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Copy of Strategic Analysis of Cummins Inc.

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Rebeca Fartusnic

on 27 November 2014

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Transcript of Copy of Strategic Analysis of Cummins Inc.

Strategic Analysis of Cummins Inc.

Company Introduction
"Making people's lives better by unleashing the Power of Cummins."
Porter's Five Forces
Competition from
Established Firms
Porter's Five Forces
Competition from
Substitutes
SWOT Analysis
Industry Introduction
Engine & Turbine Manufacturing in the US
Competitors
PEST Analysis
Summary and Closing
Are we Cummins or are we going?
Facilities
5,000 Facilities
197 Countries and Territories
6,500 Distributorships
Founders and CEO
Clessie Cummins - Founder
William Irwin - First Financier
Norman Linebarger - Current CEO
Four Business Segments
10.8% Market Share
Engine
Power Generation
Component
Distribution
Key External Drivers
TWI (Trade-Weighted Index)
Truck Transportation Demand
Private Investment
World Price of Steel
Electric Power Consumption
Main Segments
Engines (others than gasoline powered)
-Highway & Heavy-duty vehicles
Power-Generation Equipment
-Utility Plants
2009: 26.7% reduction in revenue
2011: 27.6% surge in revenue
Diesel Engines -Truck,Marine,Other
Turbine, Turbine-Generator Sets
Mechanical Power Transmission
Speed Changers, Drives, Gears
General Electric
32.4% Market Share

Power & Water, Oil & Gas, Transportation
Caterpillar
22.1% Market Share

Heavy Equipment, Diesel and Natural Gas Engines
Navistar
1.2% Market Share

Engine Manufacturing
High
Oligopoly
Low Growth Rate
Production Differentiation Low
Large Exit Barriers & Sunk Costs
Low
Strong Positioning
Life Cycle at Maturity
Governmental & Environmental Policies
Supply Chain Relationshops
Low
Limited Substitute Products
Low Switching Costs between Diesel
High Switching Costs for LNG
Consistent
Low & Weak
Multiple Suppliers
Buyers and Suppliers Dependency
No Switching Costs
Low Production Differentiation
Strengths
Research & Development
Quality of Equipment
OEM Supplier
Leading Manufacturer of Engines
PLM
Reputation

Weakness
Employee Layoffs
Income from Investees
Construction Material Price Fluctuation
Dependency on Industry
-Cyclical

Political
Tax Incentive
-Tax and Subsidies for Pollution Control
Cap and Trade Market
Support for Alternative Fuels
US Support for Fleet Improvement

Economical
Union Presence
Global Exchange Rates
Fuel Costs
-Gas, Diesel, LNG
Fuel Mileage
Manufacturing Capabilities

Financials
Expected growth rate 4-8%
R&D budget expansion
Focus on Lead and Lag
KSF's and WIGS
Focus on KSF's
Quality, R&D, Segments, Distribution
WIGS
PLM System completion
New contracts
LNG - Engine and components

Questions
Thank you
Based on Jim Harvey's speech structures
Agenda
Introduction to Cummins Inc.

Introduction to the Industry
Cummins Competitive Advantages
Mission, Vision, and Values
Financial Overview and Brief
Industry Analysis (Porter's, SWOT, PEST)
Key Success Factors/Issue Statement
WIGS
Dashboard - Lead/Lag Measures
Summary/Closing
Introduction of Team
Andrew Beasley - MBA Candidate - Entrepreneurship

Matthew Fischer - MBA Candidate - Leadership

Carl Fuhrman - MBA Candidate - Leadership

Azhar Uddin - MBA Candidate - Financial Management
Matt
Andrew
Andrew
Uddin
Uddin
Andrew
Matt
Carl
Matt
Andrew
CMI (NYSE)
Headquarters : Columbus, IN
Growth
2009-2014: 8.2%
2014-2019: 0.7%
Revenue
$47.1 billion
Profits
$2.4 billion
Businesses
909 different companies
Competition from Entrants
Power of Suppliers
Power of Buyers
Mod-High
Homogeneous Products
Relationship Dependent
Switching Costs
-Diesel to Diesel: LOW
-Diesel to LNG: HIGH
Low Differentiation
Competitive Advantages for Cummins
Quality
Research & Development
Employee Empowerment
Management
-Acquisitions & Suppliers

Opportunities
Threats
Growing Demand for Emission Controls
Increasing Demand for Diesel Engines
Emerging LNG Market
Rising Global Energy Demand

Weak Global Economic Recovery
Possible Weakening of Chinese Economy
Natural Gas Extraction Issues
Global Environmental Regulations

Social
Technological
Green Initiative
Social Welfare
Employer Relationship

Environmental Control
Research & Development
LNG (Liquid Natural Gas)
Components Business

KSF's
Quality of our Products
Ability to Manage Operating Costs - ROA 11.64%
Distribution Network
27 owned, 15 JV distributorships
Approximately 400 locations
Contracts
Research and Development
Positioning Within Market - 10.8%
Business Segments
Global Presence and Position
6,500 dealer locations, 190+ countries

Issue Statement
“In the Engine and Turbine Industry, where customers are demanding a high quality, highly efficient, cost effective, environmentally sound, and emissions controlled product,
how can Cummins position ourselves to increase our competitive advantage and market share utilizing and leveraging our existing core competencies and developing new competencies where necessary?


WIG
Dashboard
Mission, Vision, and Values
Our Vision
Our Mission
Our Values
"Making people's lives better by unleashing the power of Cummins"
Motivating people to act like owners working together.
Exceeding customer expectations by always being first to market with the best products.
Partnering with our customers to make sure that they succeed.
Demanding that everything we do leads to a cleaner, healthier, safer environment.
Creating wealth for all stakeholders.

Integrity
.
Strive to do what is right and do what we say we will do.
Innovation
.
Apply the creative ingenuity necessary to make us better, faster, first.
Delivering Superior Results
.
Exceed expectations, consistently.
Corporate Responsibility.
Serve and improve the communities in which we live.
Diversity.
  Embrace the diverse perspectives of all people and honor with both dignity and respect.
Global Involvement.
Seek a world view and act without boundaries.


1. Improve company foundation and business model by:

a.
Continuing Product Lifecycle Management (PLM) computer system initiative (US by 2018, globally by 2022)

b.
Develop new supplier relationships specifically in automotive/truck industry and off-road applications (3 new contracts per year for 5 years)

What is a PLM system, and how is it applicable?
Continuing implementation - issues


Creating Long Term agreements – recent changes
-Ford loss- (auto/truck)
-Nissan, Toyota -(auto/truck)
-PACCAR (12%), Navistar, Daimler, Volvo, Chrysler- (auto/truck/big diesel)
-Siemens – Rail Engine contract
-US Army, Scania, Hitachi, Hyundai, Tigercat, Komatsu, Foton (China), Deere, International
Developing New Supplying Contracts

LNG (Liquid Natural Gas) – Alternative Fuel Brief

LNG Engines –
-Joint Venture with Westport (2001)
-50 Truck/Bus Manufactures -using ISX12G engines (or similar)
-Developing dual fuel engines – oil field service – gas compression
-Estimates 30% engine production – LNG by 2020

Component and emission control equipment
-Component segment – very profitable
-Develop Diesel to LNG fuel conversion kit – Cummins and competitors
-Evaluate LNG to Diesel conversion kits (LNG Risk)- preliminary engineering

Introduction
WIG 1 Detail
WIG 2 Detail
2. Expand R&D and manufacturing budgets specifically focusing on:

a.
LNG Engine development – in various sizes and applications beyond current production models

b.
Expand our component and environmental/emissions control products – develop a conversion “kit” to convert from diesel engines to LNG engines

Additional Information
Additional Finance Information
Financial Perspective
Customer Perspective
Internal Processes Perspective
4 Product Categories
Full transcript