ABB AND CATERPILLAR (B): THE RENAISSANCE

It was June 1, 2007 in Peoria, and Tom Sandborg, strategic

relationships manager of Air Systems part of Caterpillars
Global Purchasing division was about to meet up with Dan
Ahern.
It was a hot afternoon. While Tom waited, he began to reflect on
what had actually turned the relationship between ABB and
Caterpillar around. His immediate thought was, Wine!
Dan arrived shortly afterwards and the meeting, proceeded as
usual in a very open and cordial manner. There was a definitive
spirit of trust and good will. In fact, at one point Tom said:
If anyone had said two years ago that we would be where we are today
in our relationship with ABB, I would never have believed it.

Kiel The Starting Point

Paul Wroblewski agreed to drive the interactions at CAT and
requested Rolf Schweizer and Dan Ahern to participate in the
governance committee which would overview the working
groups and identify additional key problems, assign them as
projects to appropriate cross-company working groups, and
periodically evaluate progress. On the ABB side, the governance
committee included
Dan, Oliver Riemenschneider,
Rolf
Schweizer and Axel Kettmann. For Caterpillar, the core team
included Paul, Tom
Sandborg and John Campbell. Other
members were added from time to time, depending on the
project at hand. Gaining commitment to these efforts was,
however, not easy. A
typical response from a Caterpillar
manager when asked to go to a meeting in Baden was, Why
would I want to do that?

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All governance meetings started with a dinner together, and continued the next
day, focusing on specific issues/actions. The first meeting, held in Ksnacht
(Zurich), did not have a promising start. The group split into two separate
company groups and it was only after a significant consumption of wine that
interactions started to yield the results. Over time, improvement projects were
identified, trust developed and executives put their cards on the table. At the next
meeting, in a key conversation between Oliver and Paul, Oliver asked, What do
you want from me? and Paul responded: Take the gun away from my head.
For the ABB team it soon became clear that losing the Caterpillar turbocharger
business was not an idle threat or a negotiation tactic. Both Oliver and Rolf were
relatively new in their roles at ABB Turbo Systems, and they became strong
advocates for the necessary changes inside their organization. Most immediately,
Caterpillar Kiel wanted a guarantee of delivery with established pricing for a key
engine series over the next several years. This was a high-pressure issue at Kiel.
Once Oliver and Rolf understood the importance of this issue, a team was formed
which quickly developed a five-year contract with explicit cost commitments.
Another significant issue for Caterpillar in Kiel was the ongoing field failures of
turbochargers due to high vibration from the engines causing the silencer ring on
the turbocharger to come loose and cause severe damage to the turbocharger. At
first, Caterpillar and ABB blamed each other for the problem: ABB saying it was
an engine vibration issue that Caterpillar must fix, and Caterpillar saying that it
was a problem with the design of the silencer ring that ABB must fix. However,
since the governance process was underway, CAT and ABB took another look at
the issue and came up with a redesigned silencer ring. The working group worked
out a field test with Caterpillar and went on to put a retrofit plan together for the
current installed base that was at risk of failure. The retrofit process was then
monitored via the governance process.
The key ingredient in all this was trust. At the beginning of 2005, this was
practically non-existent. It was rebuilt project by project, meeting by meeting,
withlots of wine.
The governance meetings were scheduled quarterly. They took place in different
locations, which made it easier for the group to develop the close informal ties
necessary to make any partnership work effectively. Starting with operating
working groups and individual problems and current headaches, the group
evolved to other strategic issues such as:

Specific turbocharging technologies for new engine models

ABBs adoption of low-cost country sourcing

Matching turbocharging technology to more exact needs (eliminate costly

over-design)

Better visibility of Caterpillar schedule for ABB capacity management

How to best align Caterpillar and ABB competencies for the after sales
service market what would be best for the different kinds of end users?

Most of the immediate issues were addressed and the key problems solved. At any
point in time, several project teams were working simultaneously and each team

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felt under pressure to deliver concrete results for the next governance meeting. It
soon became clear that Kiels needs were somewhat different than those of
Lafayette, so the governance meetings were split into two separate groups to
better focus on key issues.
In general, the relationship between ABB and Caterpillar became stable and solid,
based on a high level of individual interactions and attention to detail. If there was
ever a disagreement, Dan, Tom and Rolf would step in to keep the train on the
tracks. With regard to contractual agreements, both Tom and Dan agreed:
We never need to look at the agreement to resolve conflicts. (The formal contract is much
less important than the network of contacts between the companies.)

The way forward at Lafayette was still a challenge. It had essentially three product
lines; 3600, 3500 and C175 ABB made turbochargers for two of them, although
not exclusively, and was about to lose volume from one of the two. The third was
sourced from elsewhere. ABB Turbocharger deliveries to Lafayette increased
from about 1,000 in 2005 to 3,500 in 2007. Lafayette needed to expand its
capacity to meet market demands with an investment of $100 million, which
would have to be supported by ABB with additional increased volumes. In
addition ABB had to resolve some application vibration issues and develop a joint
aftermarket plan for the Lafayette products.
In 2005 ABB Turbo Systems opened a technical facility near Chicago, a
convenient location for Caterpillar to visit. In addition, Dan moved to Peoria and
was able to keep in contact with many people at Caterpillar on a regular basis. An
increased degree of communication and joint problem resolution resulted in
further leveraging of the relationship. Dan also made contacts for other ABB
divisions. The expansion at Lafayette, for example, was a good opportunity for
the Robotics Division. Increased pressures on diesel engine emissions called for
greater access to sensing features on the engine and its exhaust. Again, this was an
opportunity for the two firms to develop synergies, if not in the short term, then
over the long term.
Paul moved on to run one of Caterpillars factories in Mossville, near Peoria. The
factory produced truck engines and although ABB did not have the necessary
turbocharger products to support this factory, Pauls good relationship with Dan
and others at ABB could be leveraged to support CAT other ABB products.
China was another potential opportunity. Both ABB and Caterpillar had Chinese
operations and expected to see substantial growth in that market both, as a
market and as a manufacturing source.
Finally, there was an interesting set of personal learning points for Dan and Tom.
Dan wanted to sell more ABB products to Caterpillar and to move more into
providing solutions. Doing so would require significant modifications for the
various ABB business units involved. Each of them needed to sell the way the
customer Caterpillar wanted to buy. Tom, in his role for Caterpillar Global
Purchasing, wanted to reduce the supplier base. He was keen to form partnerships
with key suppliers and find ways to leverage the competencies of these suppliers,
and procure more than a set of components. He commented:
The key here is to continually develop this as a win-win opportunity.