I recently arrived back in the United States from Shanghai, China, where I attended the APICS Asia Supply Chain & Operations 2012 conference. There, Caterpillar's own Jeff LeClair presented a session on his company's global supply chain strategy and the challenges of managing a truly international business. While the Reuters article indicates Caterpillar is expanding its presence in the United States, it's also clear the company has a strong commitment to overseas manufacturing and markets, including China.

If you attended the conference, are a native of the region, or simply are interested the unique issues affecting Asia in supply chain and operations management, I invite you to check out the Asia interest community on the APICS Supply Chain Channel and join in the conversation.

Idea exchange

Now, you can take the APICS Operations Management Now discussion to your social networks on LinkedIn, Facebook, Twitter, and the APICS Supply Chain Channel. Be sure to use the hashtag #OMNow and include @Tweet_APICS in any tweets to have your words featured on the APICS homepage.

  • Are we finally in a sustainable recovery?
  • What do you think of Caterpillar's approach to increasing demand?
  • How difficult is forecasting at your company?
  • What are the keys to effective S&OP?

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