#MATS: Cummins shares secrets to thriving in a vertically integrated world
March 31, 2011
LOUISVILLE, Ky. -- Cummins president and COO Tom Linebarger shared some insight prior to the Mid-America Trucking Show on how the independent engine manufacturer plans to remain relevant as OEMs move towards greater vertical integration.
LOUISVILLE, Ky. — Cummins president and COO Tom Linebarger shared some insight prior to the Mid-America Trucking Show on how the independent engine manufacturer plans to remain relevant as OEMs move towards greater vertical integration.
Cummins’ strategy, which appears to be working, may come as a surprise. Linebarger said Cummins is bringing its OEM partners closer, even when those very companies are taking bread of Cummins’ table by aggressively promoting their own engines.
“Most of our customers make their own engines too,” Linebarger acknowledged. “How are we going to survive vertical integration? That’s an issue we face strategically and something we think very seriously about.”
Linebarger said Cummins’ three-pronged strategy involves: technical leadership; partnerships; and focus.
“It’s a very simple strategy,” Linebarger said. “As an independent engine manufacturer, we have to have the best set of technologies, the best products to offer. We can’t be the same, we can’t be equal, we have to be better – and that’s the fundamental starting point for Cummins.”
That means sourcing the world for parts and components and taking advantage of its position as a global manufacturer to draw from innovations achieved elsewhere.
“The other thing being global gives you is the ability to look at different markets and get technical innovations in a bunch of different ways,” Linebarger said. “We are developing SCR systems in China that have to come in at half the cost of the SCR systems in the US. We don’t know what the standard is going to be (in China) but we know it needs to cost half as much. So, when we come up with a system that costs half as much, if it gets pretty close to the standard that we have here, maybe taking that one and developing it upwards might give us a whole new innovation on how to build SCR systems.”
Perhaps most surprisingly, Linebarger said Cummins is taking steps to work more closely with its OEM partners, even if it means sharing trade secrets and helping their competitors build better engines themselves.
“We are learning how to integrate with customers better,” Linebarger said. “We have to be like an internal engine division of our customers, since that is what they’re going to compare us to. We have to be as good or better as their internal division. We have to make it as easy or easier to do business with us as it is to do business with their internal engine division.”
That means taking an interest in the success of its OEM partners, even when they are promoting their own engines. And it even means teaching them how to build better engines themselves – a counterintuitive approach that Linebarger says is working.
“We have to be thinking every day about how to make them more successful,” he said, “which puts some new burdens on us, in terms of how our product works. Just to give an example: technical collaboration. We have always said we want to be the technical leader, so you want to keep your technical things pretty close to your chest. If you give them to them, they’re equal. What we figured out is, we can’t be their partner if everything we come up with, we give to them one piece at a time. If they’re making their own engines, we help them with their engines too. We bring in our components group and say ‘You’re making engines, we’ll help you with those too. We have SCR systems, turbochargers and filtration systems, so we’ll help you with yours too.’ It sort of feels a little weird, but if we don’t do that, we’re not like that internal engine division.”
So far, Cummins approach is paying dividends, Linebarger said.
“What has happened is, we’ve built trust with those partners. We’ve drawn them more to Cummins technology. Integration with their vehicles is easier and it’s now easier to do business with us because we have some common components and common interfaces,” he said. “This cooperation is different now than it was before, but that’s going to be fundamental to our success going forward.”
Truck News is Canada's leading trucking newspaper - news and information for trucking companies, owner/operators, truck drivers and logistics professionals working in the Canadian trucking industry. All posts by Truck News