What Smart Manufacturing Means to Caterpillar CEO Doug Oberhelman

Excerpts from J.P. Donlon’s Interview With Caterpillar Chairman and CEO Doug Oberhelman at the Smart Manufacturing Summit

July 2 2014 by Jennifer Pellet


What does Smart Manufacturing mean to you?

I’m not an engineer, manufacturing engineer, designer or anything else, but there’s nothing I respect more than engineering and manufacturing. The iPadization of our world—four years ago I couldn’t imagine using an iPad—has changed the way we all think about everything from reading emails to Internet research to how we can apply that to absolutely anything in our supply chain and in our manufacturing. We’ve got thousands of smart Ph.D.s who live, breathe and dream about this stuff, but now the technology tools are there to make it so easy that even I can apply some of this stuff.We could not have pursued our path on lean manufacturing without the tools that are out there today. We struggle and struggle to make headway, and then a technology breakthrough comes through and we jump to the next plateau. I can’t wait to see what tools we’ll have in manufacturing to help our customers in another decade. Do you see it as a “speed to market pathway,” a “customization tool” or something else? Yes, yes and yes. The only thing holding us back is not being able to think big enough about this. I go back to 1900 and the guy in hisfield with a horse and mule who could never imagine a differentworld. Think about what the world will look like in 100 years. It will be very exciting for us.

How do you see additive manufacturing—3D printing—being integrated into CAT?

We’re in the early days of this. There are some applications where 3D printing will be fabulous. It will take the labor out. Anybody can do it in his or her basement, in a shop or in a manufacturing facility. But I’m not sure it’s going to replace everything we do. For instance, say we’re in a job site in the Panama Canal or some other remote place and something fails in the machine. Will there be enough raw material in that service truck to hit a button to create the part right there and install it? Is that where we’re going to be in 2114 or sooner? I don’t know. Or will it be around more mass-produced parts where we control the input and the output? The idea is really, really interesting. I don’t know that we will be able to make a piston in a high-pressure cylinder on the spot because there’s so much technology in that. But think about that horse and mule. There’s a lot coming that we’re going to have to grow our way into.

Do you use it for prototyping now?

It’s used a lot for prototyping, for plastic parts and for lots of things that come out quickly. But how far it will go will depend on how far we can take that technology and the [material] inputs that go into it on the spot. Will it take a lot of the cost out or will it add cost?

What about the “Internet of Things” where sensors and other connecting devices are integrated in the manufacturing process and also in the product itself?

The industrial Internet, Internet of Things or whatever it’s called is about to change our world. I experience it in different ways day-to-day in my life and in my job. You never really know what’s hooked up to you and what isn’t. But again, coming back to that machine in the field, it’s about letting the owner of that machine know everything about what’s going on out there so that the productivity rises greatly with the fleet of machines on a job site by having everything hooked up together. For example, take one of our asphalt pavers who has to rely on a hot mix plant five miles away with a storm coming, road construction in the way and an accident that blocks the hot mix plant. His [paving machine] stops for two hours while he can’t move. Now imagine an Internet of Things where all of that is connected so that the hot batch isn’t poured until the paver can come through in 12  minutes time. Think about the efficiency in our world if that gets done. There’s tremendous opportunity coming with this Internet of Things.

When will this world be fully realized?

Probably not for a long time—but the companies or the industries that get that done early will win big. I’d like to think we’re going to be one of those.

Caterpillar has a unique enterprise strategy that has recently undergone an update. Can you talk about that and its significance going forward for your customers and your suppliers?

We’re trying to shorten our lead time—our order-to-ship date—to soften the cycle. At Caterpillar, we lost 40 percent of our top line from 2008 to 2009. We remained profitable, but it was a struggle and it was painful. In 2013, we lost 17 percent of our top line, $11 billion. About $10 billion of that came out of our mining business, while the rest of our businesses held in there. So, intentionally, we’ve tried to diversify into three or four major, strategic business plays: construction equipment, mining, energy and transportation, financial services—some other things to smooth the overall cycle. We’ve done pretty well, but the next piece of that is to take inventory out of the chain and be responsive to our dealers and the customers’ needs so that when demand picks up, we can serve it faster without our typical inventory issues—having too much or too little or having it in the wrong place.

If you had the president’s ear and you could ask him [for] one thing that would help the business environment, what would it be?

It would be around infrastructure, which might be a bit selfish but would certainly help the entire industry and help our nation. We peaked in this country in infrastructure spending as a percent of GDP in the ’80s and we’ve been going downhill ever since. Meanwhile, most of our competitors, including China, Thailand and a lot of other developing countries, are still raising their infrastructure spending to GDP [ratio.] For me, long term, that’s going to be a losing proposition.

You made a significant investment in China where you mentioned having 100 competitors now. How do you see that evolving in the future?

Today, we have 26 plants there, about 15,000 people, 24 dealers and our full business model underway. So if you buy a machine froma local dealer here, that experience would be very similar to what we’re doing in China. China is the largest construction-equipment market in the world, by a factor of two or three, depending on the cycle. One hundred to 200 million people a year moving to a middle class. We know what’s coming in terms of construction equipment. They are in a tremendous transformational stage in their economy. They’ve gone from a really backward developing country to a modern powerhouse and that’s brought all kinds of advantages, but tremendous stresses and strains in the financial system, the economic system and the social system. I am very optimistic that they will continue to manage through this in a very different way than they have and that we’ll still see growth there, probably double the rest of the world. I don’t predict that China will take over the world and run everything, as we thought Japan would do back in the ’80s. They’re going to see hiccups, but it should be, over time, a very good market for all of us. A fourth of the people on the planet, more or less, a lot more coming, and [an] urbanization and modernization rate that will take the next 20 years to fill out. We’re going into China with the philosophy that we want to be a leader there. We want to meet the Chinese competition in their own backyard, so when they come out of China and attack us in the U.S., which they’re starting to do today, we know who they are and we know how to combat them.