Caterpillar announced on September 24 that, in response to continued weakening market conditions and the changing nature of its global dealer relations, it is reorganizing several divisions and planning to permanently reduce its salaried and management workforce by 4,000 to 5,000 people between now and the end of 2016. This is part of a total possible workforce reduction of more than 10,000 people, along with contemplated consolidation and closures of manufacturing facilities occurring through 2018.

Looking ahead to a predicted—and unprecedented—fourth year in a row in which its sales and revenues have fallen, Caterpillar is planning to lower operating costs by $1.5 billion. Looking ahead to a predicted—and unprecedented—fourth year in a row in which its sales and revenues have fallen, Caterpillar is planning to lower operating costs by $1.5 billion.

The company’s reorganization plan will include major changes in its mining business structure. Chris Curfman, vice president with responsibility for Caterpillar’s Mining Sales and Support Division, is retiring, effective December 31. His division will be integrated into the existing Global Mining machine business divisions.

The surface mining sales and support teams will join the Hauling and Extraction Division, which will be renamed the Surface Mining and Technology Division. The underground mining sales and support teams will join the Material Handling and Underground Division.

Outside the mining business, other changes will occur, including a reduction in Distribution Services Divisions. This is the company’s primary interface with its dealers, and will be reduced to two from three. The two new divisions will include the Asia Pacific, CIS, Africa and Middle East Distribution Division, covering dealers in Asia Pacific, CIS, Africa and the Middle East; and the Americas and Europe Distribution Division, for dealers in North and South America and Europe.

Four other divisions will be created: Global Aftermarket Solutions, to accelerate the growth of aftermarket sales and service solutions, combining the aftermarket sales and marketing resources; Wear Components and Aftermarket Distribution, that merges the design and manufacturing of components and aftermarket distribution into one division to enhance the company’s focus on components availability and inventory improvements; Marketing and Digital, which will build on the current Analytics and Innovation Division; and Sustainable, Work Tools and Industry Solutions, which brings together the sustainable businesses of Cat Reman and Caterpillar Safety Services with the company's machine attachment business.

Cat said it is placing added executive emphasis on three strategic initiatives—data analytics, digital and innovation capabilities; Lean Transformation; and the Across the Table initiative, designed to improve its dealer performance and collaboration.

These restructuring and cost reduction actions are expected to lower operating costs by about $1.5 billion annually once fully implemented. The cost reduction steps will begin in late 2015. For 2015, the company’s sales and revenues outlook has weakened, with 2015 sales and revenues now expected to be about $48 billion, or $1 billion lower than the previous outlook of about $49 billion. For 2016, sales and revenues are expected to be about 5% below 2015.

The company will offer a voluntary retirement enhancement program for qualifying employees, which will be completed by the end of 2015.

Slightly less than half of the $1.5 billion of cost reductions is expected to be from lower selling, general and administrative (SG&A) costs. The reduction in SG&A will largely be in place and effective in 2016 and occur across the company.

The remaining cost reductions are expected to come from lower period manufacturing costs, including savings from additional contemplated facility consolidations and closures, which could impact more than 20 facilities and slightly more than 10% of its manufacturing square footage.

This year is the company’s third consecutive down year for sales and revenues, and 2016 would mark the first time in Caterpillar’s 90-year history that sales and revenues have decreased four years in a row.

Since 2013, Caterpillar has closed or announced plans to close or consolidate more than 20 facilities, impacting 8 million ft2 of manufacturing space. The company has also reduced its total workforce by more than 31,000 since mid-2012.

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