Who is Caterpillar? Cat Dealers Cat Business Units World’s leading manufacturer of construction & mining equipment; diesel & natural gas engines; and industrial gas turbines. Provider of financing, insurance, leasing, counter-trade and logistics $20.15B sales in 2002, $5.2B exported from the U.S. Expect sales growth to $30B by the end of the decade

Who is Caterpillar? Cat Dealers Cat Business Units Employs 68,990 Worldwide Manufacturing facilities in 21 countries. Marketing headquarters in 11 countries. Distributions Centers in 19 countries.

Cat Dealers Cat Business Units Products distributed around the globe by independent dealer network 90,000 people dedicated to the customer 60 Dealers in the US and over 150 outside 1840 branches / 1100 Rental Stores Our Dealers…

Work Tools & Services Our aim is to be the leader in providing work tools and related services that enhance Caterpillar machine performance. Manufacture tools for construction, mining and forestry equipment. Over 2,500 end items sold in Employ 450 in three facilities.

Our Demand Customer Overview (Dealers) Medium Sales $ Low Sales $ High Sales $

Customer buying criteria… 3). Cost 2). Quality 1). Availability …Availability

Customer availability expectations… Customers held 2 to 3 months of Work Tool inventory 2.Make-to-Stock Products Order to ship in 3–4 weeks 3.Make-to-Order Products Order to ship in 7-8 weeks Today 1.Customers hold limited inventory 2.Make-to-Stock Products Order to ship in 0–5 days 3.Make-to-Order Products Order to ship in 3-5 weeks

Dealers held 2 to 3 months inventory 2.Make-to-Stock Products Order to ship in 3–4 weeks 3.Make-to-Order Products Order to ship in 7-8 weeks Today 1.Dealers hold limited inventory 2.Make-to-Stock Products Order to ship in 0–5 days 3.Make-to-Order Products Order to ship in 3-4 weeks Work Tool choices have increased 50% since ‘98 Dealers are not willing to invest in inventory for fear of obsolescence Competition is tough…others are providing quick availability. Customer availability expectations have changed… Why?

1). Meets Dealer / Customer availability expectations 3). Meets increasing expectations of inventory turnover 2). Meets Dealer / Customer price & quality expectations Our Challenge…. Create a Supply Chain that 4). Meets our financial expectations…margin & profit External Internal

85% of Supply is from North America Product Supply Overview Canada: 13% U.S.: 52% Mexico: 20% U.K.: 6.5% Europe: 5% Sweden: 1.5% Japan: 1% Indonesia: 1% Over 2500 End Items Sold in 2002

Product Supply vs. Demand Medium Sales $ Low Sales $ High Sales $ 3 Mfg Facilities 2 Partners 6 Key Suppliers 3 Distribution Centers

Florida Quebec Kansas 200 Suppliers 8500 Part Numbers Component Supply The “speed” of replenishment is critical for meeting Customer “demand” while minimizing Inventory investment.

Schedule Products per the “new” Supply Plan Commit to: 1). Ordering Products & Materials 2). Manufacturing Products Understanding Our Customer’s “Demand” for Products 1). 18 Month Sales Plan 19 Product Families 2). Supply Plan Do we have capacity to supply? Determine Forecast Split Make-to-Stock (MTS) vs. Make-to-Order (MTO)

Caterpillar Confidential: Yellow Forecast provided by Dealers & Reps Forecast

MTS vs. MTO mix is discussed for each of 19 Product Families 110

1). Meets Dealer / Customer availability expectations 3). Meets increasing expectations of inventory turnover 2). Meets Dealer / Customer price & quality expectations Our Challenge…. Create a Supply Chain that 4). Meets our financial expectations…margin & profit External Internal How are we doing?

Understanding the “playing field” Key Elements of an effective Supply Chain Drives Capacity Planning Facilities, People, Supplier Commitments What makes the customer tick? What Products, What Lead Times, What Price Essential for achieving Acceptable Lead Times Acceptable Levels of Inventory Sales & Operations Planning Process What is the competition offering?