Building the World – Caterpillar

Caterpillar and its hometown of Peoria, Ill., are proving that even the largest companies can find growth and a brighter future in the global marketplace.

May 2012

Tags: ,

They look like the toys of your childhood dreams sprung to oversize life: With just a couple of these babies, you would have been the magnate of your sandbox. Caterpillar inspires such reveries because it’s an iconic American brand. The company’s big, bright yellow machines are more than just the stuff of childhood imaginations: They have become emblems of the hard work and physical toughness that built the United States into the world’s leading economic power.

Name any of the great U.S. infrastructure projects of the last century, and there’s a good chance Caterpillar was involved. The interstate highways. The Hoover Dam. The Golden Gate Bridge. The Alaskan pipeline. “Cat” bulldozers, trucks, and other equipment helped to build them all.

But a tour of the plant in East Peoria also provides a glimpse into the evolution of Caterpillar, whose current success both reflects and transcends its storied past. The plant builds the company’s track-type tractors, or bulldozers, and pipelayers. The models range in size from the big D6 to the gargantuan D11, which weighs more than 230,000 pounds and stands nearly 15 feet tall. On the gleaming factory floor, workers hover over different tractors in various states of assembly.

Caterpillar plant assembly line flag
Every vehicle that moves down the Caterpillar plant assembly line carries the flag of the country it’s heading for when finished.

Look carefully at the assembly line, and you’ll see a small flag affixed to the side of each freshly painted machine. The flag identifies the country to which the tractor is headed: Great Britain. France. China. Canada. Brazil. A variety of African and Middle Eastern nations. Watch long enough and the floor of the East Peoria plant starts to feel like a mechanized version of the United Nations.

The message is clear: The company that built America is now building the world.

Roughly 70 percent of Caterpillar’s business comes from outside the U.S. At the East Peoria plant, about 80 percent of the largest tractors are destined for export. International success is a principle reason why Caterpillar’s business is going gangbusters, even as much of the U.S. economy is still struggling to recover from the recession. In fact, the company is doing so well, Fortune titled an article about its performance: “Caterpillar Is Absolutely Crushing It.”

“Crushing It,” in this case, means more jobs, both in the U.S. and around the world; it means healthy returns for shareholders (Caterpillar shares gained value faster than even Apple in 2010) and a solid economic base for the city of Peoria, where Caterpillar has maintained its world headquarters. But the truest measure of the company’s success is found in the difference it makes in individual lives.

“Growing up, Caterpillar was the roof over our heads, the food on our table, the presents under our Christmas tree,” says Paul Walliker II, a third-generation employee who works in the East Peoria torque lab. “Caterpillar put my sister through college; it put me through college — literally — and right now it’s funding my kid’s college fund.”

How Caterpillar made the whole world its sandbox is more than just a tale of business savvy. It’s an example of how global Access — the ability to move products quickly and efficiently around the world and seize opportunity wherever it presents itself — brings prosperity home to working Americans like Walliker every day, as they make the machines that build the world’s infrastructure.

Exports = Employment

George Manias might be the best-known man in Peoria. He’s been shining shoes and repairing hats in town for 65 years. His current shop, on an avenue the city nicknamed “George’s Shoeshine Boulevard,” has been in the same spot for more than 22 years, just a nudge down the street from Caterpillar’s headquarters. Inside you’ll find pictures casually strewn about of famous visitors, including every President of the United States since Gerald Ford.

Livelihoods depend upon Caterpillar

Doug Oberhelman, Caterpillar’s Chairman and CEO, is one of many employees who regularly settle into one of Manias’ comfortably worn leather chairs for a shine and a little conversation. When asked if he ever offers Oberhelman advice, Manias allows he may sometimes make a suggestion or two, adding with a self-deprecating shrug, “Mostly, I just shine shoes. They talk. I just listen.”

But Manias is forthright in noting what would happen if Caterpillar were ever to move. “They’re good customers,” he says. “If they ever left town, I’d probably go out of business.”

Every successful export sale of a Cat machine helps to provide a livelihood for people like Manias. But it’s a success that can’t be taken for granted. The construction business notoriously is boom and bust, and as a maker of expensive machines used to build things, Caterpillar’s sales have suffered peaks and valleys much more extreme than companies that make more everyday products.

The early 1980s were particularly hard for Caterpillar. Economic circumstances combined to leave U.S. manufacturers facing a difficult competitive environment around the world. But, unlike much of American industry during the period, Caterpillar never took refuge in protectionism.

The company’s international presence had been growing since World War II, when much of the world got their first look at Cat equipment, and it remained committed to global markets. It suffered heavy losses in some areas, but company executives say they learned important lessons both in how to compete internationally and how to manage during a downturn.

When the bottom fell out of the economy at the start of the last recession, Caterpillar had plans to deal with it. Still, the severity of the collapse tore a huge hole in its business, and starting in late 2008, the company had to lay off employees globally. But careful forethought and quick execution helped Caterpillar maintain profitability when other U.S. manufacturers weren’t so fortunate.

The access Caterpillar had already built into world markets provided the route to rapid recovery.

“What happened is that the developing world was already on its rise prior to ’08,” says Stu Levenick, a group president of Caterpillar Inc., who has responsibility for customer and dealer support. “It took a mild recession in ’09 and went right back on its rocket trajectory, and we were positioned to benefit from that.”

If Caterpillar were one of its machines, it would be running flat-out right now. The company’s profits and revenues soared to record levels in 2011. Caterpillar finished the year with more than $60 billion in revenues. Caterpillar manufactures globally, but much of its capacity is still in the U.S. Exports from the company’s U.S. plants jumped 30 percent, to $13.3 billion in 2010, then rose an additional 33 percent, to $20 billion in 2011.

More than 152,000 people make up Caterpillar’s workforce, with more than 67,000 in the U.S. The company added 6,400 U.S. workers last year, and has hired more than 14,000 here since the start of 2010. In recent months, Caterpillar has announced it’s expanding or creating new operations in California, Georgia, Illinois, Kansas, North Carolina, and North Dakota.

“The idea that the U.S. can’t manufacture is ridiculous,” says Levenick, “but you have to work at it. You have to be competitive. I said this when we had a kickoff meeting for a big investment in East Peoria, which shocked people. They said, ‘Caterpillar’s investing $200 million in an old facility in East Peoria, Illinois. Why would you do that?’

“Well, it’s because we’ve got great people; we’ve got great technology. We’re world-class, and we’re going to be even better after this is done.”

The developing world is investing heavily in roads, bridges, airports, and power plants — the physical building blocks of a modern economy. China, for example, annually invests about 9 percent of its gross domestic product in infrastructure, compared with a little more than 2 percent for the U.S. “China and India are now moving very rapidly to get the same lifestyle that we have, but they’re doing it in two generations instead of 150 years like the United States,” notes Levenick. “What do they need to get there? Well, they need transportation, energy. They need infrastructure.

“And who provides that? We do.”

“We’ll Take Care of You”

Caterpillar is the world’s largest maker of construction and mining equipment, diesel and natural-gas engines, as well as industrial gas turbines. But it has serious global competitors, including Volvo, Japan’s Komatsu, China’s LiuGong, and many smaller companies. And Cat equipment isn’t the cheapest out there. “We’re a premium product,” Levenick acknowledges.

Caterpillar giant Cat D11Ts
Childhood dreams sprung to oversize life: a line of giant Cat D11Ts, which weigh more than 230,000 pounds each.

So how does Caterpillar succeed with less expensive alternatives available?

It starts with the strength of every piece of iron or steel in a Cat machine, tempered to higher standards than most competitors, and continues throughout the design and construction process.

Indeed, Cat machines are constructed to spend long, hard days out in the field, while also operating efficiently. “Our value proposition to customers around the world is we will provide the lowest operating costs, the best return on investment over the life of the product, bar none,” says Levenick. Reliability is an essential part of the equation. “If you think about our customers, their livelihood depends on this thing working,” he adds. “If you’ve got a tractor, it’s got to work a certain number of hours every day, or you don’t get paid.”

But even the best machines sometimes break down. The other ingredient in Caterpillar’s success is the priority it places on responding quickly when that happens.

Caterpillar’s pledge to its customers is it will get you the part you need within 24 hours, if not sooner. “That’s a big commitment, and that’s worldwide,” notes Levenick. “It means we’ve got an enormous network of parts distribution. We’ve got logistics people feeding parts into these depots, dealers carrying inventory.

“All of this has to work like a clock,” he adds. “If you think about our far-flung footprint and our manufacturing footprint, we make very few products in only one location. Some products have as many as 14 different sources around the world. The bottom line is we’ve got stuff going all over the place. To be efficient, it has to get where it’s going on time. Logistics is huge for us.”

Keeping that clock running smoothly requires serious commitment from every company that’s part of the Caterpillar supply chain. Scott Abdo is National Accounts Manager for FedEx Custom Critical, which ensures that parts from suppliers in 10 U.S. states arrive at the Peoria factory just in time, a role the company also plays for plants in Mexico and Germany, helping Caterpillar lower its inventory requirements.

“We do whatever we have to do to cover their shipments at all costs,” Abdo says. “They cannot get involved in a shutdown. We do whatever we have to do to prevent that. The amount of trust that they have to have in us is just enormous. Those folks depend on us.”

The commitments that suppliers make to Caterpillar, though, simply mirror the commitment Caterpillar makes to its customers.

Terry Pickel, who worked for Caterpillar 40 years before retiring in 1999, spent time as a manager of the toolroom. “We would have requests to make parts for machines that were 35 to 40 years old,” he remembers. “They weren’t part of our current machine, but the operator would need it, and we would stop what we were doing and machine that one part for that customer and get it delivered.”

Perhaps no greater proof of Caterpillar’s devotion to customer care can be found than the company’s willingness to take a part off the assembly line for someone in the field, even if it delays production. “We’ll shut the line down,” says Levenick. “This is fundamental to our business model. The promise we’re making to customers is we’ll take care of you before we’ll ship a new product.”

He is quick to add, “We don’t like that to happen very often.” Once again, logistics, moving parts and supplies around the world efficiently, is critical. So is the ability to locate production where it makes the most sense and to sell wherever there’s a willing customer. “As you could imagine, we’re big advocates of free trade,” says Levenick.

Yet even as Caterpillar succeeds around the world, it remains a quintessentially Midwestern company in much of its character. The standard operating agreement it has with its dealers, for example, is “as close to a handshake agreement” as you can get in today’s litigious world, notes Levenick. It’s not a complicated document, and either side can cancel it without cause with 90 days’ notice.

That matter-of-fact expectation that you’ll do your job reflects the ethos of the farms, small towns, and cities from which the company hired much of its original workforce. The company’s success depends on worldwide access, but it draws on a heritage that began in places like Peoria.

Will It Play?

Peoria sits along the Illinois River in the middle section of the country sometimes derisively referred to as the Rust Belt. It’s a city of about 115,000, although the greater metropolitan area is nearly 400,000. The downtown, which seems large for a city of its size, has a mid- 20th-century feeling — a collection of modest skyscrapers, smaller brick buildings, and iron suspension bridges stretching across the river.

The town has such a middle-American character, the phrase “Will it play in Peoria?” has become a way of asking whether something will appeal to the American mainstream. Caterpillar’s world headquarters sits on Adams Street at the heart of the city. Caterpillar has been in the community for more than eight decades. A heritage wall holds the name of every employee who has worked there, etched in a succession of metal plaques. On it are nearly 150,000 names.

Infographic: Caterpillar worldwide

On a winter morning with the river the same slate gray color as the sky, a group of current and semi-retired Caterpillar employees gathered around a table to talk about their experiences at the company. They came from two families, the Pickels and the Wallikers, and they represent two generations of Caterpillar workers.

But for both families, the connections to the company are even more extensive, stretching back another generation and reaching out to encompass aunts, uncles, cousins, friends. “When we were growing up, everybody I went to school with, their dads worked at Caterpillar,” says Staci Pollard, Terry Pickel’s daughter. “I didn’t know there were other places you could work.”

Still, Pollard, like her sister Angela Roberson and Paul Walliker II, initially looked elsewhere. Pollard chose teaching; Roberson the restaurant business. Walliker hired on at an automotive factory. But they all ended up back at Caterpillar. And they all say it was the best career decision they ever made.

The jobs at the East Peoria facility pay well and include competitive benefits (after he joined the company, Walliker had most of his college tuition reimbursed by Caterpillar), but their job satisfaction has to do with more than personal reward. It starts with knowing the difference Caterpillar has made to Peoria. “I think the whole community is built around Caterpillar,” says Walliker. “You see how many employees we have here? There are two or three times that many in shops around the area, making parts for us.”

The company’s role extends far beyond jobs. “Caterpillar donated lights for the baseball field at Butler Haynes Park in Mapleton, where my kids participate,” says Roberson. “We took them from the old foundry, and the electricians donated their time, so we were able to put up lights and the kids could play in the dark.”

A few blocks from Caterpillar’s headquarters, in Peoria’s gorgeous red brick city hall, Mayor Jim Ardis calls Caterpillar “the model company for what every mayor would like to see in the businesses they have in their community.” He says it’s rare that he speaks in front of a civic group that Caterpillar hasn’t helped or its employees aren’t involved in. He also notes that the company has put an emphasis on operating in a sustainable, environmentally responsible manner. “They have a goal of getting their carbon emissions down to zero,” he says. “They’re amazing, man.”

Caterpillar’s hiring over the last year has helped Peoria’s recovery from the recession, but just as significant in the long run, Ardis says, is the stature that comes with the company’s reputation and success. “The economic development world is very competitive. When we’re out there talking to folks we want to recruit to this area, and we’re able to say, you know, Caterpillar’s world headquarters are here, it’s a very definite advantage.”

The factory jobs and the professional, white-collar employment at the headquarters also provide a mix that broadens the city both culturally and economically. Peoria has a well-regarded symphony orchestra, a small jewel of a downtown baseball park for its minor league baseball team, the Chiefs, and a civic center designed by the noted architect Philip Johnson — all supported and all made possible in part by Caterpillar’s continuing success around the world.

Asked to identify what made them proudest about working for Caterpillar, the employees gathered in East Peoria mentioned all the company’s strengths. Then Pickel observed, “The size of the machines we make is pretty darn impressive.”

“We’re part of something really big,” Walliker chimed in to laughter around the table.

Will it play in Peoria?

Caterpillar has for almost a century, and thanks to the company’s success around the world, the show is still going strong.

Comments

  1. Interesting to know more.

    Johnbest 01 March 5, 2014

Add a Comment

Please note, your comment will not appear until approved, and all fields are required. Your email address will not be published.