“A good crisis is a bad thing to waste.”
So said Mak Mirhakimi, general manager, Caterpillar OEM Solutions Group, who is of the opinion that times of economic adversity also can be times of entrepreneurial opportunity.
Thoughtful business people who keep their heads when business turns down, he said, might see the situation as just the respite needed to rethink strategies for moving forward. As a result, they might hit upon ideas for innovative new products — or ideas for more competently producing existing products — and their businesses might emerge stronger than ever.
But in bad times or good, small and mid-size manufacturers of specialty equipment (original equipment manufacturers, or OEMs) might find that the resources to implement good ideas exceed their grasp.
Helping manufacturers extend their reach and lay hold of needed resources is the basic mission of OEM Solutions, said Mirhakimi. Whether manufacturers want to develop and bring to market new products, or, ease the “pinch points” (Mirhakimi’s term for business impediments) in producing existing products, OEM Solutions can bring to the table the resources of its parent organization, according to the company.
Those resources could be in the form of components (hoses, engines or hydraulic pumps, for instance), integrated systems (such as complete power-trains or undercarriages), partial machines (prime movers of various sorts) or electronic control systems. But OEM Solutions is not limited simply to offering hardware resources. The group’s tool chest also contains engineering help for OEMs, along with testing expertise and methods for handling distribution, product support, extended warranties and customer financing.
“We sell the house, so to speak,” said Mirhakimi. “The strength of OEM Solutions is that we have access to Caterpillar as a whole — not only to the company’s products, but also to its technology and its expertise in distribution and after-sale support.”
Hans Haefeli, vice president, Advanced Systems Division, described OEM Solutions as a microcosm of the greater company — a sort of Caterpillar within Caterpillar.
“We see OEM Solutions as the Caterpillar ’store-front’ to third-party customers for in-house components and expertise,” said Haefeli. “In a way, our ability to market Cat components, systems and services to other OEMs serves as a measure of our own quality and competitiveness.”
And, in a way, the organization of the group reflects that of its parent. OEM Solutions has a regional sales staff (based in Europe, Asia and the Americas), maintains an engineering staff of some 30 people, manages several small fabrication/assembly facilities and has its own purchasing and logistics departments. All in all, the group is 120 people strong, placed in eight facilities around the world.
Basics of the Business
According to Mirhakimi, OEM Solution’s predecessor organizations reach back to the mid-1960s, when Caterpillar Component Sales began selling parts and components to other manufacturers. Then, in the mid-1970s, that organization evolved into Caterpillar Industrial Products Inc., a wholly owned subsidiary, which took on the expanded mission of marketing integrated systems and company services. OEM Solutions, formed in 2004, retains all the basic responsibilities of its predecessors, but has a broader perspective.
That broader perspective, essentially, involves actively assessing market needs, promoting the development of new products and cultivating partnerships with OEM customers. By way of example, Mirhakimi cited the development of custom water-solutions products for mandated dust control. These products combine a variety of Cat prime movers — scrapers and off-highway haulers — with the tank and water-supply systems of reputable OEMs.
“We took note of the growing regulations for controlling dust emissions at construction and mining sites,” said Mirhakimi, “and felt that the problem was being addressed in a rather haphazard manner. We approached OEMs in North America, Europe and Australia and asked if we could work with them to develop water machines. As it turned out, OEM Solutions supplies partial machines, and the OEM contributes its tank-manufacturing expertise. We’ve now offered the product to Cat dealers to sell and support.”
The Cat dealer network, in fact, has become an integral aspect of OEM Solution’s business model, contributing in two important ways.
“First, Cat dealers are the cornerstone of our growth strategy,” said Mirhakimi, “since the majority of our OEM products are either sold or serviced through them. Also, Cat dealers often work through OEM Solutions to supply components and systems to local manufacturers who come first to the dealer for assistance.”
These small, local entrepreneurs who buy from the Cat dealer, said Brian Uhlenhake, Americas Region Manager for OEM Solutions, have acquired a respectful nickname within the group — “modern-day blacksmiths.”
“These are very intelligent people with good ideas based on a wealth of practical experience,” said Uhlenhake. “We think it’s possible that some of them, working together with the local dealer and OEM Solutions, could become global entrepreneurs. Who knows?”
Some of these modern-day blacksmiths, said Mirhakimi, begin by purchasing bits and pieces from various suppliers to assemble a machine, which might work well in the test environment, but runs into problems on real construction sites. When a manufacturer in this situation begins to ask, “What do we do now?” said Mirhakimi, OEM Solutions has an opportunity to get involved, often through the Cat dealer, first by identifying pinch points in the business, and then by determining what value the group can add to the OEM’s efforts.
Another key — and more recent — aspect in the overall strategy for OEM Solutions is the Cat Rental Store, which has become an important outlet for products developed in partnership with OEMs. The rental channel, said Mirhakimi, not only expands the rental dealer’s product offering, but also drives business for the OEM.
Also in the purview of OEM Solutions from time to time, said Haefeli, is contract manufacturing, that is, securing qualified OEMs to take on production of established Cat machines that for some reason — low volume, perhaps — no longer fit the Cat manufacturing model. This arrangement, he said, allows Caterpillar to continue serving small — but viable — markets with competitively priced products.
OEM Solutions’ expanded business model seems to be working. After its predecessor organization had been generating revenues of around $100 million per year for the past decade or so, those numbers began to climb with the formation of OEM Solutions, and in 2008, the group had sales of more than $500 million. Today, OEM Solutions has its sights on the $1 billion mark.
Although revenue has grown and the scope of business has expanded for OEM Solutions in the past four years, the sale of components and integrated systems to other OEMs continues to be an essential part of the group’s business.
“The foundation of OEM Solutions is still based on the sale of components,” said Mirhakimi, “whether seals or couplings, hydraulic cylinders, pumps, valves or electronics. These are entry points for building credibility with the customer, layer by layer. But we don’t want to just sell a manufacturer some components and say ’life is good.’ We want to partner with our OEM customers, because when they succeed, we succeed.”
Part of the success that OEM Solutions has experienced may, in fact, be the result of the group not allowing itself to believe that simply mentioning the name “Caterpillar” to a hard-working OEM will work any sort of magic. Mirhakimi summed up OEM Solutions’ “don’t-take-anything-for-granted” attitude this way:
“I’ve yet to knock on an OEM’s door and say, ’I’m here to solve your problems,’ and they say, ’We’ve been waiting for you.’ OEM Solutions has to earn its way into an OEM’s business, and you often do that by starting small — maybe with just a hydraulic hose. We have to first deliver on small promises if we’re to build trust with customers. Then, perhaps, we can go on to a higher level of involvement. This is a relationship business that can’t be bought and sold.”
But this isn’t to say that word about the impressive capabilities of OEM Solutions hasn’t gotten around. It has, and OEMs regularly approach the group for assistance. An area of particular activity for OEM Solutions these days is working with manufacturers to satisfy emissions regulations in their powered equipment.
Among other recent endeavors, OEM Solutions has partnered with an offshore manufacturer that produces niche mining trucks, which are used where big class-8 highway trucks might lack load capacity or the ability to handle rough terrain. These specialty trucks, designed to work on narrow roads over long distances, fall into a unique category and do not compete with Cat mining trucks. OEM Solutions worked with the truck manufacturer’s engineers to select appropriate power-train components and systems, and as a result, these special long-haul vehicles are finding wide market acceptance.
“For the most part,” said Mirhakimi, “our customers have expertise in a specific line of products, but need more in-depth technical knowledge to address complex issues, such as power-train integration and emissions control. We think that by partnering with OEM Solutions, these manufacturers can get the engineering expertise required — and thus be better positioned against their competitors.”
Well-positioned, highly focused OEMs are likely to succeed, said Mirhakimi, and OEM Solutions is willing to work hard to help these companies maintain their leadership positions.
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