RFQ Response: Supply of Hydraulic Hose Assemblies to Caterpillar Thailand

120,000 Hydraulic Hose Assemblies per Annum Supplied to Caterpillar Thailand

Evahan prepared a RFQ Response for Delta Hydraulics Thailand Ltd to continue the supply approximately 120,000 hose assemblies per annum to the two Caterpillar plants in Rayong Thailand. At these plants Cat manufacture all D5, D6, D7 and D8 bulldozers sold outside of the USA, and in the second plant their range of hard rock underground mining wheel loaders and dump trucks.

There were many challenges with preparing this Request for Quotation Response:

• 120,000 per annum hose assemblies spread over approximately 3,000 SKUs
• Many low volume SKUs for machines specified with Caterpillar's end-customer "option-fit"
• In the pricing agreement negotiated in late 2016 the agreed base foreign Exhange cross rates between USD, THB, EUR, JPY and AUD was fixed with risk sharing mechanisms for 10% +/- variance from the agreed base. In May 2018, Caterpillar's global hydraulic hose procurement team based in Chennai, India imposed a requirement, outside the 2016 agreed terms, to change the agreement that all quotes for new SKUs, quoted subsequent to 1 January 2018, that the cross-rate peg rates would not be the rate as agreed in late 2016, but be the official Caterpillar published peg rate specific to that currency of the preceding month. This required software significant changes to the Quote Engine module of the custom developed Delta Hoses ERP system. A typical hose assembly manufactured by Delta including couplings purchased in USD, with bulk hose purchased in EUR, or USD and other minor fittings purchased in AUD, JPY and THB.  New SKUs were common as Caterpillar were centrally evolving the design of equipment models which translated into a suite of new completely hose assemblies, or revised hose assembly configurations such as the type of fitting, the type and length of bulk hose and orientation.
• True JIT basis. The Caterpillar plants would hold the hydraulic hoses no longer than 48 hours (excluding weekends or public holidays) before they were fitted to a bulldozer or hard rock underground mining vehicle
• POU delivery complexities, requiring sophisticated customised job ticketing and delivery modules in the cloud-based ERP system
• 100% open-book component supply costs and terms from Caterpillar preferred suppliers in USA, China, Italy, Japan and Australia
• Integration with Caterpillar's demand-pull signal system, called their MRC
• FIRM status demand conformation for hose assemblies up to 12 weeks after the components for those hose assemblies were already ordered
• Significance variance in shipping times of components from China vs USA vs Italy
• EDI integration with Caterpillar's Advanced Shipping Notification (ASN) and Accounts Payable invoicing system
• 60-day payment terms
• Constant engineering change notifications (ECNs) particularly on newer machine models
• Last minute demand signal changes caused by the Caterpillar re-ordering production schedules
• Unique Thailand taxation compliance regulations related to the need to produce hard-copy invoices in triplicate for example.
• Significant administration costs associated with compliance to Delta Thailand's and Caterpillar's Thailand Bord of Investment compliance to access custom tariffs incentives and permission for foreign owned corporations to operate in the country.
• Presenting the open book component cost & pricing element of the 3,000 SKUs quoted in a format prescribed by Caterpillar, that no off-the-shelf ERP or quote system could do