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Introduction
chapter 6
Reporting and AnalyzingInventory
Accounting Matters!
How Many Dump Trucks Did YouWant?
Let's talk inventory-BIG inventory. Illinois-based Caterpillar Inc. is the world's largest manufacturer of construction and mining products. It produces more than 300 machines at 50 facilities in the UnitedStates and 63 other locations worldwide. In Canada, Caterpillar has manufacturing operations inEdmonton and Montreal, logistics operations in Guelph and Saskatoon, financial services in Calgary andToronto, and a training and demonstration centre in Toronto.The world's largest dump truck, the Caterpillar 797B, is as tall as a three-storey building and has a 345-tonne capacity. In 1998, Caterpillar sent six of its predecessor Cat 797s to Fort McMurray, Alberta-noeasy feat, since many highways and bridges can’t take their weight-to be tested at Syncrude Canada, theworld's largest producer of crude oil from oil sands. Syncrude evaluated the Cat 797 for long-termproduction capability, durability, and maintenance in an oil sands mine, one of the toughest miningenvironments. The trucks scored top marks. By 2005, Syncrude had 33 Cat 797s and another nine onorder.A Cat 797B can cost millions of dollars and requires one heck of a big garage for storage. Obviously,Caterpillar needs to avoid having too much of this kind of inventory sitting around. Still, it has to haveenough to meet its customers' demands. In short, Caterpillar has big inventory challenges.And big sales. Caterpillar enjoys record sales, profits, and growth. In fact, 2004 was a banner year, with$30.25 billion in revenues and a record profit of $2.03 billion, an 85 percent increase from 2003.Expectations for 2005 were even better.
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Introduction
Effective inventory management is key to this success. From 1993 to 2003, Caterpillar's sales increasedby more than 97 percent, while its inventory increased by only 49 percent. To achieve this inventoryreduction, Caterpillar used a two-pronged approach. First, a factory modernization program increasedproduction efficiency, reducing the time required to manufacture a part by 75 percent. Second, animproved distribution system allows Caterpillar to fill more than 180 million order lines annually from19 distribution centres located on six continents. It can now ship an order in less than 24 hours morethan 99 percent of the time.In fact, Caterpillar is so well known for its parts distribution expertise, it formed a wholly-ownedsubsidiary in 1987 to market integrated supply chain solutions to other companies. Caterpillar LogisticsServices now serves more than 50 global corporations in a variety of industries.Caterpillar's inventory management and accounting practices make a crucial contribution to its own andother companies' profitability.
Caterpillar Inc.; www.caterpillar.com  
The Navigator
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Introduction
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Feature Story 
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Study Objectives 
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Chapter Preview 
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Before You Go On 
Work
Using the Decision Toolkit 
Review
Summary of Study Objectives 
Review the
Decision Toolkit—ASummary 
Work
Demonstration Problem 
Answer
Self-Study Questions 
Complete assignments
 
Copyright © 2008 John Wiley & Sons Canada, Ltd. All rights reserved.
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