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 2002.• Employ 450 in three facilities.

Our Demand

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Milt

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SyracuseHO Penn

Foley

Bec

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Cleve

lan

d G & R

Alban

Michigan

Stowers

Mac

Allist

er Holt of Ohio

CarterWalker

Ohio

Whayne

Blanchard

CarolinaGregPoole

Fabick

Fabco

Patten

Altorfer

Thompson Mchry

Thompson Tractor

Yancey

Fabick

Carlton

RingPower

Ringhaver

Kelly

Shep

herd

JA Riggs

PuckettLouisiana

Mustang

Warren Cat

Holt ofTexas

DeanMartin Tr

Foley Tr

Ziegler

Butler

Nebraska

Tractor & Equipment

Wyoming

Wagner

NC Machinery

Halton

Pape' Western States

Western States

Peterson

Holt of Cal

Cashman

Rust

Wheeler

Empire

Quinn

Johnson

Haw

thorne

Finning

NC Machinery

Kramer

Toromont

Hewitt

Toromont

Toromont

Atlantic

Customer Overview(Dealers) Medium Sales $

Low Sales $

High Sales $

Customer buying criteria…

3). Cost

2). Quality

1). Availability…Availability…Availability

Customer availability expectations…

19981. 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

Today1. 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

19981. 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

Today1. 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 forfear of obsolescence

Competition is tough…others are providing quickavailability.

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 isfrom North America

Product SupplyOverview

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

Sout

hwor

th

Milt

on

SyracuseHO Penn

Foley

Bec

kwi

th

Cleve

lan

d G & R

Alban

Michigan

Stowers

Mac

Allist

er Holt of Ohio

CarterWalker

Ohio

Whayne

Blanchard

CarolinaGregPoole

Fabick

Fabco

Patten

Altorfer

Thompson Mchry

Thompson Tractor

Yancey

Fabick

Carlton

RingPower

Ringhaver

Kelly

Shep

herd

JA Riggs

PuckettLouisiana

Mustang

Warren Cat

Holt ofTexas

DeanMartin Tr

Foley Tr

Ziegler

Butler

Nebraska

Tractor & Equipment

Wyoming

Wagner

NC Machinery

Halton

Pape' Western States

Western States

Peterson

Holt of Cal

Cashman

Rust

Wheeler

Empire

Quinn

Johnson

Haw

thorne

Finning

NC Machinery

Kramer

Toromont

Hewitt

Toromont

Toromont

Atlantic

Medium Sales $

Low Sales $

High Sales $• 3 Mfg Facilities• 2 Partners• 6 Key Suppliers• 3 Distribution Centers

Florida

Quebec

Kansas

200 Suppliers8500 Part Numbers

Component Supply The “speed” of replenishmentis critical for meeting

Customer “demand” whileminimizing Inventory

investment.

Resource Planning Model

Plans

Feedback Volume and Rates

Products

Materials & Parts

Hours

Sales & Operations Planning

Mix Planning

Master Production Scheduling

Materials Planning

Detailed Capacity Planning

Rough-cut Capacity Planning

Marketing Companies' Forecasts

Purchasing Execution Production Execution

Strategic Plans

Schedule Products perthe “new” Supply Plan

Commit to:1). Ordering Products & Materials2). Manufacturing Products

Understanding Our Customer’s “Demand” for Products

1). 18 Month Sales Plan•19 Product Families

2). Supply Plan

Do we have capacityto supply?

Determine Forecast SplitMake-to-Stock (MTS) vs. Make-to-Order (MTO)

Caterpillar Confidential: YellowCaterpillar Confidential: Yellow

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

S&OP

Forecast provided by

Dealers & Reps.

110

2003 Forecast

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

110

Forecast

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?

How are we doing?

Understanding the “playing field”

Key Elements of an effective Supply Chain

Drives Capacity PlanningFacilities, People, Supplier Commitments

What makes the customer tick? What Products, What Lead Times, What Price

Essential for achieving Acceptable Lead TimesAcceptable Levels of Inventory

Sales & Operations Planning Process

What is the competition offering?