Running head: CUMMINS, INC. BUSINESS ANALYSIS PART ONE 1 Cummins, Inc. Business Analysis Part One XXX XXXX MGT 521 February 5, 2000 XXXX XXXX
CUMMINS, INC. BUSINESS ANALYSIS PART ONE 2 AbstractCummins, Inc. is a multi-national company with approximately 40,000 employees worldwideand ranks 186th on the Fortune 500 listing (CNNMoney, 2011). Cummins had 2010 net incomeof $1.04 billion (Cummins, 2011). Cummins directly benefits the state and local economies, notonly by the products and services available but also through the location of a Cumminsmanufacturing plant in Mineral Point, Wisconsin. This local connection creates interests and adesire to further investigate Cummins. This paper reviews the strengths, weaknesses,opportunities, and threats (SWOT analysis) that Cummins must be aware of and focus on to besuccessful. This paper reviews key stakeholder groups with discussion on how Cummings ismeeting the needs of the individual groups or examples of shortcomings. The goal of this paperis to look at Cummins from the perspective of a mutual fund manager to see if Cummins is acompany in which to invest. With the initial SWOT analysis and evaluation of stakeholders,Cummins appears to be a worthy investment.
CUMMINS, INC. BUSINESS ANALYSIS PART ONE 3 Cummins, Inc. Business Analysis Part One Cummins, Inc. (Cummins) ranks 186th on the 2011 Fortune 500 listing (CNNMoney,2011). Cummins interests me as they have a large manufacturing plant in the service area of thehospital where I work. Cummins designs, manufactures, distributes, and services diesel andnatural gas engines, electric power generation systems, engine-related component products,exhaust after treatment, fuel systems, controls, and air handling systems. It sells its products tooriginal equipment manufacturers, distributors, and other customers worldwide. Cummins servesits customers through a network of more than 600 company-owned and independent distributorlocations and more than 6,000 dealer locations in more than 190 countries and territories(CNNMoney, 2011). The company has four complementary operating segments: Engine, PowerGeneration, Components, and Distribution. Founded in 1919, Cummins headquarters are inColumbus Indiana (CNNMoney, 2011). Cummins employs approximately 40,000 worldwideand had 2010 net income of $1.04 billion (Cummins, 2011). I will be analyzing Cummins overthe next three weeks to see if as an investment banker, I would recommend investing. Strength, Weakness, Opportunities, and Threats (SWOT Analysis) Cummins is a huge industry that has four distinct divisions. The four divisions areworldwide manufacturing operations with similar strengths, weaknesses, opportunities, andthreats.Strengths Strategic joint ventures and alliances. Cummins has a number of joint ventureagreements and alliances with business partners around the world. The companys joint venturesare either distribution or manufacturing entities. Although each distributor is a separate legalentity, each business is the same as that of its owned distributors. The companys licensing
CUMMINS, INC. BUSINESS ANALYSIS PART ONE 4agreements with partially owned and independent distributors are generally three-year terms andrestricted to specified regions. Manufacturing joint ventures allow the company to reduce capitalspending, increase market penetration in geographic regions, streamline its supply chainmanagement, and develop technologies. Cummins’ strategic joint venture agreements andalliances enable penetration into new markets, develop new products, generate manufacturingefficiencies, and operational efficiencies. Comprehensive products and services. The company operates four business segments:distribution, engine, components, and power generation. These segments, organized according tothe markets and products each segment serves and allows management to focus its efforts onproviding enhanced service to a diverse customer base. Comprehensive services and productsreduce Cummins business risks, provide cross selling opportunities, and offers opportunities innew as well as existing markets. Strong research and development capabilities. From its inception Cummins has beenassociated with technological innovations. Cummins is a leading company in the world indeveloping technologies to reduce diesel engine emissions. Cummins is one of the first dieselengine manufacturers to have an engine certified by the Environmental Protection Agency(www.datamonitor.com, 2011). Cummins’ research and development (R and D) programfocuses on innovations, product improvements, and cost reductions. In FY 2010 Cumminsinvested $402 million in R and D (www.datamonitor.com, 2011). The company plans tocontinue to make investments to improve its current technologies, to continue to meet the futureemission requirements around the world and improve diesel engine fuel economy. Strong R andD capabilities allow Cummins to attain competitive advantage over its peers, maintaintechnological edge over its competitors, and to stay ahead of industry trends.
CUMMINS, INC. BUSINESS ANALYSIS PART ONE 5 Other strengths. Cummins has a strong commitment to sustainability and corporateresponsibility, employee diversity, multinational manufacturing base, and strong global demandfor products.Weaknesses Heavy dependence on few suppliers. The company engages in long-term contracts witha limited number of suppliers for obtaining raw materials and manufactured components. In FY2010, around 65% of the companys total types of parts in its product designs were sourced fromsingle suppliers (www.datamonitor.com, 2011). Unfunded pension obligations. Cummins has significant unfunded pension obligations.With the volatility in the financial markets in FY2010, the company underfunded pensionobligations by $204 million (www.datamonitor.com, 2011). Unfunded pension obligations willforce Cummins to make regular cash contributions to bridge the gap between pension assets andliabilities, putting pressure on the liquidity position of the company. High indebtedness. At the end of 2010, Cummins total debt was $709 million,compared with $637 million at the end of 2009 (www.datamonitor.com, 2011). The increase intotal debt was principally from borrowing and acquisitions in Brazil. Cummins also had interestexpense of $40 million in FY2010 (www.datamonitor.com, 2011). Continued high debt andinterest expense may hamper its credibility in the market and would have an adverse impact onits liquidity position.Opportunities Growing global demand for diesel engines. The world diesel engine demand isforecast to expand over 3% per year through 2012 (www.datamonitor.com, 2011). Growth inregional markets created rising demand for diesel engines in China, India, and South Korea. In
CUMMINS, INC. BUSINESS ANALYSIS PART ONE 6Eastern Europe and Latin America, demand for diesel engines is forecast to grow about 4% peryear through 2012 (www.datamonitor.com, 2011). Cummins designs, manufactures, distributes,and services a wide range of diesel engines. Growing diesel engine market represents anopportunity for Cummins to capitalize on this market and to expand its revenues and profits. Positive outlook of the global truck market. The global trucks market forecast is forsteady growth in the future. The light commercial vehicles segment was the markets largest in2009, generating total volumes of 9.69 million units and the market expects to rise to 16 millionunits by the end of 2014 (www.datamonitor.com, 2011). A reinvigorated trucking industry andrecovering economy will increase demand for heavy and medium-duty trucks in the near future.Cummins produces a wide range of engines for heavy duty, medium duty, and light duty trucks.Therefore, growth in the global truck market provides an opportunity for Cummins. Moderate growth for global automobiles industry. The global automotive industryhas problems with production overcapacity, high inventory, and low profitability in response tothe economic slowdown. The industry expects recovery in the coming years. India and Chinarepresent the most important growth markets for the ailing global auto industry. The Indian newcars market expects to rise from 1.9 million units in 2009 to 3.3 million units by the end of 2014(www.datamonitor.com, 2011). Similarly, the Chinese new cars market expects to increase from9.8 million units in 2009 to 21.2 million units by the end of 2014 (www.datamonitor.com, 2011).A growing automobile market is likely to drive demand for Cummins products. The company’sposition allows them to tap the opportunities arising from these growing automotive markets. Establishment of manufacturing facility in Turkey. Cummins is increasing its effortsto increase penetration in existing geographic markets as well in new markets. A multi-phasedmanufacturing site in Turkey plans to begin production in 2012 (Cummins, 2011). The facility
CUMMINS, INC. BUSINESS ANALYSIS PART ONE 7will export a majority of the products made in Turkey to customers across the world. Thisfacility enhances the geographical reach of the company and helps it to serve its Europeancustomers more efficiently. Other opportunities. Position as a leading multinational manufacture with strong R andD allows Cummins to capitalize on markets in developing nations, worldwide tightening ofemission standards, and increased demand for standby power generation.Threats Intense competition. Cummins operates in highly competitive markets. Cumminscompetes worldwide with a number of other manufacturers and distributors that sell and producesimilar products. Its products primarily compete on the basis of speed of delivery, performance,quality, fuel economy, price, and customer support. Intense competition across the four businessdivisions of the company could force it to reduce prices, which may in turn affect the bargainingpower and strain its margins. Government regulation. The companys engines are subject to extensive statutory andregulatory requirements governing noise and emissions. Cummins made and continues to makesignificant capital and research expenditures to comply with these regulatory standards.Developing engines to meet changing government regulatory requirements with differentemission requirements and implementation timelines, makes developing engines efficiently formultiple markets difficult and could result in substantial additional costs that may be difficult torecover. In some cases, Cummins has to develop new products to comply with new regulations,particularly those relating to air emissions. The successful development and introduction of newand enhanced products to comply with new regulatory requirements are subject to other risks,
CUMMINS, INC. BUSINESS ANALYSIS PART ONE 8such as delays in product development, cost over-runs, and unanticipated technical andmanufacturing difficulties. Other threats. Environmentalist, high labor costs in some countries, civil unrest, and warare other concerns for Cummins. Stakeholders The shear size of Cummins does lead to a large number of stakeholders. Key stakeholdergroups are stockholders, employees, retires, suppliers, partners, customers, environmentalists,government officials, and society.Stockholders Cummins looks to meet the need of each in different ways. Stockholders have anexpectation that Cummings will be a good investment. Financial reports have been strong withrecord quarters budgeted for 2012 (Cummins, 2011). Stock value increased 231.12% over fiveyears with a 36.43% increase over the last 53 weeks and a dividend yield of 1.33% (CNNMoney,2011).Employees With close to 40,000 employees in 190 countries (Cummins, 2011), Cummins has achallenge meeting the diverse needs of this stakeholder group. Cummins has invested heavily inthe diversity of its workforce and management. They provide good paying jobs in the countriesthey operate and have comprehensive training programs for management to improveunderstanding of cultural differences. For six consecutive years, Cummins received a perfectrating from Human Right Campaign for its corporate equality initiatives and nondiscriminatorypolices (Cummins, 2011). For the fourth year in a row, the national group on health namedCummins to the list of Best Employers for Healthy Lifestyles (Cummins, 2011).
CUMMINS, INC. BUSINESS ANALYSIS PART ONE 9Retires Former employees are another key stakeholder group. Cummins is currently not fullymeeting the need of this group because of the current underfunding of the corporation’s pensionobligations. The weak financial markets have left many organizations with shortcomings inretirement funds and Cummins needs to outline a plan for correction. Suppliers Cummins uses world wide suppliers. They meet the elemental need of suppliers, bypurchasing their products. This provides other business with growth opportunities. Cumminsalso invests heavily in working to diversify its suppliers. This allows them to have improvedknowledge of the markets they serve and added influence in the countries they operate in. Partners Cummins has various partners in both manufacturing and distribution, but most notableare the 6,000 dealerships of Cummins products. They also have multiple joint ventures whereCummins is the sole provide of components of large vehicles.Customers The key stakeholder groups are the customers. If there is no one interested in purchasinga product, the company will not stay in business. Cummins has customers all over the world.They meet the needs of the various customers by providing reliable products that the customerwants. Cummins products have long warranties, dependable reputations, meet or exceedgovernmental standards, cost effective, and efficient.Environmentalists Cummins dedicates significant resources to corporate responsibility. For the last fouryears Cummins is on the FTSE4Good Index for its environmental record ("Cummins Receives
CUMMINS, INC. BUSINESS ANALYSIS PART ONE 10Recognition for Its Ethics and Social Responsibility," 2010). 2010 WorkBoat’s EnvironmentalManagement Plan award went to Cummins for successfully implementing environmentallysustainable practices into its maritime operations (Buls, 2011). Cummins also won Indiana’s2010 Governor’s Award for Environmental Excellence (Cummins, 2011).Government Officials The multinational nature of Cummins creates a unique stakeholder group of the peoplewho create the laws in the different countries Cummings operates and sells products. Cumminsneeds to be aware and informed of pending regulatory issues and customs of governmentoperations all over the world. Cummins has created multiple joint ventures and alliances to helpnavigate the political and cultural climates encountered if the process of doing business.Society Cummins puts a premium value on supporting universal human rights. For sixconsecutive years, Cummins has been on the Dow Jones Sustainability Index for itsenvironmental, economic, and corporate responsibility measures (Cummins, 2011). In 2011,Cummins was also names one of the World’s Most Ethical Companies by Ethisphere Institute forits ethical leadership ("Cummins Receives Recognition for Its Ethics and Social Responsibility,"2010). Corporate responsibility magazine has named Cummins as on of the 100 Best CorporateCitizens for 11 of the past 12 years (Cummins, 2011). Business Analysis Part One Summary The SWOT analysis identified that the key strengths of Cummins are in strategicalliances, comprehensive products, comprehensive services, strong research and development.Cummins also has strong opportunities for growth when looking at global demand for theirproducts. Cummins also does a good job at meeting the needs of the various stakeholder groups.
CUMMINS, INC. BUSINESS ANALYSIS PART ONE 11This reinforces the view that Cummins is a good investment decision as the risks from theexposed weaknesses and threats are minimal in comparison to the strengths and opportunities. Ian amazed that a company with such a global reach has a manufacturing plant so close to where Ilive. I look forward to my continued analysis of Cummins over the next few weeks and dobelieve that personally it was the right company to analyze. Data reviewed to date is supportiveof the notion that Cummins would be a good company for investment by a mutual fund. Thework next week should reveal any financial concerns.
CUMMINS, INC. BUSINESS ANALYSIS PART ONE 12 ReferencesBuls, B. (2011, January). Environmental Award Winners Announced at IWBS 10. WorkBoat.com. Retrieved from http://workboat.com/newsdetail.aspx?id=4295000468CNNMoney. (2011, May 23). Fortune 500. Retrieved from http://money.cnn.com/magazines/fortune/fortune500/2011/full_list/101_200.htmlCummins Receives Recognition for Its Ethics and Social Responsibility. (2010, March 26). Reuters. Retrieved from http://reuters.com/article/2010/03/26/idUS195121+26-Mar- 2010+BW20100326Cummins.com. (2011). Investor and Media Fact Sheet. Retrieved from http://cummins.com/cmi/navigationAction.do?nodeId=10&siteId=1&nodeName=fact+sh eet&menuId=1002www.datamonitor.com. (2011, June). Cummins, Inc. SWOT Analysis. Retrieved from http://ehis.ebscohost.com/eds/pdfviewer/pdfviewer?sid=e9c02c90-df8a-4549-977f- 636dd966e979%40sessionmgr113&vid=3&hid=121