How Caterpillar Plans to Deal With Slowing Markets

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Caterpillar Inc. (NYSE: CAT) plans a reorganization of its divisions across the company in an effort to improve efficiency and reduce complexity. Specifically, the company announced Thursday morning, a reorganization in its dealer and customer support divisions.

These changes are designed to improve and speed the delivery of customer support while simplifying the way Caterpillar interacts with its global dealer network. Ultimately the company looks to save up to $1.5 billion annually.

This might sound good for the outlook of the company, but it comes at a price. Caterpillar is cutting 10,000 jobs over the next four years. This is around a 9% reduction in its global staff. The reasoning behind this is that global commodity markets are in turmoil, China is slowing and emerging markets in general are pumping the brakes as well.

These moves and divisional changes will be effective November 1, 2015.

The surface mining sales and support teams will join the Hauling & Extraction Division, which will be renamed the Surface Mining & Technology Division, led by Caterpillar Vice President Tom Bluth.

The underground mining sales and support teams will join the Material Handling & Underground Division, led by Caterpillar Vice President Denise Johnson.

The Distribution Services Divisions, which are responsible for the dealer development and performance, succession and continuity, along with portfolio management, will be reduced to only two divisions from three.

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Global Aftermarket Solutions is a new organization that was created to accelerate the growth of aftermarket sales and service solutions.

Wear Components & Aftermarket Distribution Division is a new division that merges the design and manufacturing of components and aftermarket distribution into one unit to enhance the focus on components availability and inventory improvements.

Marketing & Digital Division is another newly created division that builds on the current Analytics & Innovation Division.

Sustainable, Work Tools & Industry Solutions Division is a new division that brings together the sustainable businesses of Cat Reman and Caterpillar Safety Services with the company’s machine attachment business.

Separately, Caterpillar is also placing added executive office emphasis on three strategic initiatives: data analytics, digital and innovation capabilities; Lean Transformation; and the Across the Table initiative.

According to Rob Charter, Caterpillar group president with responsibility for Customer & Dealer Support:

These organizational changes will drive needed simplicity to the business, further enabling us to meet customer and dealer needs by becoming more nimble, lean and responsive. Our dealers are the best in the industry when it comes to knowing and serving our customers. These changes will help Caterpillar increase accountability at the divisional level and continue to differentiate the Caterpillar business model from our competitors.

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Shares of Caterpillar were down 6.3% at $65.77 late Thursday morning. The stock has a consensus analyst price target of $80.85 and a 52-week trading range of $64.65 to $107.12.