Restructuring the Backhoe Loader Product Line at Caterpillar: A New Lane Strategy

Abstract

Caterpillar recently embarked on an ambitious program to radically change how it markets and sells key products of its Building Construction Products division (BCP). The goal was to move from a strict build-to-order strategy, in which customers selected one of millions of possible configurations, to a Lane Strategy in which the majority of their customers would choose machines from just over 100 configurations. To successfully make such a radical change Caterpillar needed to quantify how customers would potentially react to the new strategy, and how such a drastic simplification of their product line would affect their manufacturing, sales, and service costs. We embarked on a study with Caterpillar to explicitly model customers' reactions to reduced product lines, to estimate the (positive and negative) effect such variety has on Caterpillar's costs - the cost of complexity - and ultimately help them design and implement this strategy for their flagship BCP product, the Backhoe Loader. Based on our analysis, Caterpillar began implementing the new strategy with their 2010 price list, moving completely to the new strategy in 2011. Since that time Caterpillar has expanded their Lane strategy throughout all of their product lines, fundamentally remaking their business.

Keywords: product portfolio optimization; cost of complexity; manufacturing; machinery