Recently, an article from the associated press announced that Caterpillar Inc. has named a new Vice President of procurement. This comes after a rough stretch for the construction equipment company in the wake of a soft economy. This move is an indication that CAT intends to leverage procurement process improvements to increase its competitive advantage as the economy teeters between slow growth and contraction.

An economy in contraction means less development, expansion, and growth for individuals and organizations alike. Demand for CAT’s line of products is directly derived from these variables, and, as such, displays extreme elasticity in response to changes in the macro-economy. While CAT’s stock price has clawed its way back to around $71 from its June 7th low of around $56, the road ahead is not going to be rainbows and butterflies.

As the tax-credit afterglow fades, and the economy begins to lose steam, growth in the construction industry is expected to slow as well. If CAT can use this “eye of the hurricane” period to bolster operations and improve processes, they will be able to counteract any negative economic forces to outperform (or in worst-case-outlast) its competitors. This concept is a great illustration of the importance of optimized purchasing functions during periods of growth and contraction.

Frank Crespo, the newly named VP, brings a Harvard education and a great deal of experience in procurement to the table for CAT. While his experiences have been oriented more toward high-tech data and measurement solution companies like Honeywell and EDS, he should be able to make a relatively smooth transition into CAT’s purchasing system. While construction equipment may not be extremely technological, CAT’s focus on quality and specification compliance lends itself well to Crespo’s skill set.

During times of growth, optimal procurement processes reduce waste and allow for smoother expansion. In times of contraction, a thorough understanding of spend and the ability to control it will allow organizations to trim the fat rather than downsize or cut back on capital investments. It will be interesting to see how CAT approaches procurement over the next few quarters.
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